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Good morning. My name is Nicole, and I will be your conference operator today.At this time, I would like to welcome everyone to the Eldorado Gold Corporation 2018 Q2 Results Conference Call. [Operator Instructions] Thank you.Peter Lekich, you may begin your call.
Thank you, operator, and thank you, ladies and gentlemen, for taking the time to dial in to our 20 -- our Q2 2018 Financial and Operating Results Conference Call. With me in Vancouver this morning are: George Burns, President and CEO; Paul Skayman, COO; Charlie Parker, Acting CFO; and Jason Cho, Executive VP Strategy and Corporate Development.Again this quarter, we will be speaking to the slides that accompany this webcast. You can also find a copy of these slides on our website. Before we begin, I would like to remind you that any projections included in our discussion today are likely to involve risks, which are detailed in our 2017 AIF and in the cautionary note on Slide 1. The news release that went on yesterday detailing our Q2 operating and financial results should be read in conjunction with our Q2 financial statements and management's discussion and analysis, which are both available on our website and have been filed on SEDAR and EDGAR.Lastly, all dollar figures discussed today are in U.S. dollars unless otherwise stated.I will now turn the call over to George.
Thanks, Peter, and good morning, everyone. Starting with the highlights on Slide 3. I'm proud to be reporting an excellent quarter for Eldorado. Production exceeded expectations, costs were in line with budget, and our teams continue to make good progress at Lamaque and on the Kisladag Mill project. We also had some solid exploration success at Lamaque. During the quarter, we held our first international safety week, where each of our sites organized safety talks and activities to emphasize the importance of working safely. The pictures here show some of the events held at Efemcukuru during that week. A key highlight of the week was rolling out our Golden Rules handbook, which sets out our safety procedures for high-risk tasks. This is now a part of everyone's personal protective equipment and must be carried by every employee and contractor while at site.With our positive performance in the first half of 2018, we revised our 2018 guidance upwards to 330,000 to 340,000 ounces of gold from previous guidance of 290,000 to 330,000 ounces. We forecast our cash cost to remain in the previously disclosed range of $580 to $630 per ounce.Turning to our business plan on Slide 4, we remain focused on delivering our core asset portfolio and reaching annual low-cost gold production of 600,000 ounces by 2021. As you can see from the graph, the Lamaque and Kisladag Mill projects are expected to deliver significant production growth over the next 2.5 years. These high-return projects should deliver significant value in jurisdictions we are very comfortable and experienced.On the next slide, where our efforts remain on executing on 3 strategic pillars: maintaining a core base of operations, developing our high-return projects and deploying our capital prudently.I'll mentioned a few words on operations and results from our AGM. Paul will provide more detail on development projects and Jason will talk to capital considerations.Our current operations performed better than plan, driven by better-than-expected production from the Kisladag heap leach pad, good performance at Efemcukuru and continued ramp-up of production at Olympias.At our AGM, Eldorado received shareholder approval to amend the company's articles to allow for a share consolidation with the ratio of 5:1. The board continues to evaluate the merits of a share consolidation, taking into account the best interests of the company, its trading price and the requirements of the New York Stock Exchange. The board has till the end of this year to effect the share consolidation.Over to permitting on Slide 6. We received 3 positive notices during the quarter. First in Turkey, we received confirmation from the Turkish Ministry of Environment and Urbanization that construction of the proposed Kisladag Mill is permissible under the existing EIA, approved by the ministry in 2014. Second in Brazil, we received the mining concession from the federal branch of Brazilian Ministry of Mines. This permit allows mining and commercial production at our Tocantinzinho project. Third, in Canada we received a certificate of authorization for modifications required at the Sigma Mill. Unfortunately, we have no updates on the outstanding permits at Skouries and Greece. We have been in active and ongoing talks with the Greek government, since the arbitration decision was issued in early April, but have been disappointed by the government's failure to act on earlier assurances to address the Skouries permitting issue following the conclusion of the arbitration. We remain open to a continued dialogue on the steps required to allow the Skouries development to continue, but will if need be, take the necessary steps to protect our investments in Greece. Skouries remains a compelling, project providing additional long-term growth but requires collaborative government dialogue and a clear line of sight to free cash flow in order for us to allocate further capital for development.I'll leave it there for the moment, and will hand it over to Charlie to go through the financials.
