Eldorado Gold Corporation (ELD) Earnings Call Transcript & Summary

Hi, George. Thank you very much for joining us today. How are things in Vancouver?

Things are well, and thanks for having me.

You're welcome. George, Eldorado Gold has gone through significant transformation in the past year with many improvements across your various operations, including improving gold recoveries at your mine in Turkey, ratifying the investment agreement with the Greek government, strengthening your balance sheet. But before we go into these various topics, I want to provide an overview of where I want to take our discussion over the next few minutes, beginning with an overview of Eldorado's assets, the Kisladag mine in Turkey, the Lamaque mine in Québec, the Skouries mine in Greece. And I want to conclude with a discussion on valuation.

George, let's begin with a brief overview of Eldorado Gold for those viewers who might not be familiar with the company. How many mines do you have? Where are the mines located? And how many ounces do you produce annually?

Yes. So we have 3 operating regions: Turkey, Canada and Greece. And we have 4 operating mines and 2 development projects. To begin with, in Turkey, we have the Kisladag open pit, heap facility. We also have the Efemçukuru underground mine produces gold concentrate. In Canada, our newest operation is Lamaque. That's an underground mine produces gold doré. And in Greece, we have the Olympias operating mine. It produces 3 concentrates: a gold con, a lead con and zinc con. And then our 2 development projects are both in Greece, Skouries project and the Perama Hill Project. Our guidance for this year is to produce between 460,000 and 490,000 ounces of gold.

George, as you mentioned, Eldorado Gold has 4 producing mines. But in the interest of time, I just want to touch on 2 of your larger mines, beginning with Kisladag. This is your flagship mine. It's an open pit mine based in Turkey. You produced 175,000 ounces of gold last year. Can you just provide an overview of this mine? And how it's doing currently in terms of its operating performance?

Yes. Kisladag's had a long history of creating value for Eldorado. It's a large open pit mine. We crush the ore, stack it on the line facility and then leads the gold out of the crushed ore. Last year, we invested in a high-pressure grinding roll circuit. Essentially, it's an improved crushing circuit that exposes more of the gold. We're expecting to get a 4% improved recovery from this new circuit. It was delivered on budget and commissioned in December of last year. And this year, we're working through optimization of this circuit. This mine has a 15-year mine life. We'll continue to create a lot of value for our shareholders. And we think we have the opportunity to further optimize it with this new crusher, improved fragmentation and then additional work on debottlenecking the plant, the open pit. And optimizing agglomeration and leaching, which should all lead to improved performance. So it's been a great asset for Eldorado, and it's got a 15-year mine life and really excited about the future in front of us for this asset.

And you're also spending some money this year on pre-stripping but also on a new heap leach pad, which can improve recoveries. Can you just tell us what this might do to the overall operations?

Sure. So Kisladag, the recovery prior to this investment was about 52% gold recovery. With this new high-pressure grinding roll, we're going to get a 4% improvement in the recovery. That's based on metallurgical work, but we're pretty optimistic through operating that facility this year that there is upside. Additionally, in the open pit, we invested in a dispatch system. We're working on improved productivity and efficiencies out of our mining fleet. And if we can couple improved productivity from the mining fleet, debottlenecking the plant, we think there's some additional upside to push throughput, push the recovery and really enhance the margins from this high-quality asset.

George, your second largest mine in terms of production is Lamaque mine, which is in Québec, last year produced 153,000 ounces. Can you just provide an overview of this mine, please? And also touch on the technical study that was recently done?

