Eldorado Gold Corporation (ELD) Earnings Call Transcript & Summary

Well, good afternoon, everyone, and good evening for our overseas listeners. This is Mike Jalonen of Bank of America. I cover the North American precious metals sector. And we're very pleased to move on to our next North American gold producer. We have from Eldorado Gold, George Burns, President and CEO. He's been in that role for 4 years. However, George has had certainly an extensive mining experience. Over 30 years in the business and -- at several companies. So we're very pleased to have George and Eldorado join us and certainly a lot of good things have happened with Eldorado this year. George is going to make a some opening statements, and then we'll get to Q&A, and I encourage questions. So George, thank you again, and over to you.

Thanks, Mike. Pleasure to be with you again this year. We have 1 slide we're going to share and just some opening remarks before we get into Q&A. I mean, I'd start with, we believe that Eldorado, we're well positioned for the future. We've been delivering on our expectations. We delivered our 2020 guidance. We didn't change our guidance during the year, and we delivered on it despite COVID-19. We had a good start to this year with Q1 production coming in on plan and consistent with our 2021 guidance. Already this year, we've had some pretty amazing news out. We signed an agreement with the Greek states -- the Greek state that has been ratified into law. This improves our ability to grow our business in Greece and get Skouries, a top quartile project into production. We also completed the acquisition of QMX. It's a junior exploration company in Québec that had a very nice land package adjacent to our Lamaque operations, offers us 5.5x the surface and numerous exploration targets. In terms of our balance sheet, we strengthened our financial position considerably last year. We ended the year with cash and equivalents of $511 million. We strengthened our credit profile. We reduced our debt by $130 million last year. And we had $100 million remaining on our revolving credit facility available. In terms of growth and cost discipline, our cornerstone Kisladag operation is installing a high-pressure grinding roll circuit, and continuing with prestripping to position us for the 17-year mine life, 16 after this year. We're increasing mining rates and efficiencies at Lamaque. Efemçukuru improvements will sustain low-cost production at that operation, and we're focused on extending mine life there. And Olympias continue to focus on increased productivity and efficiencies. On the exploration front, we were happy to announce a maiden inferred resource at our Lamaque operation, this is the Ormaque discovery. So it was a discovery we made about a year ago. We just announced an 800,000 ounce inferred resource, a maiden resource. And we have drills actively drilling on it to expand the size of that resource as well as infill drilling, so we can determine the drill density required to convert it to reserves. We continue to drill on other targets on the underexplored land package we had at Lamaque. And now we're focused on the increased line package that QMX brings to our Lamaque operations. We brought that team on board and integrated them into our exploration team at Lamaque, and I now see on a weekly basis, exploration updates that include the historic QMX property. And last, the compelling opportunities at Skouries and Perama Hill, a huge push and focus on those and expect to make serious progress this year and next. And where does that put us? Well, we think we're very attractive from a valuation perspective. Skouries, we've been derisking that over the last year plus. We got the dry stack tailings EIA approved this quarter. We think we're very attractive from a price to NAV basis against our peer group. And largely, that's to unlock the value in Greece that isn't showing up much in our share price. We believe we've been diversifying our geographic risk, particularly as we have grown our business in Québec the last 2 years. And I think we stand out in deploying best available technologies on tailings management and other ESG priorities. So with that, Mike, ready to move to the question.

George, thank you for that overview. Just -- you probably touched on a few of them already. I guess in the last year or so, you've been CEO 4 years, what would be 2 or 3 of the major achievements? And then what's on your to-do list over the next couple of years, and obviously, to expand your valuation multiple?

So Mike, the last 4 years, we started out with some pretty significant challenges with Greece and needing to put Skouries into care and maintenance in dealing with the challenges we have there. And dealing with some technical challenges at Kisladag in terms of metallurgical recovery challenges. But I have to say, we put together a solid executive team during that period. We put a business plan in place to do all the technical work, to understand the metallurgical recoveries that manifested into a 17-year mine life. We were patient in Greece. We now have a very supportive government. I've got a good relationship with Prime Minister Mitsotakis and his government, and we've been delivering in the last year a lot of significant catalysts to be able to get Skouries constructed in the operation. Aside from that, I'd point to Canada. When I joined Eldorado, we owned a minority stake in Integra, an exploration company in Québec. And in my first week as CEO, we announced the friendly acquisition of Integra. That has evolved very nicely for us. They had an inferred resource at acquisition time. We were able to put out an initial maiden reserve. And in less than 2 years, put Lamaque into commercial production. We since delivered 2 solid years of operating results and we continue to grow that business. And I think -- I mean, looking forward now, we're continuing to focus on creating value at Kisladag and Efemçukuru in Turkey, continuing to expand the opportunity to grow value at Lamaque and a pretty heavy focus on materializing the value of these high-quality assets in Greece. And as I said, we've done a lot this year to position that for Skouries for a restart and Olympias for expansion. Looking forward, we're going to complete a feasibility study on Skouries by Q3. And we believe that will position us well to finance the remaining $700 million in capital to enable us to complete 2.5 years of construction and put one of the best undeveloped development projects into production, and that will make a massive change to Eldorado. So excited about what we've accomplished in my 4 years, but equally excited about what we're going to do moving forward.