Thank you, George, and good morning, everyone. I'll start by highlighting our strong cash position, which you can see here on Slide 7. We ended the quarter with cash, cash equivalents and term deposits of $430 million compared to $485 million at the end of 2017. During the quarter, we generated $37 million in cash flows from operations, $4 million in proceeds from pre-commercial production of sales at Lamaque, and $8 million in proceeds from the sale of surplus crushing equipment in Kisladag, while our capital expenditures for the quarter totaled $74 million.Turning to Slide 8, here is a summary of our Q2 financial results. During the quarter, we generated metal sales revenues of $153 million compared to $83 million in the second quarter of 2017. Included in metal sales this quarter, were $121 million in revenues from the sale of 94,224 ounces of gold contained in doré and pyrite concentrates, at an average realized price of $1,287 per ounce. This represented a 65% increase in gold ounces sold year-over-year, driven primarily by the start of commercial production at Olympias in January this year, as well as a 45% increase in production from Kisladag year-over-year. Higher production from Kisladag was attributed to improved leach kinetics. Excluding revenues from Stratoni, metal sales from by-products during the quarter were $15 million compared to $1 million for the comparable quarter in 2017, mainly as a result of the contribution of Olympias production. Gross profit from gold mining operations of $30 million was relatively flat year-over-year due to higher production costs at Kisladag and higher depreciation, depletion and amortization expense at Kisladag and Olympias. Production costs at Kisladag included $29 million in noncash charges related to inventory drawdown, as recoverable ounces in the leach pad are being depleted following suspension of mining operations during the quarter.Net loss was $24 million or $0.03 loss per share for the quarter compared to a profit of $11 million or $0.02 earnings per share in 2017. The adjusted loss of $2 million during the quarter compared to an adjusted earnings of $6 million in Q2 2017. The weakening Turkish and Brazilian currencies in relation to the U.S. dollar during the quarter had a negative impact on deferred income tax expenses. Total income tax expense for the quarter was $22 million included -- including a $19 million noncash charge related to unrealized losses on deferred tax assets, resulting from these adverse currency movements. We anticipate currency volatility will continue to affect our quarterly income tax expense. Other factors contributing to the net loss in the quarter compared to profit in 2017 included higher mine standby costs due to the suspension of ore mining crushing and conveying operations at Kisladag and foreign exchange losses related to monetary accounts denominated in Turkish and Brazilian currency.Those are my comments on the financial statements. Over to you, Paul.
Thanks, Charlie. On Slide 9, we outline our production and costs for the quarter. Total production in Q2 was 99,105 ounces, which was 56% higher than production in Q2 2017. This was largely a result of the leach pad at Kisladag performing better than expected for the year-to-date after higher cyanide concentrations boosted leach kinetics and lower lift heights associated with an inter-lift liner accelerated pregnant solution returned to the ADR plan.Kisladag produced 59,930 ounces during the quarter, up 45% year-on-year. At Efemcukuru, production was also slightly higher than expectations. At Olympias, the resolution of mill and filter press bottlenecks resulted in a 41% improvement in operating costs from $699 per ounce in Q1 to $412 per ounce in Q2. Well recovery and gold concentrate specifications were in line with expectations. The by-product metal recoveries and concentrate specifications for silver, lead and to a lesser extent, zinc, continues to have significant variability with average recoveries below feasibility study target levels. We focused on the opportunity to improve results on by-product recoveries, which would further reduce cash costs and all-in sustaining costs.Moving to Slide 10, as a result of the Kisladag leach pad exceeding expectations, we revised our 2018 guidance for Kisladag upwards to 140,000 to 150,000 ounces of gold from previous guidance of 120,000 to 130,000 ounces. Costs for this year are slightly higher, but are now expected to be lower in 2019 due to a change in allocation of inventory costs, which is made to better align costs with production, now that we are in an inventory harvest mode of operations. You'll also note that