MD Filed by Filing Services Canada Inc. 403-717-3898

EX-99.1 2 q2financials.htm UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MD Filed by Filing Services Canada Inc. 403-717-3898

June 30, 2012

Unaudited Condensed Consolidated Financial Statements

Suite 1188, 550 Burrard Street

Vancouver, British Columbia

V6C 2B5

Phone: (604) 687-4018

Fax: (604) 687-4026

Eldorado Gold Corporation

Unaudited Condensed Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars)

	Note		June 30, 2012		December 31, 2011
				$		$
ASSETS
Current assets
Cash and cash equivalents				314,590		393,763
Restricted cash		6		57,059		55,390
Marketable securities				5,418		2,640
Accounts receivable and other				60,979		42,309
Inventories				218,406		164,057
				656,452		658,159
Non-current inventories				22,273		26,911
Investments in significantly influenced companies				21,052		18,808
Deferred income tax assets				3,449		4,259
Restricted assets and other				32,388		38,430
Defined benefit pension plan		8		4,634		-
Property, plant and equipment				5,914,978		2,847,910
Goodwill				640,479		365,928
				7,295,705		3,960,405
LIABILITIES & EQUITY
Current liabilities
Accounts payable and accrued liabilities				161,823		168,367
Current debt		7		70,005		81,031
				231,828		249,398
Debt		7		50,000		-
Asset retirement obligations				50,640		43,213
Defined benefit pension plan		8		-		19,969
Deferred income tax liabilities				871,371		336,579
				1,203,839		649,159
Equity
Share capital		9		5,282,368		2,855,689
Treasury stock				(7,355)		(4,018)
Contributed surplus				70,444		30,441
Accumulated other comprehensive loss				(16,931)		(10,069)
Retained earnings				447,311		382,716
Total equity attributable to shareholders of the Company				5,775,837		3,254,759
Attributable to non-controlling interests				316,029		56,487
				6,091,866		3,311,246
				7,295,705		3,960,405

Approved on behalf of the Board of Directors

(Signed)Robert R. Gilmore Director (Signed)Paul N. Wright Director

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

Eldorado Gold Corporation

Unaudited Condensed Consolidated Income Statements
(Expressed in thousands of U.S. dollars)

	Three months ended					Six months ended
	June 30,					June 30,

	2012			2011		2012		2011
		$			$		$		$
Revenue
Metal sales		244,191			252,556		515,740		471,724
Cost of sales
Production costs		94,486			81,431		185,725		155,742
Depreciation and amortization		25,145			29,843		52,553		61,060
		119,631			111,274		238,278		216,802
Gross profit		124,560			141,282		277,462		254,922
Exploration expenses		10,073			4,605		18,769		8,446
General and administrative expenses		19,665			13,574		35,827		34,608
Defined benefit pension plan expense		626			433		1,261		856
Share based payments		3,791			4,452		12,814		11,804
Transaction costs		1,649			-		19,453		-
Foreign exchange loss (gain)		806			1,381		(301)		2,028
Operating profit		87,950			116,837		189,639		197,180
Loss (gain) on disposal of assets		659			(3,092)		446		(3,092)
Gain on marketable securities and other investments		-			(654)		(1,032)		(1,289)
Loss on investments in significantly influenced companies		463			598		1,744		1,794
Other income		(1,431	)		(518)		(2,377)		(2,016)
Asset retirement obligation accretion		503			407		871		773
Interest and financing costs		1,446			1,525		2,134		3,114
Profit before income tax		86,310			118,571		187,853		197,896
Income tax expense		36,805			36,818		64,530		57,443
Profit for the period		49,505			81,753		123,323		140,453

Attributable to:
Shareholders of the Company		46,624			74,865		114,475		127,338
Non-controlling interests		2,881			6,888		8,848		13,115
		49,505			81,753		123,323		140,453

Weighted average number of shares outstanding
Basic		711,449			548,976		662,949		548,654
Diluted		713,050			551,696		664,634		551,469

Earnings per share attributable to shareholders
of the Company:
Basic earnings per share		0.07			0.14		0.17		0.23
Diluted earnings per share		0.07			0.14		0.17		0.23

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

Eldorado Gold Corporation

Unaudited Condensed Consolidated Statements of Comprehensive Income
(Expressed in thousands of U.S. dollars)