Yes, Lamaque's been a fantastic acquisition for Eldorado. We purchased the asset in 2017. Within 9 months of acquisition, we did a feasibility study and announced a maiden reserve. And in less than 2 years from acquisition, we put this project into commercial production. And it's pretty exciting. In just 3 years of operation, we've produced 444,000 ounces. And we've ramped up the production. That project to-date production was about 16% higher than we estimated in the pre-feasibility study. And we've done that through exploration success and debottlenecking both the underground and the plant. So right now, we just recently completed a technical study that gives really good visibility on the reserve case of the Triangle underground mine. But it highlighted the opportunity to convert the lower Triangle mine into reserves and then also to bring into the production profile and inferred resource in the Lamaque discovery we made 2 years ago. So right now, we're focused on exploration and delivering the new production profile. One of the things I'd like to talk about is in the original prefeasibility study based on the exploration results at the time, the peak production level was 130,000 ounces. And we just put out updated 5-year guidance earlier this year. And the peak production level now is about 210,000 ounces. And so it's been a fantastic acquisition. We're continuing to have success on exploration, and we think we've got a long bright future for this asset.

And last year, you also acquired an explore coke called QMX. Why didn't you just tell us a little bit about this asset and why you acquired it?

Yes. QMX was a junior exploration company just off to the east of our property package. And really, that acquisition was an effort to duplicate the success we had with Lamaque to date. So Eldorado about 7 years ago, purchased a toehold into Integra, a junior exploration company. And over a couple of years, we're able to get comfortable with the project, help influence Integra in both their exploration and project design. And that really led to a friendly acquisition in 2017 when I joined the company. And so with the QMX acquisition, we've got a considerable amount of upside in our infrastructure. We've got one of the best work forces on the planet and in Québec is one of the best jurisdictions on the planet. And so the whole strategy here was to acquire a land position just off to the east of our infrastructure and then deploy the exact same strategy, exploration, create additional reserves that could then either allow us to further expand our plant and/or extend mine life. And the beauty of our infrastructure, the plant currently has a nameplate of 2,500 tonnes per day. But in a prior life, this asset did 5,000 tonnes a day, and it's still permitted at that 5,000 tonne a day level. So we've got the ability with additional capital to expand the production capacity of the plant. And with this much larger footprint with the QMX acquisition, it's actually about 5.5x the surface area of the original Lamaque operation that we acquired. So we've got a long runway of exploration targets, and we think that will just build to the success we've already had in this fantastic asset.

And last year, you also acquired a 10% position in Pro. Maybe you can just touch on that and what the reasoning was?

Here again, the toehold in Pro, which is just shy of about 11%. It kind of replicates the strategy with Integra and with QMX. So once again, it's the next property to the east of our recently part of QMX plan package. And again, what we're doing is just partnering with the Pro leadership team, keeping close to that project. And with their continued success, that might be a future acquisition for us and give us additional runway for production growth and value creation for Eldorado.

George, we touched on 2 of your producing mines, and now I want to focus on an advanced development project called Skouries, which is a copper porphyry mine based in Greece. When in production is going to be both an open pit and underground mine. And you and your team are slowly moving this project forward and winning production is going to be a real game changer, a $2,000 gold and $450 copper. And you recently came out with a feasibility study on this project. Can you just give us a brief overview of this -- the feasibility study, just the -- and net present value also the internal rate of return and the CapEx?

Sure. Skouries is one of the better undeveloped gold-copper porphyries on the planet, and we're pretty fortunate that not only do we own this asset, but a lot of the infrastructure is already in place. So the main equipment for the concentrator is actually already installed. And in terms of the project scope, it's both open pit and underground. It's got about a 23-year mine life. And so we just completed a feasibility study on the capital cost and economics for the project. Capital is about $845 million. It's about a 2.5-year construction period. It's got an internal rate of return of 19% and less than 4-year payback. And it's a very low cost operation. The all-in sustaining costs are slightly negative. And the reason is the copper revenue will pay all the operating and sustaining capital cost. So essentially, the gold production will be free cash flow, and the copper, there will be a slight free cash flow from the copper. In terms of the average annual production rate, it's going to produce about 140,000 ounces of gold per year. And then depending on your copper price assumption and in this case, we're using a $3.85 copper in the feasibility study, so $3.85 per pound. That equates to 172,000 ounces of equivalent copper. So when you combine the 2, it's 312,000 ounces per year on average over a 23-year mine life. During the first 5 years, the grades are a bit better. So the production is a bit stronger. It's going to generate a massive amount of cash flow for Eldorado in the first 5 years of operation. And so it's an exciting time. And the other thing I would highlight about this project is it's a pretty fantastic overall design. So the first decade of the open pit mines, we're deploying dry stack tailings to filter the water out of the tailings to conserve water, minimize footprint, for tailings disposal. And then when the open pit finishes, we continue to run the underground. And the underground will also be dry stack filtering, except then the tailings will be deposited back in the open pit. So at the end of the mine life, the pit gets fully reclaimed, which is a pretty unique and pretty awesome design that we have for this whole copper porphyry project.

