Eldorado Gold Corporation (EGO) Q3 2017 Earnings Report, Transcript and Summary

Thank you, operator. Good morning, and welcome to our 2017 financial results and operating results call. With me in Vancouver I have Paul Skayman, Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; Krista Muhr, Vice President of Investor Relations. Before I begin, I must remind you that any projections and objectives included in our discussions today are likely to involve risks, which are detailed in our 2016 AIF and in the forward-looking statement disclaimer at the end of the news release. We have provided detailed operational and financial information in the press release that went out yesterday evening. I will try to add as much color as I can on the developments during the quarter in Greece and speak to the progress on the Lamaque project. I would also run through the exploration highlights for the quarter. Paul and Fabi will provide more detail on operations and financials. The past three months have been incredibly productive with completing the Integra acquisition, active engagement to advance our projects in Greece and now working through technical challenges at Kisladag. The effort that our team has put in during the third quarter on behalf of the company and its shareholders has been tremendous and deserves to be recognized. Plainly, the stock market has reacted negatively to our recent developments, but I believe this reaction is overdone. Mining is complex from a geological, operations and geopolitical perspective. It is a long-term proposition embedded with volatility. It pains me to see the market overreact to challenges that may -- many companies face. But Eldorado has the experience and team capable of overcoming these challenges. There are four facts about Eldorado that should not be dismissed. We have a premier set of gold resources. The majority of our assets are long life and low cost, our growth pipeline is robust with -- and one of the best in the sector. And we have an industry-leading balance sheet and liquidity profile. Most importantly, our team is second to none. Over the past 25 years, Eldorado has built 6 mines and operated in 8 different countries. Often the company has been at the forefront of helping to establish new mining jurisdictions. There have been opportunities and there have been challenges but our teams have consistently forged relationships, successfully applied technical expertise and always found a path forward. As it relates to Kisladag, we are working on technical options to restore production rates. Options that are well understood by the industry and certainly by this team. We should stress that we have not yet made a final discussion to proceed on any of the options we have put forth in the press release. We are working towards announcing the results of a study by the end of the first quarter 2018 and file of prefeasibility report. We expect to make a decision based on this prefeasibility. The company has previously contemplated construction of a mill at Kisladag. Historic and ongoing test work using bottle rolls and other metallurgical tests indicates that milling should result in consistently higher recoveries compared to heap leaching throughout the ore body, while the potential benefits from HPGR require significant studies and additional test work. We believe that the large number of bottle roll tests completed to date provide a good indication of how Kisladag material would performance in a mill. Bottle roll tests indicate gold recoveries in the range of 60% to 90%, depending on the different ore types. We have also considered milling option both at initial feasibility stage and several times during the life of mine. At Kisladag, we have existing infrastructure, a solid workforce and 10 years of operating knowledge delivering significant value. Milling is a robust technology that is well understood and Eldorado has previously designed, built and operated milling circuits around the world. The high pressure grinding roll option could potentially augment the existing crushing circuit with additional breakage and exposure of more gold followed by agglomeration and heap leaching. This option requires relatively low CapEx and additional operating costs. While early indications suggest significant upside on gold recovery, much more work is still required before we have sufficient confidence to move forward with this processing option. Our strategy now is to push forward on multiple processing options with the focus on the milling scenario while assessing the performance of the deeper material when placed on the heap leach, along with test work to determine the viability of the high pressure grinding roll option. I have been asked numerous times during the week what the milling capital cost could look like. I must point out that we have already key pieces of the required infrastructure in place. We would continue to use the crushing circuit that is available. We would also use the carbon handling and elution circuit that is currently on site. Therefore, the additional required equipment would include the mills, thickeners, leach and CIP tanks along with cyanide detoxification and tailings filtration. We already have all the space required and could potentially build the project in approximately 2 years, depending on permits and delivery of long lead items. As for the cost, this is a good question that our team is working on. But based on a quick glance at some other key projects that have come online in the last few years, they were built in the range of USD 300 million to USD 400 million for the corresponding sections of the plant, equipment and installation required. In the interim, we will continue to strategically place material on the heap leach pad, potentially leading the option available to put some of this material at a later date through a milling circuit. So to recap, we have a good handle on what the challenge is and we have a dedicated team that is advancing the viability of the potential solutions we have identified. Now, over to Greece. After a considerable amount of back and forth with the Greek Ministry of Energy and Environment during the quarter, we received all the final required permits at Olympias Phase II. However, it is unfortunate that there still remains outstanding Skouries permits. At this time, we are primarily waiting on the overdue amended electromechanical installation permit for the Skouries flotation plant and the relocation of antiquities at the Skouries site. I do believe we have now entered into a positive and constructive talks with the Greek government. This progress enabled us to continue with Olympias Phase II commissioning and Skouries plant construction and earthworks during the quarter, and I will let Paul talk on this shortly. During the quarter, we received a formal notice regarding arbitration. The notice alleges that the technical study for the Madem Lakkos metallurgical facility, which is effectively Olympias Phase III, for treating the Olympias than Skouries concentrates is deficient. Eldorado believes this technical study is robust and consistent with the transfer contract, the business plan and the proved environmental terms of the project. We are confident in the completeness of our efforts in Greece and the rigor of our engineering and our adherence to all applicable health, safety and environmental laws and regulations. I believe based on the extended engagement with the Ministry of Energy and Environment, that the arbitration is being pursued by the Greek Government as a means to revolve issues and normalize the investment. We continue to work with the Ministry to demonstrate our commitment to implementing best available technologies and operating to the highest safety and environmental standards. With that said, while our health and safety policies seek to eliminate injury to the workforce, I’m greatly saddened by the fatality this quarter when an employee of a tree cutting contractor was struck by a branch from an adjacent tree, while felling trees in the Skouries tailings area. Our thoughts and prayers and support go to the family. Such a tragedy inevitably prompts reflection and reinforces our resolve to find even safer ways to operate. Following the incident, we have completed a comprehensive investigation and are working with our employees and contractors to further strengthen safety procedures. Switching continents now. I am pleased to report that we successfully closed the Integra acquisition early in the quarter and we are extremely pleased with the ongoing progress we are seeing there. Underground development at Lamaque is moving along at record speed. 1200 meters of development were completed at Triangle during the quarter and our team at Val-d’Or continues to grow. We’re working hard on a prefeasibility study to be completed in the first quarter of 2018, that includes the drilling that was not previously captured in Integra’s Preliminary Economic Assessment, published in February of 2017. We expect to declare maiden reserve and incorporate the 170,000 meters of drilling not included in Integra’s 2017 resource update. Over to exploration, where our teams are busy with a number of projects to fill our growth pipeline. We completed 55,300 meters of exploration drilling during the third quarter, nearly half of which was at our new Lamaque project in Val-d’Or. This included extensive delineation drilling of the C4 zone resource at Triangle as well as testing for extensions to C4 and deeper zones in the deposit. In Turkey, drilling at Efemcukuru focused on resource conversion with the Kestane Beleni vein and testing new exploration targets in the nearby Kokarpinar vein system. At -- at the Bolcana porphyry prospect adjacent to Certej in Romania, the first drilling program of over 28,000 meters was completed in September, drillholes of outlying gold, rich porphyry style mineralization from the near surface extending to over a kilometer in depth. Results are currently being reviewed to determine the next steps at this project. In Greece, underground drilling at Stratoni mine tested the lower portion of the Mavres Petres orebody. Preliminary results confirmed continuity of masses -- massive sulfide mineralization, down-dip from and along strike west of the current resource. Greenfields exploration programs during the quarter included continued drilling at our KMC project in Serbia and preliminary drilling programs at the Mara Rosa and Nazareno projects in Brazil. And now, before I turn it over, I would like to welcome Christos Balaskas as Vice President and General Manager for Greece. Christos comes to us with a wealth of experience working in the natural resources space for multinationals both in Greece and abroad. Eduardo Moura, who previously held the role as VP and General Manager for Greece will be returning to Vancouver in the role of Vice President and Special Advisor to the President and CEO. Finally, I would like to thank Paul Wright, current Vice Chairman of Eldorado’s board of directors and previously Eldorado’s President and CEO for all his hard work and dedication to the company over the last past 2 decades. Paul will be resigning from the board effective December 31, 2017. That’s it for me. Over to Paul Skayman.