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
		$			$			$			$

Profit for the period		49,505			81,753			123,323			140,453
Other comprehensive income loss:
Change in fair value of available-for-sale financial assets (net of income taxes of nil and $12; and nil and $12)		(1,024	)		(570	)		(1,137	)		(984	)

Realized gains on disposal of available-for-sale financial assets transferred to net income		-			(272	)		(24	)		(434	)
Actuarial losses on defined benefit pension plans		(5,701	)		-			(5,701	)		-
Total other comprehensive loss for the period		(6,725	)		(842	)		(6,862	)		(1,418	)
Total comprehensive income for the period		42,780			80,911			116,461			139,035

Attributable to:
Shareholders of the Company		39,899			74,023			107,613			125,920
Non-controlling interests		2,881			6,888			8,848			13,115
		42,780			80,911			116,461			139,035

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

Eldorado Gold Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

			Three months ended						Six months ended
			June 30,						June 30,
	Note		2012			2011			2012			2011
				$			$			$			$
Cash flows generated from (used in):
Operating activities
Profit for the period				49,505			81,753			123,323			140,453
Items not affecting cash
Asset retirement obligation accretion				503			407			871			773
Depreciation and amortization				25,145			29,843			52,553			61,060
Unrealized foreign exchange (gain) loss				(877	)		3,028			(363	)		4,761
Deferred income tax expense (recovery)				2,298			(2,211	)		(6,688	)		(9,705	)
Loss (gain) on disposal of assets				659			(3,092	)		446			(3,092	)
Loss on investments in significantly influenced companies				463			598			1,744			1,794
Gain on marketable securities and other investments				-			(654	)		(1,032	)		(1,289	)
Share based payments				3,791			4,452			12,814			11,804
Defined benefit pension plan expense				626			433			1,261			856
				82,113			114,557			184,929			207,415

Changes in non-cash working capital		11		(123,116	)		(30,594	)		(142,657	)		(16,322	)
				(41,003	)		83,963			42,272			191,093
Investing activities
Net cash received on acquisition of subsidiary		5		-			-			18,789			-
Purchase of property, plant and equipment				(114,598	)		(47,264	)		(167,112	)		(125,602	)
Proceeds from the sale of property, plant and equipment				132			-			791			17
Net proceeds on pre-production sales				13,958			-			20,022			-
Purchase of marketable securities				(2,152	)		(214	)		(2,152	)		(214	)
Proceeds from the sale of marketable securities				-			5,407			230			6,345
Funding of non-registered supplemental retirement plan
investments, net				20,509			(4,980	)		14,486			(4,980	)
Investments in significantly influenced companies				(2,716	)		-			(3,412	)		(1,318	)
Increase in restricted cash				(382	)		2			(1,669	)		(2,998	)
				(85,249	)		(47,049	)		(120,027	)		(128,750	)

Financing activities
Issuance of common shares for cash				10,741			5,239			16,831			7,985
Dividend paid to non-controlling interests				(1,271	)		-			(1,271	)		(3,622	)
Dividend paid to shareholders				-			-			(49,880	)		(27,741	)
Purchase of treasury stock				-			(288	)		(6,011	)		(6,158	)
Long-term and bank debt proceeds				50,000			1,446			50,000			3,203
Long-term and bank debt repayments				(5,524	)		(31,789	)		(11,087	)		(44,716	)
				53,946			(25,392	)		(1,418	)		(71,049	)
Net (decrease) increase in cash and cash equivalents				(72,306	)		11,522			(79,173	)		(8,706	)
Cash and cash equivalents - beginning of period				386,896			294,116			393,763			314,344

Cash and cash equivalents - end of period				314,590			305,638			314,590			305,638

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

Eldorado Gold Corporation

Unaudited Condensed Consolidated Statements of Changes in Equity
(Expressed in thousands of U.S. dollars)

		Three months ended						Six months ended
		June 30,						June 30,
		2012			2011			2012			2011
			$			$			$			$
Share capital
Balance beginning of period			5,258,949			2,818,238			2,855,689			2,814,679
Shares issued upon exercise of share options, for cash			10,741			4,420			16,831			6,500
Transfer of contributed surplus on exercise of options			11,648			1,547			18,156			2,360
Shares issued on acquisition of European Goldfields Ltd.	5		-			-			2,380,140			-
Shares issued for deferred phantom units			1,030			-			11,552			-
Shares issued upon exercise of warrants, for cash			-			819			-			1,485
Balance end of period			5,282,368			2,825,024			5,282,368			2,825,024

