Eldorado Gold Corporation (NYSE:EGO) Q3 2023 Earnings Call Transcript

Eldorado Gold Corporation (NYSE:EGO) Q3 2023 Earnings Call Transcript October 27, 2023

Operator: Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Third Quarter 2023 Financial and Operational Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lynette Gould, Vice President, Investor Relations. Please go ahead Ms. Gould.

Lynette Gould: Thank you, operator, and good morning, everyone. I’d like to welcome you to our third quarter 2023 results conference call. Before we begin, I would like to remind you that we will be making forward-looking statements and referring to non-IFRS [Technical Difficulty] and the disclosure on non-IFRS measures in our management’s discussion and analysis as well as the risk factors set out in our annual information form. Joining me on the call today, we have George Burns, President and Chief Executive Officer; Phil Yee, Executive Vice President and Chief Financial Officer; Joe Dick, Executive Vice President and Chief Operating Officer; and Simon Hille, Senior Vice President, Technical Services and Operations. Our release yesterday details our third quarter 2023 financial and operating results.

This should be read in conjunction with our third quarter financial statements and management’s discussion and analysis, both of which are available on our website. They have also both 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, we will 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.

George Burns: Thanks, Lynette, 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 then Joe and Simon to review our operational performance. Then, we will open the call to questions from our analysts. Turning to slide 4, starting with production. Our performance continued to improve over the quarter with safe production of 121,030 ounces of gold. At Olympias, the mine delivered its best quarter of the year and the trend is positive with significant opportunity to make further improvements beyond where we are today. This is a site that is really seeing innovation and technology making a difference in productivity.

In the past few months, we have energized the substation, upgraded ventilation, and added bulk emulsion blasting underground. All of this is converging to create a positive trajectory for the site going forward. In the third quarter at Kisladag with the North Heap Leach pad operational, we are seeing increased tons with 3 cells under leach, which should positively impact gold production in the fourth quarter. The tons placed are record amounts compared to the past 6.5 years and a 19% increase relative to both the first in the second quarters of 2023. At Lamaque, Q3 production increased over both Q1 and Q2. However, it was impacted by slower than expected development in the underground due to suspended shifts in the second quarter owing to the wildfires in the region.

As a result, we saw a ripple effect with reduced mining faces available for ore production during the third quarter, which impacted our production relative to ore expectations. This site has consistently met its performance expectations and I anticipate that we’ll maintain the trend throughout the fourth quarter as they access higher grade stopes. As we head into the fourth quarter, we are updating our guidance range to narrow the ranges reflecting our full year expectations given the operational and financial performance to date, and we expect tightening gold production to between 475,000 and 495,000 ounces versus previous guidance of 475,000 to 515,000 ounces; lowered cash operating cost to be between $730 to $780 per ounce sold versus previous guidance of $760 to $860; tightening all-in-sustaining costs to between $1,190 and $1,240 per ounce sold versus previous guidance of $1,190 to $1,290.

Sustaining capital guidance remains unchanged at $114 million to $139 million. Growth capital for the year has been reduced to $280 million to $305 million from $394 million to $437 million, primarily driven by lower than expected growth capital spend at Skouries. Skouries capital is expected to be between $160 million to $170 million versus previous guidance of $240 million to $260 million. The reduction at Skouries is driven by a change in timing to award several contracts in order to optimize project execution, shifting of certain preproduction expenditures from 2023 to 2024 without impact to work progress or completion schedule. Transitioning engineering work into Greece, and updated execution approach to major earthworks while maintaining construction schedule flexibility.

In addition, the closing of the project financing in April, which was slightly delayed from our initial expectation, meant a slower ramp up than what was expected in awarding the contracts. This lower than expected spend in growth capital at Skouries in 2023 is not impacting overall project plan, including cost and schedule, and we remain comfortable we are on track for first gold in mid-2025. We are also pleased to issue our 2022 climate change and greenhouse gas emissions report in August, which provides a measurable progress toward our GHG mitigation target and enhancing climate resilience. This report builds on our first climate change report that was published in 2021 and focuses on our progress implementing the climate change strategy.

The report included our GHG Emissions Target Achievement Pathway in which we seek to mitigate our Scope 1 and Scope 2 emissions from operating mines by 30% on a 2020 baseline by 2030. Our GHG Emissions Target Achievement Pathway comprises four levers: operational efficiencies and continuous improvement; technologies, processes and energy generation; grid decarbonization; and mine shutdown and operational changes. These opportunities will help mitigate our emissions and we are already discovering these levers often provide multiple benefits that extend even further. We are committed to continuing to assess opportunities to improve our emissions related impacts and enhance the resilience of our business in response to climate change. In addition, we are committed to further investigating how we will incorporate Skouries operational emissions to a climate target.