Thanks, George. Good morning, everyone. Starting with Turkey, Kisladag produced 35,900 ounces of gold, which was in line with our mid-year guidance for the quarter. During the third quarter, we’ve added extra -- higher cyanide levels and do expect relatively more ounces to come off the pad in the fourth quarter. However, during the third quarter, we saw lower recoveries on column composite samples, which led to a reduction in ounces on the pad and inventory. The column results were obviously disappointing and we’re now testing more material to determine the amount that is affected. We’re currently mining in Phase III with the Phase II interim pit still at a slightly lower elevation. We’ve also been mining in sulfides for the most of the last couple of years. The bottom of the pit is 100% sulfides at this time. The pH of the bearing solution coming off the pad is between 9.5 and 10. And we’re not seeing any visible change in material and it continues to crush similarly to previous. To date, we’ve mined a little over 130 million tonnes of ore at Kisladag. For the quarter, tonnes of ore mined was slightly lower, grade of ore placed was slightly higher than budget. And year-to-date, we remained above the predicted grade for the year of 0.94 grams per tonne. Year-to-date, strip ratio was in line with full year guidance at 1.19: 1. Cash cost for the quarter were good at $491 per ounce. And as indicated in the press release earlier this week, with the adjustment in ounces in leach pad inventory, we’ll expect an increase in cash cost to $500 to $550 for the full year. Also in Turkey, Efemcukuru had a good quarter with production of 24,900 ounces. Ounces sold were well above this at 29,500 ounces. And as we indicated last quarter, the final shipment for the second quarter was delayed due to a religious holiday in Turkey. The tonnage and grade, mined and processed, were all on budget and ounce production was also on budget for Q3. Cash costs for Q3 2017 were $529 per ounce and year-to-date, we continue to be on the lower end of guidance, which is between $525 and $575 per ounce. Moving over to Greece. We continue to work on ramp-up of the Olympias circuit. We’ve installed the cyclone and currently working on optimizing the filter on the fine material, along with material handling of the coarse material. For the quarter, the plant ran at around 2/3 of budget. During the quarter, we got all of the outstanding permits for Olympias, which includes the operating permit and we also received a permit for the installation of the paste plant, which we started work on during the quarter. We may phase the installation of the paste plant to concentrate on increasing filter capacity first. We still intend to be in commercial production before the end of the year. At Skouries, we continued to work at the site throughout the quarter, again concentrating on earth works in both the plant area and the tailings dam. Currently, at Skouries, construction is at 35% and the plant is at 54% completion. Capital spending was just less than $20 million and roughly in line with mid-year guidance. At Lamaque, we continued the underground development throughout the quarter. We anticipate any extra crews in the fourth quarter to increase the rates of development still further. We’ve completed a first batch of toll [ph] treatment of approximately 23,000 tonnes placed through the Camflo mill and first doré was poured during the quarter. We’re waiting for final assays to confirm gold content. The second batch of toll treatment material is planned before the end of the year as part of our permit requirements. We’re preparing a feasibility study on the Lamaque Project and looking forward to providing an update once that’s completed. This is expected in the first quarter of 2018. And with that, I’ll turn it over to Fabi.