Okay. Just staying on Skouries. So the -- on the Q1 call, I believe there was a question that you said it that you're looking at maybe a JV partner, maybe a bank coming along with you for -- to take care of part of the capital spending. But it's all contingent upon the feasibility study. So you have a basis to go out. But just wondering if that's still the preferred route. And going forward for Skouries, if everything went well, when could it be in production?

Great question, Mike. So I mean, we really have been focused on ensuring we have everything in place to negotiate the best possible terms to support the financing required for Skouries. So again, there's about $700 million in capital to be deployed, 2.5 years of construction. The project is roughly 50% complete already. So the main body of the plants there, the pit's been prestripped. The underground development is sitting at the top, the underground portion of the ore body. What's left, a lot of lateral development underground, test stoping and infrastructure, the plant electrical, the building itself. Now the dry stack tailings, we need to construct the building and acquire the filters. It's roughly the size of a soccer field. And we have the initial starter dam that will be deployed to control erosion on the dry stack tailings that will fill up one valley just downstream of the plant. In terms of timing, we're -- we'll have that feasibility study completed in Q3. We'll enter in negotiations on the various financing alternatives. We still believe joint venture is a preferred alternative, but obviously dependent on negotiations. The reasoning for that is we think bringing in capital at the Kassandra level in Greece, hopefully, a partner that has a voice over the 2.5 decades of mining or more that we expect. And also to not stress our balance sheet at the same time that we're constructing a top-quality asset. We are looking at all alternatives for financing. We just believe the joint venture is a preferred alternative and we believe likely will be part of the final financing strategy. With that, I mean, we're hopeful to have that complete by year-end and to get Skouries into production -- in the construction, I mean, sometime next year, hopefully in Q1. And so once the financing is in place, we'll be seeking approval from our Board of Directors to move forward with Skouries. With 2.5 years of construction, assuming a start early next year, we'd be looking at a pretty massive impact on our 5-year guidance in 2025. Skouries will produce about 140,000 ounces of gold per year. A very conservative metal price assumption. So if you look at our technical study on Skouries filed on SEDAR, that includes dry stack tailings, we assumed a $1,300 gold price and $2.75 per pound copper. At that price, there's an equivalent amount of copper being produced as a byproduct credit. At spot prices, there's a huge amount of torque on scurries that the copper will pay all the operating in all the sustained capital costs. And so it would have a negative ASIC from a gold perspective. So anyway, we think this will become part of our 5-year guidance once we have board approval, and we're working very hard to make that a reality.

Sounds very compelling. Just wondering, the JV, would that just be on Skouries or the entire Kassandra Mines asset base, including Olympias?

Yes. I mean our strategy is on Kassandra. So Kassandra is our subsidiary that holds Skouries, Olympias, Mavres Petres, Stratoni, which is sort of a nonmaterial base metal mine as well as Stratoni Port that's important for shipping our concentrates out of Olympias. So we're aiming at a joint venture at the Kassandra level. Now within Greece, we also have the Perama Hill project that would be -- that's separate from Kassandra.

I was just going to ask you about Perama Hill. Serendipity. That's -- obviously, you talked about value -- discovered value for Eldorado, and certainly Perama Hill would qualify. I remember visiting that property years ago. And it's -- as you all know, it's just sitting there, right, a super low strip ratio. Just wondering what -- where that development could end up being in your view since it's a great asset.

Yes. I mean, Perama Hill is a fantastic project. It's an oxide gold deposit. Very simple metallurgy. As you stated, it's got a tiny strip ratio, so it's a very small pit. From a timing perspective, we're working on an updated strategic EIA and technical study that would be used for permitting. This new strategic EIA process that the current government put into law recently offers us a really good opportunity for this project. We'll be submitting that EIA later this year. We're seeking approval sometime later in 2021. There'll be a consultation process in that EIA with the local communities. And so I think we could have it in a position for construction in 2022.

So that would have a very positive impact on your 5-year plan, that's for sure.

For sure.

And maybe moving -- I'll come back to the Turkish assets. But Lamaque, I never visited that mine. When this pandemic over, George, I can't wait to get up there. And the Ormaque discovery looks outstanding. And just wondering where you see that mine going over time because you have the new -- you're putting in the underground access, and that's going to be very positive for costs and I assume production?