As you mentioned in order to complete Skouries, it has a CapEx of $845 million. And a year ago, it looked like you might have to give up a large percent of this project to fund it, but now that's changed, and it is totally changed because of your various funding options, but the primary one being the COVID relief funding. So why don't we just start with that and just give us an overview of how this program works?

Sure. So we're focused right now on getting the funding in place to be able to restart the construction this summer. One of the really awesome things that's occurred for us in the last 6 months is that the Greek banks are looking to deploy their capital for projects with strong economic profile and Skouries fits that criteria. And in the EU, like most countries, there is funding available to help get the economy moving. And so the EU has put together COVID relief funding that Greece has been approved for EUR 5 billion in the first tranche. And so we're working with the Greek government essentially to put project financing in place that could cover up to 80% of the capital required to get Skouries construction completed. And the unique thing about this financing is it's a very competitive low-cost financing. It looks like it will run less than 2% interest rate on up to 80% of the capital when we combine the Greek Bank and the EU COVID relief funding available. So that's one of our really strong alternatives in terms of funding the remaining capital. We're also in discussions with the prospective joint venture partners and we have streamers also putting together proposals. And what we're trying to do by midyear is to conclude all these opportunities for financing such that you can make a decision in the best interest of our shareholders. And then with Board approval, to get this project into construction to generate a heck of a lot of value for our shareholders.

So George, I just want to spend some more time on this COVID relief funding just so I understand it. The EU and also the Greek government would put up 80%, you would only have to put up 20% of that $845 million?

Yes, that's correct. The funding eligibility is up to 80% combined funding between the EU and Greek banks. So yes, that would leave the balance 20% for Eldorado.

So there's a good chance that you could own 100% of this project?

Yes, for sure. I think that's the beauty. The optionality that we have now is immensely in our favor. So we've got, I think, some pretty good prospective partners that could contribute value and certainty to the outcome of the investment. And so we'll be evaluating all these various potential funding options to come up with the best scenario for our shareholders. But for sure, this low cost project financing is a remarkable opportunity for us.

And I just want to touch on equity partners. If you do bring somebody in, can you just tell me again exactly who would the partner be?

We have peer mining companies that are looking at the possibility of becoming a joint venture partner on our assets in Greece. And we also have EBRD, the European Bank for Reconstruction, that often invests in mining projects around the planet. And so they've been working with us for a couple of years on environmental and social baseline studies. That's a normal part of their process if they get involved in helping finance a funding part or a mining project. And so -- in fact, we'll be putting up that study in the next month or so that will give a good indication of all the efforts we have in both social and environment for developing this project. And so there's quite a few interested parties on the equity side. And again, we'll be looking at that as one of the alternatives for funding our Skouries construction.

So I just want to move on now and take the conversation toward politics. The current government in Greece seems to be a lot more pro-mining than previous ones. How long can this government stay in power? And When is the next election?

Yes. I mean we're getting very strong support from Prime Minister, Mitsotakis and the new democracy government. And maybe just to give a little background on what's happened the last couple of years under their leadership. And we negotiated an investment agreement. That investment agreement has various protections for the investment. That was actually passed into law in parliament. Second thing I would point to is, some of the challenges that we had in the pass from prior government were resolved through the courts in our favor. And we think that really puts a strong certainty around our ability to get permits into the future. And then beyond that, I mentioned that we've designed this for dry stack tailings, that required a modification to the environmental permit. And that was approved in the second quarter of last year. And where things stand today, new democracy continues to be strongly in the lead in the polls. Regular elections are scheduled for early next summer. And so at this point, it looks like they'll likely get a second term, and that bodes pretty well for Eldorado given the strong support we've seen from this government.