Thank you, Paul, and good morning, everyone. We ended the quarter with cash, cash equivalents and term deposit balance of $546 million compared to $888 million at the end of 2016. The decrease in the cash balance is mainly the result of cash used of $241 million in capital programs, $122 million in the acquisition of Integra Gold and $11 million in dividend payments to shareholders, partially offset by cash flow generated from operating activities before changes in working capital of $63.5 million. The significant change in the financial statements relates to the completion of the acquisition of Integra Gold. The main impact of the acquisition on the balance sheet relates to increases of $387 million in property, plant and equipment, $99 million in goodwill and $128 million in deferred income taxes. Loss attributable to shareholders of the company was $4.2 million or $0.01 per share in the quarter compared to a profit of $20.7 million or $0.03 per share in the third quarter of 2016. Excluding $5.6 million in transaction costs, a net gain of $24.4 million in realized gain on sale of securities and $24.9 million loss on write-down of assets, we reported a adjusted earnings of $1.3 million or $0.00 per share in Q3 2017 compared to adjusted net earnings of $33.5 million or $0.05 per share in 2016. Gross profit for the quarter was $30 million. Our $30 million was $19 million lower year-over-year due to lower production on Kisladag and sales at Kisladag. The $3.5 million increase in general administrative expenses year-over-year relates to non-recurrent expenses incurred by Integra related to the acquisition. The effective tax rate was impacted by foreign exchange effects in Turkey, Greece and Romania. And losses for which no benefit has been able -- as been recognized. Finally, in relation to the press release issued on Monday, I want to mention that the lower recovers -- the lower recoveries and investigation of alternate treatment methods are not indication of impairment at this time. Those are my comments on the financial statements. I will return the call back to George.

Okay. Operator, we can open it up for questions now?

[Operator Instructions] Your first question comes from the line of Lawson Winder with Bank of America Merrill Lynch.