I invite you to read the full report available on our website. The highlight as we entered the fourth quarter has been a well-attended investor and analyst mine tour that we hosted at all four of our European assets, Skouries, Olympias, Kisladag and Efemcukuru. Some of you on the call today were able to get a firsthand feel for how things are going on the ground, which provided a sense of confidence in terms of the abilities of each site team. Each of you that participated was able to see firsthand our productivity improvements are making a meaningful impact across the sites and in addition the opportunities that still lie ahead for us. Additionally, you’re able to see directly our sustainable mining practices that we feel are best in class.

I think everyone that attended the tour was impressed with our site teams and the significant achievements that we have made across the business. We plan in the future to host more investor and analyst tours as we continue to deliver our growth and value creation that is unique amongst our peers. I’ll stop there and turn the call over to Phil for a review of our financial results.

Phil Yee: Thank you, George. Good morning, everyone. Slide 5 provides a summary of our third quarter results. Eldorado reported a net loss attributable to shareholders from continuing operations of $6.6 million or $0.03 loss per share in the third quarter. Directly impacted by the previously disclosed 5% retroactive corporate tax rate increase in Turkiye, effective July 2023. After adjusting for onetime nonrecurring items, adjusted net earnings were $35 million or $0.17 per share for the quarter. These onetime nonrecurring items included a onetime $22.6 million noncash deferred tax expense and a onetime out-of-period current tax expense of $8.2 million, both a result of the retroactive corporate tax rate increase mentioned earlier.

In addition, a noncash loss of $15.2 million on foreign exchange translation of deferred tax balances related to the weakening of the lira and the euro and partially offset by a noncash unrealized gain of $6 million on the revaluation of derivative instruments, primarily the gold collars. Free cash flow in the quarter was negative $19.3 million. Excluding capital investment in the Skouries project, free cash flow generation in the quarter was positive $30 million. Cash flow generated by operating activities before changes in working capital totaled $97.5 million compared to the second quarter of 2023 of $82.4 million. Third quarter cash operating costs averaged $698 per ounce sold and all-in sustaining costs averaged $1,177 per ounce sold. Our costs decreased during the quarter as we continued to see lower than expected fuel and electricity prices.

This was partially offset by higher royalty expenses as a result of the higher realized gold price during the quarter. All-in sustaining costs per ounce sold in the third quarter were in line with expectations. With stronger gold production expected in the fourth quarter, we expect to see decreasing unit costs and as George mentioned, we have updated our cost guidance ranges. Capital expenditures were $91.1 million in the third quarter, which included investment in growth projects at Kisladag and at Skouries, where we continue to advance procurement and the project. Income tax expense of $52 million increased in the quarter compared to Q3 2022, primarily a result of the retroactive 5% Turkish tax rate increase as previously noted. Current tax expense totaled $21 million in Q3 2023, an increase from Q3 2022 current tax expense of $16 million.

Deferred tax expense increased to $31 million in Q3 2023, also, an increase from Q3 2022 deferred tax expense of $12 million. These increases in Q3 2023 current and deferred tax expense over the comparative prior year period were due to the Turkiye corporate tax rate increase previously mentioned. Turning to slide 6. At quarter-end, we had unrestricted cash and cash equivalents of $476.6 million. With production expected to continue to improve over the fourth quarter, we expect to see our cash from operations improving further. With the closing of the Skouries project, financing in April, availability under Eldorado’s $250 million revolving credit facility was reduced as Eldorado’s funding commitment for the Skouries project is fully backstopped by a letter of credit under that revolving credit facility.

The availability under the facility as of September 30th was $116 million. We continue to focus on maintaining a solid financial position, which provides flexibility to unlock value across our global business. With that, I will now turn it over to Joe to go through the operational highlights.

Joe Dick: Thanks, Phil, and good morning. Starting on slide 7. At Skouries, construction activity in Q3 continued to ramp up with overall project progress at 34% and when incorporating all prior work, Skouries progress stands at 65% complete. Mobilization continued for major earthworks for construction haul roads needed to undertake all other major earthworks, and is progressing well with work on several fronts underway. During the quarter, the contractors for the earthworks and pilings for the primary crusher were mobilized and commenced work. General works continued to focus on site preparation, relocation of temporary facilities, recommissioning of the non-contact water reinjection well system, and the haulage of aggregates for construction purposes.