So George, that's a great overview of Skouries and what it can do when it comes into production in terms of creating shareholder value. But one of the things I don't understand, and I'm hoping you can help me with this, but your stock has been trading at a discount, depending on whose research you look at 0.6x to 0.7x on a price to NAV basis. And so you're getting value for your assets in Turkey and also your assets in Québec. But it would appear the Street is giving you very little value to Skouries. Can you just speak to that? And why do you think that is?

Yes. From my perspective, there's a couple of reasons where our valuations depress versus our peers. And the first thing I'd say is I think it's a great opportunity for our shareholders and prospective shareholders. And my reasoning behind that is, as I've outlined, the quality of Skouries is undeniable. The economics of having production in the 140,000 ounce range at a negative all-in sustaining cost is a pretty unusual high-quality asset. But here again, we've got to get the financing in place. That's always an overhang on a development project. And then we need to execute and deliver this project on budget and on schedule. And always, the market then responds when the free cash flow is flowing. So in my view, the -- well, the price to NAV that Eldorado is trading at, which is roughly around 0.6, is about 50% lower than most of our peers. And I think it is really all about getting Skouries across the line. So what I'm expecting to see once we get the financing in place and [indiscernible] to restart construction, we'll see a bit of a re-rate in our share price. And then as we derisk the construction and then ultimately deliver the commercial production, Eldorado's performance is going to be improved substantially. We're already operating at lower than the average cost for the industry. And by bringing Skouries into production, we're going to dramatically reduce our cost and increase our margins and as well increase our overall production profile. So end of the day, I just think it's an awesome opportunity for us and our shareholders to get this fantastic asset into production and the market will recognize it as this unfolds over the next couple of years.

George, you just mentioned that as you move this project forward, you could see a significant re-rate on your stock. Can you just give us the time line associated with that? When can we expect this to, once again, go into construction, but also production?

Yes. Our target is to get the various funding opportunities in front of us by the middle of the year so that we can make a decision and get Skouries into construction this summer. So target is midyear. And in terms of the market reaction, really, I think by having the funding in place and getting the project back into construction, we'll begin to see a correction in the [indiscernible] and move more in line with our peer group. At the end of the day, in large mining projects, there is the risk on financing and there's a risk associated with execution of the construction. So I expect to see our share price fully recognize the value of this asset once it's in commercial production in about 2.5 to 3 years.

George, as we wrap up what can investors expect in terms of news flow in the coming months from Eldorado Gold?

Yes, I think in the next month or so, we'll be putting out that social environmental report. And so I think that will give some additional visibility on the project itself from a social and environmental perspective. And then the next major news piece will be a decision on the funding and the decision to restart construction. As I said, we're expecting that to be mid-year early Q3. And then each quarter, as we put out our results, we'll be giving the market updates on how the construction is going. I'm feeling pretty confident about our ability to deliver this on budget and on schedule in spite of the high inflationary period, we're seeing around the plan. And the reason for that is we just completed the feasibility study in December. So we got fresh numbers. Number two, the main equipment in the plant is purchased and installed. So we're not going to deal with the inflationary pressures that when we normally -- when they're building a plant from scratch. And so we think we're pretty well positioned to be able to deliver this. And I think if you just look at our track record in the last 2 years during COVID, we've been very successful at putting in the high-pressure grinding roll circuit in Kisladag, on budget and we just completed a decline at Lamaque in December last year. That was a 2-year project done entirely during the COVID crisis, and we brought that project on budget and on schedule. So we've got the team to be able to deliver this and really looking forward to breaking ground and getting this into construction.

George, that was a great overview of Eldorado Gold, and I want to thank you for spending time with us today. And to all of our viewers, if you have any further questions for George and his team, by all means, send us an e-mail to [email protected] or if you would like some research on Eldorado Gold send us an e-mail and we'll send it along. George, once again, thank you.

Thank you very much for the opportunity.