Just to start off with I was curious on Skouries. How much spending is left now to get it to commercial production?

500?

Yes.

There is a little conflab in the office here. It’s around the $500 million mark.

All right. That’s pretty close to what I was getting to. I just wanted to confirm that. That’s very helpful. And then, on Triangle zone. I’m curious if you guys now have a sense of when it will ultimately enter commercial production? And then kind of what the development timeline might be?

We’re completing a prefeasibility, which will come out in early 2018. And then looking at options for sort of getting into commercial production, probably early ‘19 at this stage.

Got it, that’s great.

I mean the Triangle deposit’s reasonably well developed, obviously need to get deeper into that C4 zone. But there’s a mill in place that needs some refurbishment but it’s not a full construction requirement for that mill, so.

Yes. That make sense. And then, I’m just curious, correct me if I’m wrong. But I think combined, you have an annual run rate of exploration plus G&A of somewhere in the $75 million range annually. I’m just curious if there has been any thought to pull back on exploration or anything just as a means to conserve a bit of cash?

We’re working our way through budgets for next year and we’ll be looking at all of our expenditures relative to the recent issues that we have. So I don’t have any update at this point, but next quarter, with our new guidance, we’ll be able to reflect on that better.

And you guys are planning to put guidance out in January then?

As I said, we’re working through our budget. So yes, our normal process is early in the new year, and we’re still working to get to that.

Your next question comes from the line of Kerry Smith with Haywood Securities.

Paul. Just to make sure I got it right, did you say that construction overall at Skouries is 30% complete and the plant is actually 54% complete? Did I that get right?

Yes. Overall construction is at 35%, plant’s at 54%, that’s correct.

So 35%. Okay, sorry. And how much have you actually spent so far if you actually think about the actual spend, what is that number to get to where you are?

In the 300 range. 300 to 400 range.

It’s around the 350 to 400 range, Kerry.

Okay. And just on the recoveries from the work that you did for the mill at Kisladag early on when you actually put the project into production. The range 60% to 90% is pretty wide, why is the recovery so low on some of the oretypes? Is it actually partially refractory or what is the reason for the low end of that range?

I am not entirely sure, Kerry. I would point out that the larger blocks of the orebody, the potassic, et cetera do give more consistent recoveries. That 60% is probably not a major part of the orezone.

Okay, and so I was going to -- the next question was what is sort of the weighted average recovery based on the [indiscernible].

Yes. It’s a tough one to answer. Just in terms of what the makeup of the final reserve looks like. I mean, mid-70s is probably is not a bad number to be using for the moment.

Okay, so you’d say it’s partially refractory then obviously. And just on the work that has to be done now to complete this pre-feas. It sounds like the plan would be to release the results of this study towards the end of Q1, at the same time also file the report, I guess is what you’re saying. How much work -- sort of work needs to be done to get to that point? Is there more drilling that needs to be done in the pit to get a better handle on the characteristics of these different oretypes that are left in that 200 million tonne reserve or what kind of work has to be done? And what would the rough cost be to get to that study?

Yes. I think metallurgically, we’ve got reasonable amount of material. So it’s mainly test work. And I think we’ve got a reasonable handle on recoveries. It’s more things like filtration, test work, geotech on sort of tailings material, more of the ancillary type of things that take a bit of time. And I guess in terms of cost, it’s reasonably modest. I don’t know that I have a number immediately, but it’s -- normal PFS would be a couple of million dollars worth of work type numbers.

So now -- less than $500 million to get -- so that’s not a big number.

No, that’s right.

I got you okay. And maybe just for George. You’ve done a little bit of restructuring at the board level with Paul leaving, is there -- is there plans for more of that restructuring at the board level? Or what’s the plan here on a go forward basis?

Only at this point, Paul’s retirement from the board is the only decision coming out of the board. And obviously, ongoing discussions as usual about the future of the board and we’re approaching a new year. So our board will be discussing who’s intending to run for election next year and make appropriate changes as required. So no other changes at this point.

Okay. And maybe George, if I have you, just 1 last question. What is the rough timing on the arbitration as you understand today, can you give us, give me some senses as to how this is going to play out in terms of what has to happen and how long it will take to happen?

So I mean, the arbitration itself is a private matter that I really can’t get into the details. In terms of the process, the arbitration panel needs to be put in place. And we expect that to happen fairly soon. And then, the expectation of duration of arbitration is around 3 months, once the panel’s put in place. Beyond that, I really can’t get into any details.