The first phase of underground development continues to advance the west decline and lateral development for the test stopes to validate the underground assumptions prior to first production from the underground. Test stope work access will commence at the end of 2024 with expected completion by mid-2025. With year-to-date spending at Skouries at $101.3 million, we expect to ramp up our commitments during the fourth quarter and are comfortable achieving our updated guidance range of $160 million to $170 million. The spending is focused on completing detailed engineering and procurement. As of September 30th, detailed engineering is 56% complete and procurement is 73% complete. We continue to focus on completing key contracts with evaluations ongoing with a view to generating cost and productivity synergies during the process.

We expect to complete this process and award the remaining key contracts by the end of 2023, which include the filter plant, including the earthworks, pilings, and foundation to support the filters. Open pit pre-stripping and construction of the ore stockpile, water management ponds, and the integrated extractive waste management facility dam embankment, structural concrete for the primary crusher and associated process facilities, and mechanical, piping, electrical, and instrumentation for the process plant. The project, both cost and schedule, remain on track for commissioning and first production in mid-2025 with commercial production expected at the end of 2025. Turning to slide 8, in the third quarter, we recorded zero lost time injuries.

Lost time injury frequency rate for the first nine months of the year was 0.74, a 49% decrease from the same period in 2022. We continue to take proactive steps to improve workplace safety and to ensure a safe working environment for our employees and our contractors. On our operating results, we produced 121,030 ounces of gold in the third quarter with a cash operating cost of $698 per ounce sold, a solid quarter, which positions us to remain on track to meet our guidance. I’ll pass it over to Simon to review the third quarter performance and operations in Turkiye and Canada.

Simon Hille : Thanks Joe. Starting in Turkiye on slide 9. At Kisladag, third quarter production was 37,219 ounces and cash operating cost of $622 per ounce sold, which represents a 17% reduction in cash costs and similar production compared to Q3 2022. Production during the third quarter was driven by the successful commissioning of the agglomeration drum that was added to the crushing circuit in the second quarter, and tons placed on the heap leach pad have continued to increase. The larger surface area of the newly commissioned north heap leach pad has enabled the full capacity of the 54 inch stacking equipment to increase tons placed and increase the irrigation flow rates. Production is expected to increase over the course of the fourth quarter as we realize full effectiveness from the upgraded materials handling equipment.

In addition, we expect to continue to draw down inventory built up in Q2 as a results of the substantial rainfall that resulted in diluted lead solution. On slide 10, at Efemcukuru, third quarter gold production was 21,142 ounces at cash operating cost of $817 per ounce sold. Gold production throughput and average gold grade at Efemcukuru were in line with plan for the quarter. Development towards the Kokarpinar area is on track and is expected to continue to extend mine life. For 2023, at Efemcukuru, we expect to see a modest increase in Q4 production over the third quarter. Additionally, during the quarter, the Efemcukuru mine was successfully certified ISO 50001 Energy Management Standard. And now, moving to Lamaque on slide 11. Third quarter gold production was 43,821 ounces at cash operating costs of $624 per ounce sold.

Production was impacted by slower than expected development in the underground as a result of suspended shifts in the second quarter due to the wildfires in the region, which led to reduced mining faces for ore production in the third quarter. The fourth quarter is expected to be stronger, with development into high grade stopes and continued stable processing rates. Additionally, we remain on track to complete our 2023 infill drilling program, targeting the upper two-thirds of the Ormaque deposit. Our plan is to take a bulk sample and announce Ormaque inaugural reserve during the second half of 2024. I’ll hand the call back to Joe to review the third quarter results at Olympias.

Joe Dick: Thanks Simon. Moving to Olympias on slide 12. Third quarter gold production was 18,848 ounces and cash operating costs were $885 per ounce sold. Mined and processed tons were up from prior quarter and at record levels for Olympias. Cash costs improved primarily due to productivity efficiencies resulting from recent transformation initiatives, as well as slightly lower unit costs for certain consumables, including electricity. During Q2 and early Q3, we completed a number of milestones that have resulted in our ability to increase underground development and production from the Flats Zone. These milestones include transitioning to mechanical loading of drilled grounds with a bulk emulsion agent, mechanical completion of a major upgrade to the ventilation system, and completion and energization of the new 150kv substation, station, which enabled the ventilation system start-up.