Treasury stock
Balance beginning of period			(8,457	)		(5,870	)		(4,018	)		-
Purchase of treasury stock			-			(288	)		(6,011	)		(6,158	)
Shares redeemed upon exercise of restricted share units			1,102			1,726			2,674			1,726
Balance end of period			(7,355	)		(4,432	)		(7,355	)		(4,432	)

Contributed surplus
Balance beginning of period			80,289			28,326			30,441			22,967
Share based payments			3,935			5,775			12,150			11,947
Shares redeemed upon exercise of restricted share units			(1,102	)		(1,726	)		(2,674	)		(1,726	)
Options issued on acquisition of European Goldfields Ltd.	5		-			-			31,130			-
Deferred phanton units granted on acquisition of
European Goldfields Ltd.			-			-			29,105			-
Transfer to share capital on exercise of options and
deferred phantom units			(12,678	)		(1,547	)		(29,708	)		(2,360	)
Balance end of period			70,444			30,828			70,444			30,828

Accumulated other comprehensive loss
Balance beginning of period			(10,206	)		(2,213	)		(10,069	)		(1,637	)
Other comprehensive loss for the period			(6,725	)		(842	)		(6,862	)		(1,418	)
Balance end of period			(16,931	)		(3,055	)		(16,931	)		(3,055	)

Retained earnings
Balance beginning of period			400,687			149,953			382,716			125,221
Dividends paid			-			-			(49,880	)		(27,741	)
Profit attributable to shareholders of the Company			46,624			74,865			114,475			127,338
Balance end of period			447,311			224,818			447,311			224,818
Total equity attributable to shareholders of the Company			5,775,837			3,073,183			5,775,837			3,073,183

Non-controlling interests
Balance beginning of period			322,547			38,626			56,487			36,021
Profit attributable to non-controlling interests			2,881			6,888			8,848			13,115
Dividends declared to non-controlling interests			(9,399	)		(4,473	)		(9,399	)		(8,095	)
Acquired non-controlling interest	5		-			-			260,093			-
Balance end of period			316,029			41,041			316,029			41,041

Total equity			6,091,866			3,114,224			6,091,866			3,114,224

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

Eldorado Gold Corporation

Notes to the unaudited condensed 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, Brazil and Romania. The Company acquired control of European Goldfields Ltd. (“EGU”) in February 2012, including its producing mine, Stratoni, and development projects, Olympias and Skouries, in Greece and its development project, Certej, in Romania.

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

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’. They do not include all of the information and footnotes required by the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board for full annual financial statements and should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2011.

Other than the adoption of new accounting policies described in note 3, the same accounting policies are used in the preparation of these condensed consolidated interim financial statements as for the most recent audited annual financial statements and reflect all the adjustments necessary for fair presentation in accordance with IFRS of the results for the interim periods presented.

3.	Adoption of new accounting policies and new accounting developments

(a) Revenue recognition of other metals concentrate

Due to the acquisition of EGU in February 2012, the Company adopted a new accounting policy for revenue recognition of other metals concentrate. Revenues from the sale of concentrate are recognised when the risks and rewards of ownership have been transferred to the customer and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received.

A number of the Company’s concentrate products are sold under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to the date of sale. These concentrates are provisionally priced at the time of sale based on forward prices for the expected date of the final settlement. The provisionally priced sales of concentrate contain an embedded derivative, which does not qualify for hedge accounting. These embedded derivatives are recognized at fair value through revenue until the date of final price determination. Subsequent variations in the price are recognized as revenue adjustments as they occur until the price is finalized.

(b) Upcoming changes in accounting standards

Accounting standards effective in 2013 and 2015 are disclosed in the Company’s consolidated financial statements for the yearended December 31, 2011.

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.

(1)

Eldorado Gold Corporation

Notes to the unaudited condensed 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, asset retirement 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. Outlined below are some of the areas which require management to make judgments, estimates and assumptions in determining carrying values.

Purchase price allocation

Business combinations require judgment and estimates to be made at the date of acquisition in relation to determining asset and liability fair values and the allocation of the purchase consideration over the fair value of the assets and liabilities.