we have added 20,000 to 25,000 ounces to production guidance for 2020 at Kisladag. Overall, we have increased our heap leach production for the period 2018 to 2020 by 40,000 to 45,000 ounces or 25%.Slides 11 and 12 provide some color on our recent efforts to improve Kisladag leach kinetics and maximize recovery for material already placed on the pad. What we've seen in the first half of this year are increasing copper solution grades in line with higher cyanide concentrations. This is shown in the chart on the left. The data shows that leach kinetics have improved significantly since the beginning of the year, which should aid future gold recovery. We've also commenced injecting cyanide into the pad and concentrating on side slope leaching, both of which have shown promising results. Sonic drilling of the pad, pictured here on Slide 12, has been ongoing since the end of last year, with some recent results shown on the right. Drilling indicates that the lower levels of the pad have already been successfully leached, while the upper levels still yield solid results in the range of 0.15 to greater than 0.25 grams per tonne of leachable material.Additionally, recent metallurgical test work has indicated that gold recovery has increased in core samples that are over 1-year old, in the range of 3% to 5% on top of current column recoveries. This suggests that higher ultimate recovery on the pad could be possible over the life of the project, assuming that solution chemistry can be maintained at a profitable level. These efforts have resulted in our increased 3-year guidance for Kisladag. We'll continue to study this over the remainder of the year.So the main message here is that ultimate leach pad recoveries are looking promising, based on our efforts and test work to date, but that optimizing sulphide leach pad remains a highly complex process. I must caveat that there can be no assurance that these recovery alternatives will result in increased gold recoveries from the pad beyond our revised guidance.Onto Slide 13, for a few words on the Kisladag Mill project. We're working with an engineering firm to progress the feasibility study, which is on track to be completed in Q3 this year. We have gone to tender and received quotes on major equipment, and we also continue to examine efficiencies in the crushing circuit. Approximately 30% of our capital costs are in Turkish lira, which means the current exchange rate is working in our favor. Our prefeasibility study outlined an average rate of TL 3.8 to the U.S. dollar versus the current rate of TL 4.7. Our final investment decision on mill construction is expected from our board in October this year.Over to development at Lamaque on Slide 14. The team in Québec continues to work extremely hard in progressing this project, which is slightly ahead of plan and on budget. Underground development progressed well during the quarter and is slightly ahead of plan. The Main decline development is now at approximately 250 meters below surface and level 202 is already prepared for production mining to begin.Turning to grade of material mined to date from Triangle is on target and results from toll milling are reconciling well with the reserved block model.Refurbishment activities at the Sigma Mill are also progressing on schedule, with work this quarter focused on replacement of tanks and restoration of the main mill motors. The picture on the left here shows one of our team reconstructing an old tank. We expect to begin commissioning equipment in Q4 in advance of first production in early 2019.Slide 15 shows some of the positive drill results reported during Q2. 10,500 meters of drilling were completed during the quarter, with 5 rigs active at Triangle and the nearby Parallel deposit area. At Triangle, drilling targeted lower parts of the deposit, resulting in the delineation of several new mineralized shear zones, shown on the plan as C6, C8, C9 and C10, as well as subsidiary secondary shear veins and extension vein clusters. At Parallel, drilling confirmed down-dip and along strike extensions at the mineralized shear zones and established continuity of these mineralized zones, with previously exploited shear zones at the Lamaque and Plug 5 deposits. As we have mentioned previously, the big upside we see at Lamaque is the conversion of existing resources, the projects exploration potential and the opportunity to supplement feed to the Sigma Mill from other exploration targets.Results from Q2 exploration confirm that these targets are realistic, and we look forward to adding to our resource and reserves at Lamaque in the future. That's it from me. Over to you, Jason.