With access into the Flats Zone, we expect to improve not only our gold production, but also our byproduct metal production, which we expect to result in higher byproduct credits and in turn, lower operating costs going forward. Gold production is expected to be steady over the fourth quarter as the productivity initiatives continue to safely deliver increased tonnage and increased byproduct metals, reducing our overall cash costs. I’ll stop there and turn it back to George for closing remarks.

George Burns: Thanks team. Our operating business delivered a strong quarter generating improved free cash flow excluding capital expenditures on the Skouries project. We also delivered some fantastic improvements in our business. Both Olympias and Kisladag reached major turning point with the completion of key infrastructure investments. Both sites are now beginning to reap the benefits from these investments. At Lamaque, we’re well positioned for the Ormaque deposit and that we’ve got the exploration drift and infill drilling program moving to completion this year that sets us up for the bulk sample collection next year, which then sets us up to have our first reserve on Ormaque late next year. This site has continuously delivered or exceeded expectations, and they’re set up to deliver a strong fourth quarter.

At Efemcukuru were also advancing our exploration and infill drilling programs to support mine life extension. At Skouries, we’re just six months past finalization of the project financing and the project is advancing nicely towards the start of commissioning in mid-2025 to deliver commercial production on budget and on schedule by the end of 2025. We are on track to deliver our growth strategy to deliver industry leading returns over the next couple of years. It’s an exciting time to be at Eldorado. Thank you for your time. I will now turn it over to the operator for questions from our analysts.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Cosmos Chiu of CIBC. Please go ahead.

Cosmos Chiu: Maybe my first question is on Skouries. I guess some are wondering how a change in CapEx, at least for 2023, doesn’t impact the delivery schedule. I guess my question is, is this just really a shift in timing? On the top end, you’re lowering 2023 CapEx at Skouries by $90 million. I’m sure you’re going through the budgeting process right now, George and Phil. Is that going to show up in 2024?

George Burns: Cosmos, thanks for the question. Yes, I mean, for Skouries, I’d say a couple of key things I’d point out. Number one, you have to remember that prior to starting the work this year, we had roughly said the project was half built. So the group that went and visited the site could see we have a tremendous amount of infrastructure already on the project site. And then the other high-level thing I’d say is, remember, we just completed project financing in the second quarter. We’re on a steep ramp-up curve. We have a lot of people on site doing construction now, but that’s going to accelerate over the next number of months as we get a few of these major contracts. So yes, the capital spend is down a bit. Some of it’s actually optimization where we’re pushing some cost off without any impact to schedule and some of it is just simply a little bit light on a few of these contracts, none of which is affecting the critical path for the project.

So overall, we remain confident that we’ll get this thing into commissioning mid 2025 commercial production by the end of the year. Obviously with a bit lower spend this year, it’s going to be a heavier lift next year. But again, when we look at critical path, we’re not concerned about the schedule or overall capital costs. And Joe, I don’t know if you have a few comments you might want to add to that.

Joe Dick: Thanks, George. Hi, Cosmos. Yes. George, I would say that some of that confidence comes from – right from the beginning, flexibility that we built into the construction schedule. So, we remain continuing to project on a single ship, six-day a week construction schedule. So certainly, we have flexibility in how to deploy resources over the remaining project time. And I also say that, kind of concurrent with George’s comments that some of the optimization that we have done in — while in this early award stage, I think is pretty beneficial to overall project costs. And so, we’re comfortable with that trade-off in time versus money in the near-term here. And as George said, we’re still confident or remain confident on being able to deliver Skouries in 2025.

Cosmos Chiu: Perfect. And then George and Joe, as you mentioned, in your press release, you mentioned a few items that contributed to the decrease in CapEx for the year. Part of it is transitioning engineering work to Greece. Would that result in a permanent cost savings or could you give us a bit more detail on what that entails?

Joe Dick: Cosmos, this is Joe. Yes. That’s kind of what was being reflected there. As we move the engineering, the offshore engineering from Vancouver to Greece, we see a better cost structure for engineering. But also, there was a bit of time in making that transition, so improved cost. And for a period, as that was transitioning and ramping up a bit slower delivery, but everything is on track now and working well. So pretty pleased with that.

Cosmos Chiu: And then going back to Q2, you had mentioned at that time that several contracts were going to get awarded in Q3 likely, it sounds like it didn’t happen, but that’s okay. But you also mentioned that the FS estimate will be updated to the project control budget with some kind of update expected by the end of Q3 or past Q3 now. But again, should we be expecting some kind of update? Should we be looking out for some kind of update? If that’s the case, maybe when?