Okay. But the panel would be able to render a decision within 3 months is the expectation?

That’s the expectation.

Okay. And is that expectation based on historical arbitrations in Greece or is it enshrined in law in some way in Greece or how...

No, it’s contemplated in the agreement on our investment.

Your next question comes from the line of Dan Rollins with RBC Capital Markets.

Just with respect to the potential timeline for a mill, like if that’s the avenue that you decide to move down. Once you have a prefeasibility out by the end of Q1, how long would it take you to get the documentation together to submit the EIA documentation? And then, just could you remind me how long it took you to get the EIA or the amended EIA, when you submitted it for the 25 million tonne expansion at Kisladag a few years ago?

Yes, we anticipate it being an amendment to the EIA. Current first thoughts are in the order of 12 months or so. I’m not too sure exactly on the timing for the EIA on the expansion. I would need to get back to you on that one, Dan.

Okay, when the EIA in place, would you still require any new types of operating permits to go with the mill? And then obviously, a tailings facility?

The tailings facility, because it’s a filtered facility, we would anticipate using the north leach pad so reasonably similar in terms of style and operation to a leaching facility. We would also be detoxing that material. I should point out, we’re also placing dry stack tailings at Efemcukuru currently. So it’s not new technology for the country.

Okay. Perfect. And then Paul, you didn’t mention just -- during Kerry’s comments that you guys have a sort of a reasonable handle now on the recoveries. Have you -- are you sort of -- it seems to me, maybe I’m inferring wrong, but it sounds like the speed at which you’re trying to move ahead with a milling study indicates that the recoveries at depth could be more challenged? Is that the right assumption to make right now? Or are you providing yourself some time to figure out if the recoveries do go back 60% or is it somewhere between 40% and 60%?

Obviously, we’ve been shaken with the columns giving us those lower recoveries, we’re in the process of sort of confirming that now. But obviously, work on the mill has taken on sort of a new impetus, if you like, given what we’ve seen most recently.

Your next question comes from the line of Ross Carden with Polygon.

Just on the balance sheet. Thinking about maximum leverage. If you add up all the different projects that you’ve got, it’s quite a bit of CapEx. And you got cash on the balance sheet but if you press on with all of the, you’re going to end up in a pretty levered spot. So curious if you’ve got some guidance or thoughts around maximum leverage? That’s my first question.

Usually, we used to have the leverage in the 1.5x, that’s where we used to like -- now when you go through a construction period and the risk goes with that, I think we will be comfortable if we were to get to the 3x range, that’s still keep us within our compliance under the credit facilities.

Okay so 3x leverage.

Yes. You know it will not be permanent, if we reach this point or we peak a bit higher, we would prefer to keep it lower than that and that’s -- we manage to a lower level, but it may be that at some -- for some period, it may be a bit higher than that. Right now it’s, first of all, I’d like it to stay way below 2x. But you have [indiscernible]

The other sources of liquidity that you’ve got, and you say you got -- there’s a credit facility and that covenants in that around that leverage?

Yes, the credit facility does have a covenant but they are higher, they are in the 3.5x and its based on net debt. So it’s more room in there than what we would use for management.

Okay. And then third one, if you, let’s say you go down the mill route in Turkey. Would -- do you have -- why you would keep mining and running the heap while you construct the mill. Or would you actually shut down mining and then, so you have a period of no production, no residual leach. And then you would restart?

That’s something we’re studying and will be studying into the first quarter. And it -- really trying to better understand what recoveries we can expect, heap leaching wise out of the remaining reserves. And as Paul said, we also have the option to take a look at leaching that material and placing it on the heap in a fashion that in the future could be reclaimed, rehandled back through the mill for incremental ounces. So I mean the first step is having a better understanding of what the future looks like in terms of heap leaching. And then, coming to a conclusion on the mill scenario, which at this point, we believe it’s a very viable option. And then, trying to optimize between the 2 over the short term. So considerable amount of work to be done over the next quarter or 2.

Okay. And 1 last question on the timing of the permit. I think someone asked before but I missed it. What are you thinking on the timing, just in general?

You’re talking timing on...

To get the permit if you go the mill route.

We -- we’re obviously working towards a prefeasibility study and update of reserves in the first quarter of ‘18. We anticipate the permit requirements taking around 12 months at the moment.

Your next question comes from the line of Anita Soni with Credit Suisse.

Just a few more questions on Kisladag and the ore that you have remaining at the bottom of the pit now. For the next couple of years, next 18 months, is that -- all of that ore impacted by these recovery issues?