Thanks, Paul. Onto Slide 16, in light of the operating international performance in the first half of this year, we continue to refine our views on capital, and potential funding requirements meet the medium- to long-term needs of the organization as we seek to reestablish annual production levels to 600,000 ounces by June 2021. Some general comments on activity in the quarter, we continue to focus on eliminating nonessential spending with the aim of reducing global G&A and cutting discretionary capital at our noncore projects. Further, we are progressing on optimizing our business plans with operating and site initiatives underway to improve near-term operating cash flow. And lastly, we are actively evaluating strategic and funding options and are engaged in discussions with various third parties.With year-to-date net change in cash of $55 million, a strong cash balance of $430 million versus $485 million at the end of 2017, plus access to $250 million in an undrawn revolver, we have more than sufficient funding for the remainder of this year and all of 2019.As mentioned last quarter and consistent with what we've observed exiting Q2, current cash on the balance sheet combined with internally generated cash flow fully supports the developments of Lamaque and to provide capital runway to substantially advance construction at Kisladag without drawing on the revolver. We continue to believe that our plans, quality of assets and market conditions will allow us to be opportunistic in evaluating and executing funding alternatives to address the business needs over the medium to long term.We look forward to updating both equity and debt holders on our progress as appropriate, as we execute on our long-term plans of creating value. Now back to you, George.
Thanks, Jason. Just a few more words before we take questions. One of the drivers of our operational and development success so far this year is our revitalized leadership team. The team's structure is shown on Slide 17. It includes our Board of Directors and Senior Executives, including Mine General Managers. Yellow denotes new hires in 2017 or 2018, blue shows members of the leadership team with new responsibilities and gray shows members who continue in their current positions.We have now enhanced capacity in our key positions in order to strengthen our leadership skill set and ability to deliver value for our stakeholders. At the Mine General Manager level, Matt Badylak and Peter Stregas have transferred their skills from previous MGM roles with Eldorado in China to their current roles as MGM Kisladag and MGM Olympias, respectively.I'm also very excited about Phil Yee, who'll be joining us as EVP and CFO in September and Lisa Ower, who'll be joining us as VP HR Human Resources in August. Both are valued additions to our leadership team. I wish to thank Charlie Parker for his ongoing hard work as acting CFO during the transition. Charlie has done an excellent job of managing Eldorado's finance department in recent months. He will resume the position of Corporate Controller post hand over with Phil. So to wrap it up, I wish to thank all of our stakeholders, our shareholders, host governments, neighboring communities and our employees for their continued support of our business. This is an exciting time for us, with our current mines performing to plan and our development projects on track. As shown on Slide 18, we are delivering what we have said and we are going to do, and we will continue to focus on delivering to our plan to produce 600,000 ounces of gold in 2021.Thank you, we will now take questions.
[Operator Instructions] Your first question comes from the line of Cosmos Chiu from CIBC.
It's Cosmos from CIBC here. Maybe first off, can I ask a question on 2018 guidance. It looks like you've increased it by about 40,000 ounces. I guess, you have accounted for it -- 20,000 ounces with Kisladag. Where is the remaining 20,000 ounces coming from?
Yes, it's actually all coming from Kisladag.
Is it?
Yes.
Okay. I guess I've got to work on my math.
Cosmos, just a comment on that. That extra 40,000 ounces is coming over that 3-year window at Kisladag. So it's about 20,000 ounces at Kisladag, and we have raised guidance by about 20,000 overall.
Okay, I see it. I was looking at the bottom end.
So we've pushed Kisladag by about 20,000 ounces in 2018, and we've also put 20,000 to 25,000 into 2020. So '18 guidance has only gone up by the same amount as Kisladag has been achieving.
Oh, I see. The top end only went up by 10,000 ounces.
Yes. So maintaining guidance on everything else for the -- for '18 at this point.
Okay. Hope I do better on this next question here. You're looking for 600,000 ounces in year 2021. What have you included in that assumption? Is it -- have you included potential for Kisladag Mill? And what else have you included?
Yes, the key growth drivers to get to that 600,000 ounces is bringing Lamaque into production next year, and then getting the Kisladag Mill up and running at the end of 2020. You can see that on one of the slides.
Slide 4.
Slide number 4.
Okay. And I maybe digging deeper into Kisladag here. It was certainly positive news to hear that permitting can now go under the existing EIA. That was approved in 2014. What else do you need to do? What other permits would you need, if you do give the go-ahead for the mill?
Really, we have all the permits we need to get the construction completed. There will be some normal operating permits as we bring it into production, but we're really set from a permitting perspective to be able to initiate and complete construction.