In respect of mining company acquisitions, such as the acquisition of EGU in February 2012, purchase consideration is typically allocated to the mineral reserves and resources being acquired. The estimate of reserves and resources is subject to assumptions relating to life of the mine and may change when new information becomes available. Changes in reserves and resources as a result of factors such as production costs, recovery rates, grade or reserves or commodity prices could impact depreciation rates, asset carrying values and environmental and restoration provisions. Changes in assumptions over long-term commodity prices, market demand and supply, and economic and regulatory climates could also impact the carrying value of assets, including goodwill.

Estimated recoverable reserves and resources

Mineral reserve and resource estimates are based on various assumptions relating to operating matters, including, with respect to production costs, mining and processing recoveries, cut-off grades, as well as assumptions relating to long-term commodity prices and, in some cases, exchange rates, inflation rates and capital costs. Cost estimates are based on feasibility study estimates or operating history. Estimates are prepared by appropriately qualified persons, but will be impacted by forecasted commodity prices, inflation rates, exchange rates, capital and production costs and recoveries amongst other factors. Estimated recoverable reserves and resources are used to determine the depreciation of property, plant and equipment at operating mine sites, in accounting for deferred stripping costs, in performing impairment testing and for forecasting the timing of the payment of decommissioning and restoration costs. Therefore, changes in the assumptions used could impact the carrying value of assets, depreciation and impairment charges recorded in the income statement and the carrying value of the decommissioning and restoration provision.

Asset retirement obligations

Asset retirement obligations are based on future cost estimates using information available at the balance sheet date. Asset retirement obligations are adjusted at each reporting period for changes to factors such as the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the discount rate. Asset retirement obligations require other significant estimates and assumptions such as: requirements of the relevant legal and regulatory framework, and the timing, extent and costs of required decommissioning and restoration activities. To the extent the actual costs differ from these estimates, adjustments will be recorded and the income statement may be impacted.

Current and deferred taxes

The Company calculates current and deferred tax provisions for each of the jurisdictions in which it operates. Actual amounts of income tax expense are not final until tax returns are filed and accepted by the relevant authorities. This occurs subsequent to the issuance of financial statements. Therefore, profit in subsequent periods will be affected by the amount that estimates differ from the final tax return.

(2)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

4.	Critical accounting estimates and judgements (continued)

Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on the balance sheet. The Company also evaluates the recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. Deferred tax liabilities arising from temporary differences on investments in subsidiaries, joint ventures and associates are recognized unless the reversal of the temporary differences is not expected to occur in the foreseeable future and can be controlled. Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management’s estimates of future production and sales volumes, commodity prices, reserves, operating costs, decommissioning and restoration costs, capital expenditures, dividends and other capital management transactions.

Judgement is also required in the application of income tax legislation. These estimates and judgments are subject to risk and uncertainty and could result in an adjustment to current and deferred tax provisions and a corresponding credit or charge to profit.

5.	Acquisition of European Goldfields Ltd.

On February 24, 2012 the Company acquired 100% of the issued and outstanding shares of EGU. Under the terms of the Arrangement former EGU shareholders received 0.85 of an Eldorado common share and C$0.0001 in cash for each EGU share. Eldorado issued 157,959,316 common shares pursuant to the Arrangement. EGU holds a 95% stake in the Kassandra Mines district in Greece, which is comprised of the Stratoni Mine, and the Olympias and Skouries development projects, and an 80% stake in the Certej development project in Romania.

The Company acquired EGU to increase its presence in the Aegean region and leverage local operating knowledge and expertise.

The goodwill of $274,551 resulting from the acquisition arises mainly on the recognition of deferred income tax liabilities and non-controlling interests and represents, among other things, the exploration potential within the assets acquired and future variability in the price of minerals. None of the goodwill is deductible for tax purposes.

In April 2007, Hellas Gold (“Hellas”), a subsidiary of EGU, agreed to sell to Silver Wheaton (Caymans) Ltd. (“Silver Wheaton”) all of the silver metal to be produced from ore extracted during the mine-life within an area of approximately seven square kilometres around the Stratoni mine up to 15 million ounces, or 20 million ounces if additional silver is processed through the Stratoni mill from areas other than the current producing mine. The sale was made in consideration of a prepayment to Hellas of $57.5 million in cash, plus a fee per ounce of payable silver to be delivered to Silver Wheaton of the lesser of $3.90 and the prevailing market price per ounce. The expected cash flows associated with the sale of the silver to Silver Wheaton at a price lower than market price have been reflected in the fair value of the mining interest recorded upon acquisition of EGU. The Company has presented the value of any expected future cash flows from the sale of any future silver production to Silver Wheaton as part of the mining interest, as the Company did not receive any of the original upfront payment. Further, the Company does not believe that the agreement to sell to Silver Wheaton meets the definition of an onerous contract or other liability as the obligation only arises upon production of the silver.