Yes, we’re really not sure, Anita. We’re in the process of sort of double checking and confirming that at the moment.

Can I ask, do you have an idea why these recovery rates are dropping from a metallurgical standpoint?

No, we don’t at this point. As I said it came across as a bit of a surprise with those columns over the last quarter.

Right. And then, in terms of -- I think in your MD&A, you talked about some permits that still have not been received yet at Skouries. And I guess I’m getting the impression that you’re still waiting for those and if not you may continue down the path o suspension as you were on September 11. Is that the case?

Yes, that’s correct, Anita. I mean we since the September 11, we’ve been in constructive dialogue with the Minister of Energy and Environment. We’ve got pretty good indications that the permits will be forthcoming shortly. But for sure, we don’t have a lot of patience in this regard. We need to see progress, we need to see this constructive dialogue move into issuance of permits. And if that doesn’t happen, yes, we’ve got to move into the care and maintenance mode and protect ourselves from a legal and from an investment perspective. So at this point, I remain optimistic, we’ve got access and good dialogues happening and the current view that we should be seeing permits approved shortly.

And so, the arbitration issue, somewhat related and separate at the same time. If -- as you’re spending in Greece right now, how you look at how the arbitration is progressing along that decision framework?

Well, the arbitrations related to Olympias Phase III essentially. And it’s the next large investment after Skouries. So as you stated, there are somewhat independent, but obviously, related to the overall investment in our subsidiary there. My view of the arbitration is that the government’s looking to normalize our investment and to resolve this dispute. And so, we’re looking forward to the conclusion of the arbitration. We’ve had a strong history of resolving disputes through the courts and look to an equally successful result in this arbitration process.

Your next question comes from the line of Steven Butler with GMP Securities.

Certainly a lot of dialogue, George, is centered around the mill scenario. And of course a lot of work has been done on the mill scenario in the past, and so there’s the comfort zone. And you’ve spent some time at [indiscernible] on HPGR circuit. Maybe just your high level thoughts on HPGR. I guess obviously a lot of test work has to be done. And maybe, maybe just a general sense of how long you think that test work may take? And the question around HPGR, would that actually replace the tertiary crusher potentially or secondary crusher potentially? Any early thoughts on HPGR? And on the mill scenario, thanks for the CapEx rough guidance, would you have rough guidance on incremental milling costs?

I’ll start, maybe answer the easy part of those questions, throw it over to Paul. Essentially, you’re right, the reason that we feel pretty strong in the milling scenario is that we do have a lot of information in that regard. And we do have a lot of bottle roll bottle test data over the entire deposit past and future that indicates significantly better recoveries than the current reserve assumption recoveries. And now that we have this recent information that recoveries have dropped in the material placed recently on the pad, we’re obviously focused on that milling scenario. The incremental benefits of milling the heap leach will improve as a result of these challenges we’re having. In terms of high pressure grinding roll, the problem with that technology in regards to Kisladag is that we don’t have a lot of test data yet. And the preliminary information we have does show significantly better recoveries relative to just tertiary crushing. But to get to the level of confidence that we would make an investment and commit to it, there’s quite a bit of work to be done yet. And so, we’re not pushing that opportunity as hard yet, just due to the lack of certainty and the lack of test work we have at this point. There’s no doubt about the fact that the extra energy that we put into high pressure grinding rolls would result in further liberation of gold through microfractures of the rock and through additional sizing. But again, it’s that cost-benefit that you really have to land on and there’s considerable test work yet to be determined now. Maybe Paul can add a little more clarity.

Sure. The limited work that we’ve done, Steve, is taken the material from the treasury crusher and put it through a HPGR. I would expect given that we’ve already got the 3 stages of crushing in place, that we would -- we’d simply place a unit on the back of the existing crushing circuit. So cracking it a little bit further, introducing the microfracturing. There may then be a concern with permeability and agglomeration with -- is something that we would obviously need to consider as well. In terms of sort of incremental costs for milling, we’re still in the process of dialing in a grind size and some of the chemical requirements. So I’d be reluctant to give you any guidance on that right now.

Okay. It sounds that you’re going to give HPGR a bit of a scrub or a bit of a look in this pre-feas as an alternative scenario?

That’s correct.

Your next question comes from the line of Tanya Jakusconek with Scotiabank.

Maybe Paul, just coming back so that I can make sure that I understand just on Kisladag. I think you mentioned that the solution returning to the pond has a pH in the 9.5 to 10 range?