And then, again, good news coming out of the leach pad here in terms those additional ounces, 40,000 to 45,000 ounces for the years 2018 to year 2020. I would imagine the bulk of the cost has already been expensed and the cash, there's isn't a lot of cash expenses associated with those additional ounces. So it's almost like pure profit. But could you maybe still tell me how much the Sonic drilling is costing, the regrading is costing? And some of those other activities that you're working on?
Yes, they're relatively minor, Cosmos. I mean, there is an inventory cost associated with remaining inventory, and we'll work that through over the rest of '18 and early '19, but those costs are very minimal. They're not material.
Yes, and Paul those -- the inventory costs that's all noncash, right? It's actually money that you spend in the past, you're just kind of allocating the expense now?
That's correct. Yes.
Okay. And then -- and maybe switching gears a little bit on Olympias. It's good to see that production is ramping up, but I think you also made a comment in the MD&A that the specs to your base metal production is still not up to where you want it to be. Could you, #1, remind us, when I was outside last year I saw that there was a pyrite gold concentrate that was getting produced. What other concentrates do you produce? And what is it impacting right now? Is it -- on a base metal [ size, ] is it impacting payability? Is it -- sort of what's happening?
Yes, so we produce a lead-silver concentrate, a zinc concentrate and the pyrite concentrate that you referred to. Gold recoveries are pretty well exactly in line, and we are doing well, both recovery and payability on the gold con. Zinc is pretty well, where we want it. We're 1% or 2% behind on recovery, but payabilities are similar. Lead concentrate, we're not quite getting the recovery that we want. So we're recovering less material, but still equivalent in terms of payability on that material.
Got it. And -- yes, so what are you doing right now? And what sort of timeline are you looking at in terms of optimizing that concentrate or that recovery?
Yes, so we've got a team on site at the moment focused on that lead recovery. We've got a group from SGS focused on, sort of, metallurgical test work and assessment, and then a couple of consultants also helping us with that. It's a little bit of a combination of ability to sort of blend material from underground, getting enough flexibility there. I think the mineralogy is a little more complex on some of the lead minerals than we anticipated. But we've done a fair bit of metallurgical work in the laboratory prior and that's still the target long term. Similar recoveries to what we have achieved in the lab.
And then, maybe again, switching gears a little bit on Lamaque here. You did about 2,100 meters underground development in Q2. Is that sort of what you're targeting on a quarterly basis?
It will ramp up somewhat as we get through the rest of this year and then get into the normal production in 2019.
Yes. So what are you looking at like 3,000 meters or more?
I think, we've got sort of 4 crews at the moment, and we're looking at bringing in a 5th crew, so you'd see another sort of 25% to 30% improvement, I guess. So getting up over 3,000 meters on the [ count. ]
Yes. And then the -- I guess when I was on-site back in June I saw that, as you talked about some of the leach tanks are getting changed over. I saw that some of the motors are getting renewed or replaced. What are some of the key drivers here? What are some of the key developments that you need to do to make sure that the Sigma Mill is up and running by the end of 2018?
Yes, you've said -- you've talked about sort of replacements of CIP tanks. I guess getting mill motors refurbished and then electrical and control circuits. Yes, we've also got to do a little bit of work on the existing tilings facility. You saw a photo of that in one of the slides in the deck there. We have to do some buttressing to bring that up to current spec for placement of more material. So that work is ongoing at the moment.
Great. That's all I have. Congrats on a good quarter. And certainly, I would say the positive news is welcome after a pretty tough 2017.
Your next question comes from the line of Steven Butler from JMP Securities.
The Sonic drilling program at Kisladag, how much of the leach pad have you sonically drilled today to -- Paul? Or is there more work to be done?
Yes, there's definitely more work to be done and that was one of the main reasons for -- we did some drilling late last year with a contractor and it just wasn't working out with the efficiencies and productivity that we wanted, hence our purchase of a rig. So now we're running that rig around the clock. We're probably around sort of 25% of the pad has been drilled, and we've done that on a fairly tight spacing. I think in terms of generating information, we could open that up and drill a wider space set and then go back and concentrate on areas. So that's what we're looking at, at the moment.
