Q3 2022 Eldorado Gold Corp Earnings Call

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Thank you for standing by this is the conference operator, welcome to the Eldorado Gold third quarter 2022 financial and operational results Conference call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask a question.

Joining the question queue you May Press Star then one on your telephone keypad.

Should you need assistance during the conference call you May signal, an operator by pressing Star then zero.

I would now like to turn the conference over to Lisa Wilkinson, Vice President Investor Relations.

Please go ahead Mr Wilkinson.

Thank you operator, and good morning, everyone I'd like to welcome you to our third quarter results Conference call.

Before we begin I would like to remind you that we will be making forward looking statements and referring to non <unk> measures during the call.

Please refer to the cautionary statement included in the presentation and the disclosures.

It's measured in our management's discussion and analysis as well.

As well as the risk factors set out in our annual information form.

Okay.

Joining me on the call today, we have George Burns President.

Yep.

L E.

He didn't vice President and Chief Financial Officer.

And Joe <unk> Executive Vice President and Chief operating Officer.

Other members of the senior leadership team will also be available for the Q&A session.

Our release yesterday details, our 2022 third quarter financial results and operating with this should be read in conjunction with our third quarter financial statements and management's discussion and analysis both of them.

Which are available on our website.

They have also been filed on SEDAR and Edgar.

All dollar figures discussed today are U S dollars unless otherwise stated we will be speaking to the slides that accompany this webcast.

You can download a copy of these slides from our website.

After the prepared remarks, well open the call for Q&A at this time, we will invite analysts to queue for questions.

I will now turn the call over to George.

Thanks, Lisa and good morning, everyone.

Here's the outline for today's call.

I'll provide a brief overview of Q3 results and highlights before passing it to Phil to go through the financials and Joe to review our operational performance.

Then we will open the call to questions from our analysts.

I'd like to kick off by highlighting our strategic focus areas that are helping us create long term value for our many stakeholders.

Our top priority is delivering our operational guidance for 2022 and completing the sturdy financing by the end of the year.

Both of which I will speak to in a moment.

We're also focused on growth at our existing operations through exploration success.

Earlier. This month, we released an exploration update with new results that demonstrate the significant potential to increase resources, Marc <unk> and olympias.

Moving to production.

After a challenging start to the year our site teams have been able to deliver sequential improvements and I'm pleased to report that our production results again improved in the third quarter.

We continue to see operating trends improved throughout the year.

Strong production in the fourth quarter.

El Dorado remains on track to achieve full year production of 460000 ounces, which is at the low end of our consolidated guidance range.

Joe will speak to the operations in more detail later in the call.

Now touching on cost.

As we noted in previous quarters, we continue to face inflationary pressures similar to the wider market.

Year to date, we have experienced cost increases for key commodities and consumables as a result of the inflationary pressures in Turkey a.

Global supply chain issues and impact of sanctions imposed on Russia.

However cost increases denominated in local currencies have been partially offset by the weakening of the Turkish lira Euro and Canadian dollar.

Bill will speak to our cost in more detail later in the call.

Shifting to <unk> in September we announced that we have entered into a mandate letter with Greek banks for a credit Committee approved $680 million project finance facility for the development of Scurries, representing 80% of the total funding requirement.

The mandate the mandate letter is an important step on the path to restart full construction its varies.

Securing this project financing remains a key focus for Eldorado.

Making progress on negotiating definitive binding loan documents and advancing other approvals and conditions.

The final decision to restart full construction.

And the project financing facility remains subject to board approval, which we expect to see before the end of the year.

We remain confident in the capital cost estimate of four $845 million to bring the <unk> project into commercial production driven by several key factors.

First the project is half built with most major processing equipment already purchased and installed or in storage.

Productivity. This year is focused on steel erection and closure of the processing facilities.

Execution readiness and critical path activities.

Second looking at what is left to be completed on the project approximately half the remaining capital is related to labor, which is less impacted by escalation.

Third the highly capable execution team is largely in place we are well positioned to access already full of labor in the local area for the construction phase.