That’s correct.

Is that correct? Because usually you’d like to have it over 10, do you think you’re not adding enough lime?

We’re adding lots of lime at the moment, Tanya, we stepped it up again late last year I think possibly sort of too much, and we haven’t trimmed that back. So I would suggest there’s plenty of lime going on the pad at the moment.

Okay, so you don’t think it’s the lime. And then, you also mentioned that I think the fabric hasn’t changed so you’re still getting the same distribution of fines versus non-fractured rocks, that hasn’t changed at all?

No, it hasn’t. No.

Okay. So okay. That’s helpful. And then, just on the timing. So if it puts with a permit for a mill, if that was the route to go, Q1 of 2019 then 2 years to build, that would put you like Q1 of 2021, somewhere in that timeframe?

Yes, we would obviously hope to do some work, we’d acquire long lead items, et cetera, while we’re moving through that permit process. So there may be some overlap between the permit process and the construction timeframe. That’s something that we obviously need to dial-in a little tighter.

But end of 2020, early 2021, is that reasonable?

That’s reasonable, assuming you can’t do any work until you get your permit I guess.

Okay. And then, maybe just coming back to George on Skouries. I understand you’re progressing, your discussions are progressing well but at what point are you going to need these permits where you can’t continue to do any more work? And have to make a decision. So what’s that critical timeframe?

So, maybe first, I’d just describe where we’re at in terms of construction. So we’re continuing to advance the construction in the plant area that you saw on the visit. And we’re continuing to advance the earthworks related to tailings. If we get this modified mechanical electrical installation permit, we have the ability to ramp up construction and the spend would increase significantly. So the way I’m looking at it, the constructive dialogue is positive, I’m expecting to see the permits in fairly short order. And if that all happens, we’ve avoided the costs and implications of a shutdown, the care and maintenance and then a ramp back up. And so really, Tanya it boils down to the constructive dialogue turning into signed permits. And I guess from a timing perspective, I’d just point to the fourth quarter as -- I’m looking to see results in the quarter and we’ll be updating the market if and when that happens.

Yes. It’s just that there’s only so much you can do until you come to the point that you need those permits. And so that’s the only thing I’m trying to understand is, January of next year if we don’t have them, at that point, do you have to stop?

I wouldn’t say have to. But I’d say the pressure will be mounting as the weeks go on without some progress on permits. And I -- as you just witnessed during the quarter, we will move into that mode if we don’t see the progress required, give us confidence in investments that we’re making.

Okay. And then maybe just looking at your capital allocation, George, I mean -- I think Ross asked the question on we have quite a bit of spend if we have to build the mill, if Skouries goes ahead, Lamaque and so forth. Can you, looking at those 3 projects. Can you prioritize them? Because you may not have the ability to do all?

I’d just point you to the priorities to begin with our existing operations that are generating cash flows. So Kisladag, Efemcukuru and now Olympias Phase II are priorities. Beyond that in terms of future projects, Lamaque we’re extremely excited about it. It is a project that can move into production in quick order. We’ve got high confidence in our ability to get the final permits and to execute on that project. So I rank it top in the list. Skouries is a fantastic growth opportunity project for us. And the challenge is we’ve had a history of delays. And those delays are obviously impacting the financial returns from that project. So again, I tie that directly back to our ability to get the permits. And to get the confidence that we can see our way through to putting that into production. And so, I mean I’m confident that from a financing perspective, if we get that confidence, that we can come up with a means to execute on all these projects. But we’re just going to have to see how the constructive dialogue moves forward. And what our the requirements are relative to Kisladag.

And maybe Fabi, can you just remind us what’s a realistic capital spend for this year on some of these projects. Like what are we looking for CapEx for Q4 for Skouries? And maybe that’s the big one?

Skouries, we adjusted guidance down to $80 million for the year. So I would expect another in the order of sort of $15 million to $20 million spend for Q4 for Skouries. Remember the weather starts to draw in and we’re doing a lot of earthworks on to the tailings dam at the moment. So $15 to $20 million is probably not a bad guess for Skouries.

Your next question comes from the line of Andrew Kaip with BMO.

Look, Paul, I’ve got a question just about the mine plan at Kisladag actually. Looking at the 2010 feasibility study. It looks like there is 8 million to 9 million tons of oxide materials that are scheduled to be mined in the -- towards the end of the my life. And I’m just wondering in the interim, while you’re dealing with trying to identify what the impact of lower recoveries are, lower in the pad, whether you can actually change the mine plan to be able to access material where you have higher certainty of recovery?