Right. It looks like on that Slide 12, if I look at the legend, are you talking 35- to 50-meter space? Is that sort of right?
It's about 40 meters. I think a cell there is 85 meters across and there's 2 lines through that cell. So you're about right there, yes.
And then how big are these holes? And do they achieve -- if you -- it's not quite fracking. But are you looking -- then you put the cyanide down this sonic hole. How big are the holes and maybe just a bit more elaboration there?
Yes, so there -- I think they're about 8 inches across. It's effectively a triple tube rig. And we're extracting that core out of the pad and then we're able to test that for, obviously, gold content, leachable gold content, pH. Do a whole reactive sort of tests on that material. We also case that core and case that hole and then we can use that for injection of cyanide or as needed sort of thing. And we're now contemplating whether we can sort of place packets in there and actually inject only to areas of interest rather than just putting it in the hole itself, so.
Okay, interesting. The -- and then one question perhaps for you guys on disclosure. Whether you may consider Olympias giving us maybe a bit more stats on mine production in terms of head grades for the other metals as we go forward in recoveries. If -- just a thing for you to maybe consider.
[Operator Instructions] Your next question comes from the line of Anita Soni from Crédit Suisse.
My question is with regards to Kisladag. And I was just wondering how much inventory was on the leach pads at the end of Q1?
Your -- you're coming through very quiet, Anita. You are interested in inventory at the end of Q1?
Yes, I'm sorry. Yes, so I was just trying to understand how much inventory was built up into the leach pads at the end of Q1 and how much has come out in Q2? And how much really we will see sort of coming out over the next few years? There's no more stacking going on in the pad, right, until this milled fission is made?
Yes, we stacked some material in April but only sort of a fairly modest amount. So it -- there was -- in the order of 350,000 tonnes placed in April and that was the end of the material at around 1 gram. I don't actually have the numbers for the end of Q1.
End of Q2, 61,000.
Yes, end of Q2 is 61,000 ounces, and we're obviously working on extracting that. Based on guidance for the rest of the year that'll we be exhausted in the first couple of quarters of 2019. So most of the ounces that came out in Q2 would have been coming out of inventory.
Right. And then the second question again with Kisladag is, in 2020, did you say on the call that you've added an additional 25 or is that the sum total of what's coming on -- out in 20 -- in 2025? Or...
We've added another 20 to 25 in 2020, as guided.
And that's all -- is that all that will be coming out of Kisladag in 2020, right? The 20 to 25?
That's our sort of best information at the moment. So, yes. And then the plan would be the mill would start up end of 2020, early 2021. And then we would -- we -- depending on how well the pad goes, we'll be looking to continue leaching, but don't have a feel for where that goes. But obviously, at that point, producing from the mill as well.
And this quarter you didn't give any guidance on Olympias, in terms of the grades that we were seeing in terms of base metals. Is it -- and you did comment that the recovery rates were highly variable there. Can you provide a little bit additional color on that?
In terms of sort of head grades for the base metal?
Yes. I guess -- I mean what's going on there and what really should we expect in terms of base metals coming out of Olympias this year and maybe into next year?
Yes, I'd probably need to get back to you with some numbers. There's a fair bit of information there, as you can imagine. I mean, just on a higher level, we are sort of running around a bit over 8 grams of gold and we're in the order of sort of 2.5% to 3% of both lead and zinc. But taking yours and Steve's comments, we can provide some more information on lead and zinc levels.
I guess what I'm try to drive at is, sorry, what should we be using for Olympias' cash costs now going -- I'm trying to back into your overall company guidance of the Olympias component [ on the... ]
I think you could -- we've guided to both ounces and cash costs at the beginning of the year. I think you could use that as a -- still -- that's still reasonable guidance for the year itself. But we've done a little better in Q2 and obviously improved things. But I think I would stick with the -- from memory, sort of 550 to 600 or something like that for the year at this point.
There are no further questions at this time. I'll turn the call back over to the presenters.
All right. Thank you, everybody, for joining us for our Q2 call. We look forward to giving you a further update in the third quarter. Have a good day.
This concludes today's call. You may now disconnect.