Yes. I mean we're really excited about the opportunities in front of us at Lamaque. We're 2 years of production now behind us. And I think we've exceeded the market and our own expectations against our acquisition model. You're right. That decline is on schedule to be completed at the end of the year. It offers the opportunity to lower our cost in that we currently haul the ore off a spiral ramp to surface. And then we have a contractor hauling the ore a 26-kilometer round-trip to the plant. When that decline is finished, our trucks will go the same distance, but up a straight-line right into the mill. So it does lower our cost. Equally important, it offers us a very good opportunity to explore some of our targets from underground. So Ormaque discovery that I talked about in the opening remarks, it's just adjacent to the decline. So later this year, we'll be able to begin drilling it not only from surface as we are today, but from underground. And that decline also offers the ability to have a roadway as part of the infrastructure to develop that mine. Ormaque is probably the most exciting thing in terms of near to medium-term in creating additional value. It's an initial maiden inferred resource of 800,000 ounces, but we're actively drilling that to expand it. It's a bit higher grade than Triangle that feeds the plant currently. Although it also is going to require a different mining method. It's a flatter lying deposit. So it's a drift and fill or cut and fill type mining method. So a bit higher operating cost. But on the other hand, better grade. In the end, I think it's going to net out to be a similar value to Triangle. The important aspect about all this is that we have a mill, that's permitted for 5,000 tonne a day. We have a 5-year business plan calling for 2,200 tonnes a day. And so if we can convert Ormaque into reserves, create another massive mining front for Lamaque plant, we have the opportunity to drive our production up significantly, and that will lower our cost and drive additional value. Beyond that, Triangle itself has a lot of potential to depth. We're currently mining C1, 2, 3 and 4 veins. So 4 these steeply dipping veins are currently in the reserve and in the mining. We have C5 and C6 that are -- some of it's been converted into reserve, and there's more to be done. And then these veins continue to stack to depth. And what I'd point to on Triangle is that although between our production to date over the last couple of years and our reserves on the books, we're past 1 million ounces, but it's a lookalike deposit to the old Sigma underground mine and the old historic Lamaque underground mine. These are separate deposits that were mined for decades. Each of them produced over 4 million ounces. In combination, the 2 mines produced over 9 million ounces. So we think Triangle has similar potential. These veins continue to depth. We've drilled down more than 1 kilometer. We're down in the C10, C11 range. To be able to mine that deep, we've got lots more drilling to do, additional infrastructure would have to be put in. But we think between Triangle and Ormaque, there's a long potential here. And then when you combine that with plug 4 parallel, when you combine that with the other early stage expiration that's ongoing on our Lamaque property, now we're expanded. The Lamaque property that includes QMX. We think we have a long runway for a multi-decade asset and the ability to ramp production up significantly beyond the current guidance.

Okay. Congratulations, whatnot. And we have a question, George. I have to bring you back to Skouries. Hope you don't mind flying back quickly. George, there's no quarantine for this question. If the economics of Skouries are so good and why JV it? Why not keep all of it?

Yes, that's a great question. So I mean, there's 2 reasons for that. I mean, one is just financing. We had $700 million in capital to deploy in the next couple of years to complete the construction. And so we think the joint venture strategy offers a fairly good opportunity to bring in the right capital cost and structure to support that construction. Equally important, we've had some challenges in Greece, particularly with the last government withholding permits, and those were unlawfully withheld, and that's been confirmed by the Supreme Court of Greece. We have put this new investment agreement in place that offers international arbitration rules and other investor protections. And so we think we've done a lot to ensure we're not going to face challenges in the future. But if we can bring in a joint venture partner that has a voice that could be influential on future governments, we think that's also very useful and helps derisk the value that we intend to create over multiple decades. An example, I would say of that would be EBRD, the European Bank for Reconstruction. They're a bank, I'm familiar with in my past that provides debt and equity financing to mining projects. The thing about this bank, they're European-based. They've got great credibility when it comes to social and environmental. And this is the sort of partner that would have a meaningful voice on our Greek development projects and operations going forward. So just an example of the sort of parties that could help bring certainty to the investment going forward. Joint venture isn't the only alternative. We're taking a broad view of financing alternatives. But we do believe that the joint venture will end up being at least one of the components to help finance Skouries.

Okay. We actually have a follow-up question to your response. Then, why don't you do a partial spin out and list in Greece, give your shareholders the upside? Interesting concept.

Obviously, that's another alternative, obviously, a separate listing. And what the benefit of that, it brings more certain value of what those Greek assets are bringing to Eldorado. There's cost associated with a separate listing. There's uncertainty on how quickly you get the financing in place with that listing. So it's definitely one of the alternatives. I wouldn't put it high on our list. But definitely one that's in the queue for consideration.