(3)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

5.	Acquisition of European Goldfields Ltd.(continued)

A preliminary allocation of the purchase price, which is subject to final adjustments, is as follows:

Preliminary purchase price:
157,959,316 common shares of shares of Eldorado at C$15.05/share	$	2,380,140
4,713,248 replacement options		31,130
1,931,542 equity settled deferred phantom units		29,105
Cash consideration		19
Total Consideration	$	2,440,394
Net assets acquired:

Cash	$	18,808
Accounts receivable		20,844
Inventory		9,689
Other assets		9,951
Mining interests		2,990,047
Goodwill		274,551
Accounts payable		(71,944)
Non-current liabilities		(9,242)
Deferred income taxes		(542,217)
Non-controlling interest		(260,093)
	$	2,440,394

For the purpose of these condensed consolidated financial statements, the purchase consideration has been allocated on a preliminary basis to the fair value of assets acquired and liabilities assumed based on management’s best estimates taking into account all available information at the time of acquisition as well as applicable information at the time these condensed consolidated financial statements were prepared. The Company will continue to review information and perform further analysis with respect to these assets, prior to finalizing the allocation of the purchase price.

Eldorado has conducted a preliminary assessment of contingent liabilities identified during its due diligence and has recognized certain contingent liabilities in its initial accounting for the acquisition. However, the Company is continuing its review to determine whether additional contingent liabilities exist. If during the measurement period new information is found that identifies adjustments to the amount of contingent liabilities recognized initially, or additional contingent liabilities that existed at the acquisition date, then the acquisition accounting will be revised to reflect the resulting adjustments to the amounts initially recognized.

The fair value of the common shares and replacement options issued and the equity settled deferred phantom units(“DPUs”) as part of the consideration paid for EGU was based on the closing share price on February 24, 2012 on the Toronto Stock Exchange. The value of the replacement options was calculated using the Black-Scholes model. The following inputs were used to value the replacement options:


Risk-free interest rate		1.28%
Expected volatility (range)		39%– 44%
Expected life (range)		0.7 – 1.7 years
Expected dividends per share		Cdn $0.09
Forfeiture rate		0%

Acquisition related costs of $1,649 have been charged to transaction costs in the consolidated income statement for the quarter ended June 30, 2012 (YTD – $19,453).

(4)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

5.	Acquisition of European Goldfields Ltd.(continued)

These consolidated financial statements include EGU’s results from February 24, 2012 to June 30, 2012. The revenue included in the consolidated income statement since February 24, 2012 contributed by EGU was $19,832. This is from the sales of zinc, lead and silver concentrates produced at the Stratoni Mine in Greece. The net loss was $16,602.

Had EGU been consolidated from January 1, 2012, the consolidated income statement would include revenue of $27,610 and a net loss of $40,575 from EGU.

Eldorado received net cash of $18,789 as a result of the EGU transaction. This net increase of cash was a result of an acquired cash balance of $18,808 less cash consideration of $19.

6.	Restricted cash

Restricted cash represents short-term interest-bearing money market securities and funds held on deposit as collateral for the following loans:

	June 30, 2012 $	December 31, 2011 $

Eastern Dragon CMB standby letter of credit loan (note 7(b))	57,059	52,390
Unamgen deposit security HSBC letter of credit	-	3,000
	57,059	55,390

Debt

	June 30, 2012 $	December 31, 2011 $
Current:
Jinfeng construction loan (a)	9,135	19,929
Eastern Dragon CMB standby letter of credit loan (b)	50,593	50,786
Eastern Dragon HSBC revolving loan facility (c)	10,277	10,316
	70,005	81,031
Non-current:
HSBC revolving credit facility (d)	50,000	-
	50,000	-

(a) Jinfeng construction loan

In 2009, Guizhou Jinfeng Mining Ltd. (“Jinfeng”), our 82% owned subsidiary entered into a RMB 680.0 million ($107,512) 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 June 30, 2012 was 6.70%.