Obviously, we’re sort of moving through the budget process at the moment and looking at what we can mine from where. So there’s not a lot of oxide remaining available. We’ve done some of the stripping for the higher sections of the Phase IV pit. But we will be looking at what material we can mine from where. Obviously the material in the bottom of the pit is significantly better grade, albeit potentially with troubled recoveries. So we are getting into a pretty attractive area at the moment in terms of grade over the next sort of year or 2.

But you might be able -- you might be able to back off and go to the upper portions of a pit, lower grade, but better recovery, while you’re going through the process of actually thinking about what kind of additional processing you require?

Sure, yes. No. That would -- it’s something we’ll be looking into Andrew.

Your next question comes from the line of Frank Duplak with Prudential.

Just had a question on Olympias Phase II. I think back in May you talked about maybe production going from 40,000 to 50,000 ounces in ‘17 to 85,000 ounces over ‘18 to 22,000 ounces. Now that you’re looking at the commissioning by the end of this year, any kind of ballpark range on what ‘18 production could look like? Would there be that big a potential step function? Just curious where your thoughts are there?

It’s probably a little early. I mean that assumes sort of reserve grade and the payabilities that we talked about early in the year, assuming we can mine at that grade, the payabilities are certainly there and we are seeing pretty good recovery during the commissioning. So again, sort of working through budgets, but shouldn’t be a long way away from what we’ve indicated previously.

Your next question comes from the line of Kerry Smith with Haywood Securities.

I just had a follow-up, Paul, just on the process for the permit at Kisladag. Do you need the PFS to apply for the EIA amendment? Or do you need some other document that would have to be generated before you could apply? Or how does that process work?

Normally the PFS is sufficient for us to move forward with the permit process, Kerry.

Okay. So, you could make the application then early next year.

That’s correct.

And then just the last question. Just the antiquities permit, that’s Greece. What does that actually relate to? I’ve never asked this question. But what does that actually relate to? Is that a cemetery or something, I’m not sure exactly what it might be?

So, during the EIA process, it was identified in the area of the open pit of a potential furnace from the Alexander the Great times. And so it’s a small archaeological finding that the company’s committed to relocating. So it’s -- I’d describe it as a fairly minor bit of work to relocate this and it’s simply getting the authorizations to move it.

Okay. There is no indication that they’re not prepared to allow you to move it. It’s not like they say it must stay there?

No. I mean, we’ve got local support to relocate the facility, it’s just simply getting the final permits and executing that work.

But Alexander the Great didn’t have a mining permit.

No. He -- for sure, he wouldn’t have. And Paul, just the HPGR, if you did tack it on the end of the tertiary. I guess potentially, I don’t know if you thought any about it, but you can have a smaller unit than the current sort of throughput rate that you talk about if you have the screens. What kind of CapEx might that be roughly given the sort of rough CapEx on the milling side. Could you take a stab at it? Or George?

It would be a stab, yes. Everybody’s shaking their heads. So I’m not going to share it with you, Kerry.

[Operator Instructions] And your next question comes from the line of Anita Soni with Crédit Suisse.

Just a follow-up on the Kisladag reserves. So at the end of last year, there was about, I think 1.5 million ounces that was removed at an average grade of about 0.55 gram tonne of material. What -- could you give us an idea of sort of the highest grades you have in the pit? And obviously, you indicated that those are the ones that having the metallurgical issues, but what are some of the -- can you identify sort of a patch of, say, 1 million ounces or so that’s at a lower grade but easier recover rates, just so we can get an idea of the sort of different types of grade distribution and recovery rates that are in the pit right now?

I mean, I can talk about grade distribution, but recovery rates are a little difficult right now. I mean we have indicated previously that the material in the bottom of the pit’s in excess of a gram through the next couple of years. So there’s in the order of sort of 25 million tonnes of 1.1, or 1.2 whereabouts to be mined. But we can’t speak confidently about the recovery of that material right now.

And that’s just -- I mean you put that stuff on the pad this quarter right, you had 1.14?

Yes.

I would now like to turn the call back over to Mr. George Burns for closing remarks.

All right. Thank you, operator. I appreciate everybody dialing in to our call today. It was a productive quarter in some regards and a very challenging quarter in other regards. And I can assure you that the leadership team and our entire organization is focused on resolving the challenges and moving forward with the fantastic growth profile we have. So thank you, have a good day.

This concludes today’s the conference call. You may now disconnect.