And finally as part of our approach to capital discipline.

Certainly evaluating our capital cost estimate to ensure we will be well positioned to execute this project on budget.

Yeah.

I would like to end with the sustainability highlight.

Earlier this year El Dorado was ranked amongst the best 50 corporate citizens in Canada by corporate Knights.

At El Dorado, we consider sustainability in everything we do from exploration to closure and then our relationships with customers communities investors and other stakeholders.

Being recognized as one of this year's best 50, corporate citizens in Canada is a testament to the progress we are making against our sustainability commitments.

I'll stop there and turn things over to Bill for a review of our financial results.

Thank you George.

Good morning, everyone.

Slide five provides a summary of our third quarter financial results.

Eldorado reported third quarter net loss attributable to shareholders of $51 million.

Or a loss of 27 per share.

After adjusting for onetime nonrecurring items, including deferred tax expense related to foreign exchange translation.

And an impairment of the <unk> project third quarter, adjusted net loss was 8 million or loss of <unk> <unk> per share.

Third quarter cash operating costs were $803 per ounce sold and all in sustaining costs were 1200 $59 per ounce sold pre cash flow in the quarter was negative $26 million.

Primarily due to lower average realized gold price.

Mine standby costs and continued investment in growth capital at kit today and serious.

Cost performance in the third quarter was mostly driven by price increases for certain commodities and consumables.

Primarily electricity at operations in Greece, and Turkey, a and fuel and reagents and kits today.

Electricity prices rose significantly in Greece following market changes in late 2021, and the Russia, Ukraine War.

Despite continued government subsidies effective average electricity prices rose by approximately 29% in the third quarter compared to the second quarter.

<unk> represented approximately 14% of direct operating costs at Olympias in Q3 2022.

We expect electricity prices increase to remain volatile into 2023.

Capital expenditures on a cash basis were $74 million in the third quarter, including continued investment in growth projects at <unk>.

Income tax expense was $27 million in the third quarter comprised of 16 million current tax expense at $12 million deferred tax expense current tax expense increased in Q3 2022, when compared to Q3 2021 as a result of lower investment tax credits.

Available in Q3 2022.

Deferred tax expense was driven by the weakening of the lira and the euro.

Turning to slide six.

At quarter end, we had unrestricted cash cash equivalents and term deposits of $306 million, our cash balance in the first nine months of the year was impacted by lower cash generated from operations as a result of lower production.

Capital spending annual royalty payments scheduled interest payments and an investment in <unk> mining, we continue to focus on maintaining a solid financial position, which provides flexibility to unlock value across our business.

With that I will now turn it over to Joe to go through the operational highlights.

Thanks, Phil and good morning.

I'd like to start with the health and safety update we continue to improve our total recordable injury frequency rate year over year in the third quarter from $5 three one to five seven.

And recently, the Quebec Mining Association recognized members of our La Mancha operation with the workplace health and safety Trophy.

I am very proud of the team for this great accomplishment as it demonstrates that El Dorado was focused on building an engaged safety culture as part of our commitment to a zero harm workplace.

Moving to our operating results, we produced 118791 ounces of gold in the third quarter with a cash operating cost of $803 per ounce sold.

Our operational performance increased in the third quarter over the second quarter, driven by strong performance from Q4 that and improvements at Olympias.

Slide eight looks at our operations in more detail.

Starting in Turkey a.

Just with that third quarter production was 37741 ounces, a 35% increase compared to last quarter and cash operating costs were $752 per ounce sold.

Tons placed on the Leach pad continued to increase which is expected to positively impact gold production in the fourth quarter.

As part of the kitchen with added North heap Leach project, we are investing in our higher capacity materials handling system that will allow us to increase throughput, which is on track to be operational in the fourth quarter. We have also purchased an agglomeration drum, which will treat a final split of the HP Jr product to improve quality.

Consistency and permeability on the pad we are confident that we will have the agglomeration drum commissioned in the first half of 2023.