Scheduled quarterly payments of RMB 35.0 million ($5,524) are anticipated to repay the principle loan balance in full by the end of 2012. Any pre-payments are applied to reduce future payments starting from the final payment.

Jinfeng made its quarterly scheduled payment of RMB 35.0 million ($5,524) in June of 2012, reducing the balance remaining to RMB 60,000 ($9,486) at June 30, 2012.

Net deferred financing costs in the amount of $351 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.

(5)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

7.	Debt(continued)

(b) 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 ($50,840) standby letter of credit loan with CMB. This loan has a one year term. In January 2012, the term 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 stipulated by the People’s Bank of China for working capital loans. This loan is collateralized by way of a restricted cash deposit as funding of the irrevocable letter of credit issued by Sino Gold to CMB. The collateral was increased in January 2012 from $52,300 to $56,500. The interest rate on this loan as at June 30, 2012 was 6.31%.

As at June 30, 2012, RMB 320.0 million ($50,593) was outstanding on this loan.

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.

In May 2010, Eastern Dragon entered into a RMB 80.0 million ($12,648) revolving facility (“the facility”) with HSBC Bank (China). The facility can be drawn down in minimum tranches of RMB 1.0 million ($158) 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. In February, 2012, the Facility was reviewed by the bank and was extended to November 30, 2012. The interest rate on this loan as at June 30, 2012 was 6.44%.

As at June 30, 2012, RMB 65.0 million ($10,277) was outstanding on this loan.

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 June 30, 2012, the security coverage is $11,305.

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.

(d) 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 interest rate on this loan as at June 30, 2012 was 1.99%.

The prepaid loan cost on the balance sheet relating to the credit facility as at June 30, 2012was $2,549.

As at June 30, 2012, $50,000 had been drawn down on the credit facility.

(e) Entrusted loan

In November 2010, Eastern Dragon, HSBC Bank (China) and Qinghai Dachaidan Mining Ltd (“QDML”), our 90% owned subsidiary, entered into a RMB 12.0 million ($1,897) entrusted loan agreement, which was subsequently increased to RMB 180.0 million ($28,459) in June 2011, and then increased to RMB 300.0 million ($47,432) in June 2012.

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 June 30, 2012 was 4.59%.

(6)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

7.	Debt(continued)

As at June 30, 2012, RMB 172.0 million ($27,194) had been drawn under the entrusted loan.

The entrusted loan has been recorded on a net settlement basis.

8.	Defined benefit pension plan

During the second quarter of 2012, the Company set up a Retirement Compensation Arrangement (“RCA”) trust account in connection with its non-registered supplementary pension plan. As it is a trust account, the assets in the account are protected from the Company’s creditors. The RCA requires the Company to remit 50% of any contributions made to the Receiver General for Canada to a refundable tax account.

9.	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 June 30, 2012 there were no non-voting common shares outstanding (December 31, 2011 – none).

Voting common shares	Number of Shares	Total $

At January 1, 2012	551,682,917	2,855,689
Shares issued upon exercise of share options, for cash	2,490,209	16,831
Estimated fair value of share options exercised	-	18,156
Shares issued on acquisition of European Goldfields Ltd. (note 5)	157,959,316	2,380,140
Common shares issued for deferred phantom units	851,497	11,552
At June 30, 2012	712,983,939	5,282,368

10.	Share-based payments

(a) Share option plans

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

	2012
	Weighted average exercise price Cdn$	Number of options
At January 1,	12.60	8,616,113
Regular options granted	14.93	5,539,870
Replacement options granted on acquisition of European Goldfields Ltd. (note 5)	9.73	4,713,248
Exercised	6.74	(2,490,209)
Forfeited	14.61	(570,285)
At June 30,	13.40	15,808,737

(7)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

10. Share-based payments(continued)

At June 30, 2012, 11,074,740 share options (June 30, 2011 – 7,484,206) with a weighted average exercise price of Cdn$12.58 (June 30, 2011 – Cdn$9.99) had vested and were exercisable. Options outstanding are as follows:

	June 30, 2012
	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	1,470,686	1.4	4.73	1,470,686	4.73
$5.00 to $5.99	146,250	0.6	5.59	146,250	5.59
$6.00 to $6.99	321,000	0.7	6.40	321,000	6.40
$7.00 to $7.99	810,000	2.6	7.13	810,000	7.13
$8.00 to $8.99	15,582	0.8	8.00	15,582	8.00
$9.00 to $9.99	302,900	1.8	9.64	302,900	9.64
$11.00 to $11.99	10,000	1.8	11.40	10,000	11.40
$12.00 to $12.99	833,398	4.5	12.71	400,132	12.67
$13.00 to $13.99	2,327,123	2.6	13.24	2,327,123	13.24
$14.00 to $14.99	113,333	4.1	14.88	113,333	14.88
$15.00 to $15.99	5,264,307	4.6	15.25	1,945,983	15.27
$16.00 to $16.99	4,130,158	3.7	16.57	3,182,420	16.55
$18.00 to $18.99	24,000	3.4	18.81	16,000	18.81
$19.00 to $20.02	40,000	4.4	19.19	13,331	19.19

	15,808,737	3.5	13.40	11,074,740	12.58

Share based compensation expense related to share options for the quarter ended June 30, 2012 was $3,252 (YTD – $8,696).

(b) Restricted share unit plan

A total of 401,307 restricted share units (“RSUs”) at a grant-date fair value of Cdn$15.22 per unit were granted during the six month period ended June 30, 2012 under the Company’s RSU plan and 133,769 were exercisable as at June 30, 2012.

The fair value of each RSU issued is determined as the closing share price at grant date.

A summary of the status of the restricted share unit plan and changes during the period ended June 30, 2012 is as follows:

	Total RSUs
Balance at December 31, 2011	253,587
RSUs Granted	401,307
Redeemed	(207,574)
Forfeited	-
Balance at June 30, 2012	447,320

As at June 30, 2012, 447,320 common shares purchased by the Company remain held in trust in connection with this plan. At the end of the period, 107,331 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 period ended June 30, 2012 was $683 (YTD – $3,454).

(8)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

10. Share-based payments(continued)

At June 30, 2012, 126,406 deferred share units (“DSUs”) were outstanding with a value of $1,557, which is included in accounts payable and accrued liabilities.

Compensation expense related to the DSUs was ($144) for the period ended June 30, 2012 (YTD – $664).

(d) Deferred phantom units

In accordance with the acquisition agreement of EGU (note 5), the EGU DPUs will be converted on redemption to Eldorado shares using the 85% share exchange ratio as indicated within the plan of Arrangement. The DPU plan was amended to allow for share settlement only. Each DPU is exercisable into one common share entitling the holder to receive the common share for no additional consideration. During the quarter, 74,945 DPUs were exercised (YTD – 851,497 DPUs). The remaining 1,080,045 DPUs are expected to be exercised during 2012.

11.	Supplementary cash flow information

	Three months ended		Six months ended
	June 30,		June 30,
Changes in non-cash working capital	2012 $	2011 $	2012 $	2011 $
Accounts receivable and other	(4,189)	(1,900)	1,258	8,315
Inventories	(15,153)	(8,115)	(33,363)	(9,662)
Accounts payable and accrued liabilities	(103,774)	(20,579)	(110,552)	(14,975)
Total	(123,116)	(30,594)	(142,657)	(16,322)

Supplementary cash flow information
Income taxes paid	25,638	38,617	62,637	60,762
Interest paid	1,777	112	3,100	2,365

Non-cash investing and financing activities
Shares, options and DPUs issued on acquisition of European Goldfields Ltd.	-	-	2,440,375	-

12.	Contingencies

In May 2012, the Company, in connection with Hellas, entered into a Letter of Guarantee in favour of the Greek Ministry of Environment, Energy and Climate Change, in the amount of EUR50.0 million, as security for the due and proper performance of rehabilitation works committed in connections with the Environmental Impact Assessment approved for the Kassandra Mines. The Letter of Guarantee is renewed annually and expires on July 26, 2026. The Letter of Guarantee has an annual fee of 0.57basis points.

(9)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

13.	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. As at June 30, 2012, Eldorado had six reporting segments based on the geographical location of mining and exploration and development activities.

13.1 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 Stratoni mine and the Olympias, Skouries and Perama Hill development projects. The Romania reporting segment includes the Certej development project. 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.