And thanks for the questions. But maybe one other question I want to ask about Lamaque. QMX transaction, I know it's a big line package, it's prospective. But when you made that acquisition, I was of the view that wait a minute, Lamaque to me seems pretty prolific. And QMX is a large line package. But I'm just wondering what the thought process was for QMX?

Sure. Thanks for that question, Mike. So I mean, one, I would tell you, it's a replication of the Integra strategy. So Integra, we invested in that stock a couple of years before I joined Eldorado. Our geologists and engineers got to know the exploration opportunity. We were very confident that it was going to turn into a mine. And I was lucky when I joined Eldorado in early 2017, the company had already done all their homework. I -- as I was going out to meet our employees and government officials and partners, my first few months in transition, I was also looking at this opportunity and concluded with the team that we should acquire it. And there were people that were supportive of that announced acquisition of Integra that is now our Lamaque mine, but there are others that were questioning it. It had no reserves. It had an inferred resource. It looked good, but people questioned it. And in the end, we were very successful. We acquired it, we put out the maiden reserve 6 months later. We put it into commercial production 2 years later, and we've been growing the value of that asset ever since. And so when we looked at QMX, it's a similar strategy, albeit it's earlier stage, no doubt. There are multiple targets. We're very interested in some of the high-grade exploration targets on that property. And we're also very interested in growing our Canadian business, in particular, in Québec, where we have great people and infrastructure. So it just made perfect sense to us to expand the portfolio. And it's a large land package. Part of the land package could potentially offer additional feed to our hungry mill. It's permitted to 5,000 tonne a day, and so we can double the capacity or the feed into that plant with exploration success. And part of -- we may end up with another plant and another camp on that property package and further grow our business. So it just seemed like the right time. We hate to have lost the opportunity to have QMX part of our portfolio. And it is an ever-increasing demand in this region for this highly prospective ground. So we thought it was the right time to act and believe we'll deliver value to our shareholders.

Okay. I look forward to your progress on those lands. And another investor just came back with another Skouries question. It's a bit of a long one, and I'll read it out. They understand your desire to bringing a partner for Skouries to manage protocol risk. The NAV of Skouries are using $2.75 or $3 copper versus the current spot price, given the reserve -- the NAV is much different, obviously, you alluded to that. And how do you balance when to bring in a partner for the long-term security getting paid for the NAV value of the copper in the ground? So that's an interesting question.

I mean, that's a great question. And obviously, that's the one that we're facing over the coming couple of quarters as we work through negotiations. The deck that we're using at your conference, Mike, Slide 6 kind of depicts that value in Skouries. And at the lower metal prices that we used in the technical study that's currently filed, that the life of mine cash flow coming up Skouries is just shy of $2 billion. At spot prices, it's $4.5 billion. So this thing has massive torque to these higher metal prices. And the copper, if you use $1,300 gold and $2.75 copper, the all-in sustaining costs are around $200 an ounce. So the copper pays most of the operating and sustaining capital. At spot prices, it's going to have a negative ASIC. And just in terms of the importance to our portfolio, 140,000 ounces is a big step forward. So yes, if we kept all of that for Eldorado, it would be in a great position to be in. But again, from our perspective, finding the right balance between derisking the multi-decade potential of this asset and using that as part of the formula to fund -- the financing required is a smart move. Obviously, it's all dependent on the negotiations, and that's why we're taking a broad view, looking at all of our alternatives so that we can find the best answer for our shareholders. So at this point, we think joint venture is going to be part of that strategy. But that will all unfold as negotiations move forward later this year.

Okay. Actually, I was just thinking -- like I'm thinking like New Gold with New Afton, come up with a gold equivalent production number, converting the copper to gold equivalents. At current spot prices, what would be the gold equivalent production at Skouries, have 140,000 ounces of gold, but what would the copper be, like 200,000, 250,000 ounces gold equivalent?

Mike, I don't have that number off the top of my head, at $1,300 and $2.75 copper, it's 140,000 ounces of gold and 140,000 ounces of gold equivalent copper, it's spot prices, I think your number is probably close to right, but I don't have that in my fingertips.

That's interesting. On that method, Eldorado owning the property 100% will be 1 million-ounce GOE producer. I'm just doing analyst math, sorry, George.

No, that's -- you're pretty close to the reality.

And that's a great asset. But yes, unfortunately, George, we've come to the end of our time. And I just want to thank you and Eldorado for participating in the presentation, answering all the questions from the investors. Thank you, investors and well, good luck in the future and stay safe. And I look forward to hoisting a beer with you in Miami, mid-May 2022 at the 1 Hotel.

Look forward to that as well, Mike, thanks for the opportunity, and we look forward to updating investors as we continue to focus on creating value. Thank you.

Thank you. Take care.