The equipment is onsite and engineering is progressing well.

At <unk> group third quarter Gold production was 22473 ounces.

At corporate cash operating costs of $709 per ounce sold.

Gold production throughput and average gold grade at <unk> were in line with expectations.

Earlier this month, we announced encouraging drilling results from true group from the previously untested west vein target area that highlight the resource growth potential outside the castonguay, Bolani and Coke Carpenter our vein systems.

Resource conversion drilling has focused on the coke carpet <unk> and body vein systems and results will be incorporated into our 2022 mineral reserve and mineral resource update.

And now moving to La <unk> third quarter Gold production was 42454 ounces and cash operating costs were $650 per ounce sold.

Production was slightly below plan due to lower tonnes process related to Covid absenteeism in July and early August before returning to normal levels.

Underground development of high grade Stopes continued to progress well.

In early October we released exploration results, which included step out drilling that confirmed extensions to the high grade veins of the hallmark deposit several hundred meters east of the current resource.

Resource conversion drilling from the <unk> exploration drifts started in June of this year and is expected to include at least 10000 meters of drilling in the remainder of 2022 and will continue through 2023 targeting the upper two thirds from Dr. Mack deposit Reis.

The results of the current conversion drilling up to the middle of next year will be incorporated into our 2023 mineral resource and mineral reserve update.

Finally, let's move on degrees.

At Olympias third quarter Gold production was 16123 ounces and cash operating costs were <unk> hundred $66 per ounce sold.

Cost increases related to.

Import charges electricity fuel and other consumables were partially offset by higher gold grade and higher revenue from silver and base metal sales.

During the quarter Olympias production and grade.

Were steady.

Ongoing initiatives.

Along with improvements through EIA modifications.

Proved during the quarter and currently being implemented over the next six months will better position olympias to earn an expansion investment.

I'll stop there and turn it back to George for closing remarks.

Thanks, Jim.

Looking forward to the remainder of the year top priorities and strategic focus is on delivering our 2022 operational guidance.

Making a series full construction decision.

And signing the surgeries project financing loan documents by the end of the year.

This will position us well to execute on our growth strategy and maximize the value for our stakeholders.

Thank you for your time I will now turn it over to the operator for questions from our analysts.

Thank you we will now begin the question answer session.

Join the question queue, you May Press Star then one on your telephone keypad.

You will hear a tone acknowledging your request.

If you are using a speakerphone please pick up your handset before pressing any keys.

She withdraw your question Please press star two.

We will pause for a moment as callers join the queue.

The first question comes from Cosmos <unk> with CIBC.

Please go ahead.

Thanks, George Phil and Joe.

Maybe I'll start off with.

Your guidance for the year.

George as you mentioned.

You've mentioned a carlyle now you're targeting the lower end of guidance. If my mathematics is correct. It looks like you still need about a 13% increase quarter over quarter in Q4 to get to that lower end of guidance could.

Could you maybe share with us the.

Operations that would drive that increase in Q4.

Sure. Thanks for the question Cosmos, So yeah, you're right.

Deliver a strong fourth quarter, we've had sequential increases in our production quarter over quarter. This year and expect to deliver a stronger fourth quarter than third quarter.

It hit that 460000 ounce.

Bottom end of the guidance, we need to be around 135000 ounces.

We'll drive that higher production number one guest at all throughout the year, we've been ramping up our ability to collaborate using the conveyors.

<unk> seen consistent improvement and as Joe mentioned on our call today, we have deployed larger grasshopper conveyors in the conveyance system, which are capable of delivering higher tonnage rates to the path. So.

<unk> tonnage.

Is going to be a big driver. We also had really good placements in Q3, both tonnes and grades.

Given it is a heap leach operation what we placed in Q3 will play a fairly significant role in what we produced in Q4. So yes. So that is definitely a key driver again for the fourth quarter unexpected increases in production.

Well Mark also we're well positioned for high grade stopes for the fourth quarter, So expect to see historic quarter remark.

FMC crews are steady mind that quarter.