	Turkey		China		Brazil		Greece			Romania		Other			Total
		$		$		$		$			$		$			$
Information about profit and loss
Metal sales from external customers		100,669		114,727		14,658		14,137			-		-			244,191
Production costs		23,118		51,237		10,592		9,539			-		-			94,486
Depreciation		2,673		18,692		1,405		1,921			-		454			25,145
Gross profit		74,878		44,798		2,661		2,677			-		(454	)		124,560


Other material items of income and expense
Exploration expenses		1,498		3,736		3,075		124			-		1,640			10,073
Income tax expense		20,975		15,219		1,302		(671	)		-		(20	)		36,805

Additions to property, plant and equipment during the period		54,861		25,317		5,868		18,488			2,134		4,073			110,741

(10)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

13.	Segment information(continued)

For the three months ended June 30, 2011

			Turkey		China		Brazil			Greece		Other			Total
				$		$		$			$		$			$
Information about profit and loss
Metal sales from external customers				101,246		144,847		6,463			-		-			252,556
Production costs				28,153		50,496		2,782			-		-			81,431
Depreciation				2,692		26,154		408			-		589			29,843
Gross profit				70,401		68,197		3,273			-		(589	)		141,282

Other material items of income and expense
Exploration expenses				1,726		1,155		665			-		1,059			4,605
Income tax expense				20,069		16,956		(223	)		-		16			36,818

Additions to property, plant and equipment during the period				37,962		20,199		4,142			736		919			63,958

For the six months ended June 30, 2012

	Turkey		China		Brazil		Greece			Romania		Other			Total
		$		$		$		$			$		$			$
Information about profit and loss
Metal sales from external customers		212,225		261,577		22,106		19,832			-		-			515,740
Production costs		48,497		106,869		16,383		13,976			-		-			185,725
Depreciation		5,399		41,496		2,147		2,677			-		834			52,553
Gross profit		158,329		113,212		3,576		3,179			-		(834	)		277,462

Other material items of income and expense
Exploration expenses		3,403		7,038		5,357		124			-		2,847			18,769
Income tax expense		34,245		30,014		835		(576	)		-		12			64,530

Additions to property, plant and equipment during the period		73,719		43,306		10,911		22,954			2,555		4,943			158,388


Information about assets and liabilities
Property, plant and equipment		631,229		1,908,225		193,672		2,439,275			739,721		2,856			5,914,978
Goodwill		-		365,928		-		274,551			-		-			640,479
		631,229		2,274,153		193,672		2,713,826			739,721		2,856			6,555,457

Debt		-		70,005		-		-			-		50,000			120,005

(11)

Eldorado Gold Corporation

Notes to the unaudited condensed consolidated financial statements

(Expressed in thousands of U.S. dollars, unless otherwise stated)

13.	Segment information(continued)

For the six months ended June 30, 2011

	Turkey		China		Brazil			Greece		Other			Total
		$		$		$			$		$			$
Information about profit and loss
Metal sales from external customers		172,863		281,780		17,081			-		-			471,724
Production costs		49,758		98,747		7,237			-		-			155,742
Depreciation		5,099		53,635		1,237			-		1,089			61,060
Gross profit		118,006		129,398		8,607			-		(1,089	)		254,922

Other material items of income and expense
Exploration expenses		4,017		1,530		1,212			-		1,687			8,446
Income tax expense		31,401		31,841		(5,818	)		-		19			57,443

Additions to property, plant and equipment during the period		89,690		36,159		7,204			1,423		1,679			136,155

As at December 31, 2011
	Turkey		China		Brazil			Greece		Other			Total
		$		$		$			$		$			$
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
		591,896		2,269,721		185,667			163,239		3,315			3,213,838

Debt		-		81,031		-			-		-			81,031

The Turkey and China segments derive their revenues from sales of gold and silver. The Brazil segment derives its revenue from sales of iron ore. The Greece segment derives its revenue from sales of zinc, lead and silver concentrates.

13.2 Economic dependence

At June 30, 2012 , 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.

13.3 Seasonality/cyclicality of operations

Management does not consider operations to be of a significant seasonal or cyclical nature.

14.	Subsequent event

On July 27, 2012, the Company declared that it will pay an eligible dividend of CDN$0.06 per Common Share on August 24, 2012 to the holders of the Company’s outstanding Common Shares as of the close of business on the record date of August 10, 2012.

(12)