Quarter in quarter out delivers and expect that to happen again, and then we are making good progress on olympias I'm.

On the transitioning and transforming that operation so.

A good fourth quarter, there as well.

Great. Let me two follow ups on that George as you mentioned, Mark we're expecting a higher Q4.

And in the MD&A today, you also mentioned you know there was some cold weather related absenteeism in Q3, but that has since been resolved.

I don't know how it is in British Columbia, I guess, another mine is in Quebec, and Ontario, there's a bit of a surge now in coal that once again. So are you at all concerned about that happening again, it'll Cobra related absenteeism in Q4, and if you are what kind of Tianjin contingency plans do you have in place.

Yeah.

Definitely COVID-19 this year has been.

An issue around the globe, including at our operations in Q1, we were definitely impacted significantly.

You did see a bit of a bump in Q3, but no material impact on our business, we continue to be ready with our protocols to try to reduce and stop transmission.

But I think we're well positioned to have a strong fourth quarter.

Joe I don't not sure if you'd have anything to add to that.

Not too much George I would just say in the market in particular, we have.

Engaged contractors for additional labor support as necessary in the fourth quarter.

So you know that may become.

Necessary.

In a corporate situation.

Great. That's good to hear Joe and then one last question.

The dog as we mentioned in the MD&A there was some debottlenecking of the agglomeration circuit.

How is that going and you know you also mentioned in the MD&A that.

You're getting some mobile higher capacity conveyors in place in late 2022, and some agglomeration drum in place.

In 2023 two.

To fully Debottleneck that bulk agglomeration circuit do you need those in place.

I got how's that going.

Yeah, maybe I'll just start off to say that the one thing that we've really learned this year is that on the kiss a lot of heap Leach.

The ability as a key.

To get good permeability through the pad.

Agglomeration of key and so it's a matter of getting the fines to stick together and build a good agglomerate that can hold up during the leaching cycle.

And so.

We understand the recipes that are required.

<unk> been in a larger conveyors allows us to be able to agglomerate effectively at higher tonnage rates.

And then by putting in the agglomeration drum next year.

We'll take a stream off of the <unk> product the <unk> portion of the of that product and run that through the drum and we think we're going to get even with a higher quality agglomerate as a result of that capital investment.

Again that that's expected to be commissioned in the first half of next year.

But I think we're on a very good trajectory to be able to reach the full potential in the <unk> operation.

We'll keep the market informed as those results continue.

So unfold, but at this point I would tell you.

We're doing an effective job of just belt agglomeration.

Seeing the recoveries that were expected in this capital investment so let's.

It's about.

What's the upside beyond.

What we originally expected.

Great. This is Joe.

Hi, Joe.

Just maybe just to add to add a little bit.

<unk>.

L D.

Felt over the materials handling upgrade.

As of now seven new grasshoppers are in place we had four of them at the end of Q3 were up to seven now.

That helps us a bit with throughput, but it really does support improve.

Improved conglomeration right now and we're commissioning the.

Larger stacker and horizontal feed conveyor.

The first week in November .

Great that's good to hear.

And maybe one last question just quickly on the financial side.

You know the earnings came out lower than what.

<unk>.

Consensus had expected in part due to taxes.

As always challenging.

On taxes, I think you recorded $27 million in taxes.

When it was a $27 million loss I know theres a lot of adjustments that go through with the write downs and.

And everything else.

But you know is there anything that you can help us with Q4 in terms of.

These complications in terms of.

Foreign exchange adjustments and deferred taxes is that going to continue into Q4.

Anything that we should be aware of because I think I think that's been getting you offside in terms of some of the earnings estimates.

Yeah. It was definitely an issue in the third quarter and I'll, let Phil comment on your questions.

Yes, Hi Cosmos.

Hey, Phil.

Yeah I think your question is very valid.

Our financial performance in Q4 first of all in Q3.

The difference in our for example, our earnings per share.

Results compared to where we.

As expected to be was impacted by income taxes, you pointed out was also impacted by depreciation.

Hum.

And we had a we.

We had an effect a lower effect of gold price as well in Q3, which had a slight impact and that was really mainly impacted by.

The deferred timing on our concentrate sales.

As the gold price was dropping in Q3, but in terms of your comment on taxes.

And the FX.

Yeah.

The reason our taxes in Q3 2023 were higher because we didn't have as much of an investment tax credit to offset it as we did compared to the same quarter last year.

So that affects our current income tax expense and we only pay tax on <unk> earnings in Turkey, and then the Quebec.

Mining duties.

Sure.

On the deferred tax side, it's impacted really by the the weakening FX.

Both the lira.

<unk>.

<unk>.

The weaker Canadian dollar as well as the as the euro, but the deferred tax impact of the weakening currency as adjusted other out of Etfs.

So.

I don't know if that helps you in terms of your modeling I think just one more comment cosmos in terms of depreciation.

Depreciation is really key.

Calculated on the basis of.

On a unit of production basis.

Per ton mined and as we.

The increase in per ton mined over the quarters has resulted in a slight increase in depreciation.

Great. Thanks, Yeah that helps for now I'm sure I'll come back to you later to.

Help to fine tune my model when it comes to Q4.

But thanks, George Hill, and Joe for answering all my questions have a good weekend.

Thanks Cosmos, Thanks Cosmos.

Once again, if you have a question. Please press Star then one.

The next question comes from Mike Parkin with National Bank financial.

Please go ahead.

Hey, guys. Thanks for taking the question.

Specifically on refining costs, both at Olympias and.

And Aetna to crew, yes, if I'm looking at Olympias, what was reported for Q3.

If I compare that to the average refining costs of 2021 on a quarterly basis, it's up 150%.

What's driving that and do you expect that to kind of ease off into 2023 or remain elevated.

Bill do you want to take that.

Hey, George.

Mike.

In terms of our in terms of our refining costs, it's really tied to the concentrate sales.

Our strategy this year has been to divert.

As much of our concentrate sales away from.

From from the Chinese smelters in order to.

No bypass the additional vap.

We're progressing on that.

I think the reason for the increase is related to the portion of concentrate sales contracts that are still impacted by the Chinese.

Okay.

And that's the same kraft from Cukor as well.

No that doesn't affect it's only at olympias FM to cruise concentrate is not impacted by the Chinese.

Okay. I was just noticing like it's got a similar kind of 100% Delta.

Year to date, well Q1 was actually pretty low, but all of 2021 years sitting at around an average of about a million.

Million and a half and then it was three and a half from Q2 to $3 70 in Q3, so what's driving that one.

Okay.

That could be and I can confirm this mike, but I would suspect that's due to the restructuring of the way the contracts.

For concentrate sales are set up in the past the refining costs and the shipping costs were.

Where we are.

Separate from the.

The sales.

For 2023, there was negotiated that they were basically blended together.

So that basically is tied to the payable 80 impact.

That's my.

That's my.

I think high level answer, but let me, let me look into it further and get to a little bit more detail.

Okay that sounds good.

Yeah, just on George just one thing I'd add to that is that.

Electricity costs are up.

With most of our customers, so they're passing through or higher costs for electricity.

Concentrates they're buying.

Okay.

Okay. That's it for me thanks, guys.

And then your next question comes from Tanya you disconnect with Scotiabank.

Please go ahead.

Good morning, everybody. Thank you for taking my questions.

Two I have I, just wanted to circle back on inflationary pressures and on several.

Company calls over the last few days and have been hearing that.

Some of your competitors are seeing relief.

And inflationary pressures in various portions of labor and our consumables transportation et cetera.

Are you seeing that yourself can you comment on what <unk> seen.

That's my first question.

Thanks Tanya.

From my perspective.

If you look at our U S dollar basis across our sites.

There are higher costs are electricity.

Some consumables in.

Freight.

Some of those are driven off the higher energy costs.

Given Turkey and Greece.

Or there is more of a electricity energy crisis, we're probably being impacted a bit more than others on that and we still see volatility in that area and that area going forward with natural gas prices, but still unfolding in Europe .

I mean beyond that I would say.

We're we're being pretty much sheltered on most of our costs due to the stronger U S. Dollar.

So.

I guess from a U S dollar basis, I'd say, yes.

We're being cushion.

Our real concern looking forward is just how the energy crisis unfolds, turning yes next year, while Europe works on new.

New balance of energy inputs.

And Phil probably have more to add to that.

Sure sure Thanks, George Hi, Tanya.

So I would say the probably the most notable impact of the inflationary impact as in electricity and in Turkey and Greece.

And there are different in each jurisdiction.

In Greece.

The government has been providing a subsidy program.

The lower the effective cost of the electricity since the beginning of the year.

And it's been it's been fairly volatile.

But what we saw in Q3 is that the <unk>.

Price did go up about 29% from Q2, despite the b.

The subsidies that are in place and if you go back to last quarter Q2.

The effective price went down 26% in Q2 from what it was in Q1, so it's been somewhat volatile, but I would point out that electricity prices overall for El Dorado is about 10% of our consolidated operating costs.

In Turkey electricity prices that <unk> went down.

But because I think they went up so.

Overall, I think what we're seeing right now in Q4 and it's only.

At the end of October .

We're seeing the gross electricity pricing increase start to decline.

Like I said, we're only one month into Q4, and we're not we don't have all the information yet on in terms of the.

The impact of the subsidies, but it is it is volatile.

The other item is diesel.

Diesel is really only impacts kids today, and it's about 11% of the total operating cost at <unk> today, but we did see an 8% reduction in diesel prices from Q2 to Q3.

Okay, and what about consumable sound like you've seen any rebate and finite at all are you seeing any relief in with Saks blow sentiment back all of our field types that anything else that you would point to freight must be also containers I know there must be lower.

Yes in terms of reagents and then the main impact of that again is that it gets a bag with the heap Leach project.

We saw a slight increase of 3% from Q2 to Q3.

And sorry, what was the other.

Okay, So youre not seeing any relief in cyanide and such a thing.

Not yet.

Okay.

Explosive right.

In terms of the no we're not seeing any relief at this point.

But in terms of the like the comment that was made earlier some of our suppliers are experiencing increased electricity costs and inputs as well, so that's kind of being being pass through.

Okay.

And then my second question is just to do with just signing off on making these agreements with the parties on the scoring as project.

And that does agreements.

Can you just walk us through exactly.

What are you waiting for what are they what are you are you now.

On the other side of these agreements what are what.

What are we waiting for and looking for us.

To close these I guess.

It was a bit surprised that it was announced that definitive.

Agreement. So I'm just wondering what were waiting for to get the definitive agreements in place.

Sure Tanya I'll take that so.

Where do I begin is that where we are.

We're negotiating a definitive documents with Greek banks.

Who aren't that familiar with mining.

So when we we hammered out the non.

Non binding agreement that we announced.

Essentially.

Prior to that was educating them on the project and that may be coming up to speed with their third party advisers on mining.

And I would say that document was.

Flushed out a lot more than that most documents and it was all done with the intention of insurer and there was a good understanding between the banks on us about how we were going to proceed.

From there, it's really hammering out the definitive legal documents that allow us to sign.

And then execute the financing and so I would call this normal.

Normal course discussions or lawyers and financial experts are hammering out the language required.

For those final documents, so and we remain confident we're going to get that finished by the end of the year end.

I can tell you there's a good collaborative atmosphere amongst the banks and our team both parties want to get this done before the end of the year and feeling good well accomplish that goal.

So Jeff legal documents last kidney finalized everything out technical due diligence any other due diligence has been done.

That's correct.

Okay. Okay, I look forward to that thank you.

Thank you.

And this is all the time that we have for questions today and this concludes our question and answer session and today's conference call you.

You may disconnect your lines.

Thank you for participating and have a pleasant day.

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