Eldorado Gold Corporation (EGO) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is James and I will be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold Corporation 2018 Q3 Results Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to your host, Peter Lekich. Please go ahead.

Thank you, operator and thank you ladies and gentlemen for taking the time to dial into our Q3 2018 financial and operating results conference call. With me in Vancouver this morning are George Burns, President and CEO; Phil Yee, Executive Vice President and CFO; Paul Skayman, COO; and Peter Lewis VP, Exploration. Again, this quarter, we will be speaking to slides that accompany this webcast. You can also find a copy of these slides on our website. Before we begin, I would like to remind you that any projections included in our discussion today are likely to involve risks, which are detailed in our 2017 AIF and in the cautionary note on Slide 1. We had two releases that went out yesterday, one detailing our exploration highlights for the year so far and the other being our quarterly results. Our Q3 operating and financial results release should be read in conjunction with our Q3 financial statements and management’s discussion and analysis, which are both available on our website and have been filed on SEDAR and EDGAR. Lastly, all dollar figures discussed today are in U.S. dollars unless otherwise stated. I will now turn the call over to George.

Thanks, Peter and good morning everyone. First off, I would like to welcome Phil Yee to our team. Phil has been with us for about a month and is getting up to speed very quickly. You will hear from Phil in a moment, but I will start with a quick overview of Q3. Then I will pass the baton over to Phil for a review of our financial results and some comments on capital considerations. Paul will follow with an update on operations and development and Peter will then say a few words on exploration. Starting with the highlights on Slide 3, gold production exceeded expectations this quarter driven by better-than-expected recoveries from the Kişladağ heap leach pad. We are again increasing our 2018 production guidance to 345,000 to 350,000 ounces of gold up from 330,000 to 340,000 ounces of gold with cash operating costs higher this quarter due to lower sales volumes at Olympias and higher C1 costs at Kişladağ. Due to an accounting method change that increased non-cash costs, our full year cost guidance of $600 to $650 per ounce is now marginally higher than original guidance. At Lamaque, I am pleased to report that the project is progressing on schedule and budget. We have already commissioned the crusher and have started wet commissioning of the plant. The team there has been working extremely hard to keep the project on track to reach commercial production in early 2019. Our continued exploration success at Lamaque confirms our convictions of long-term potential of this asset. Recent drill results show excellent mineralization at depth in the Triangle deposit although those areas included in the 2018 pre-feasibility study. Peter will say some words on Lamaque drilling later on the call. The most significant news this quarter is the completion of the feasibility study for the Kişladağ mill and the subsequent board approval to advance the project. The study shows robust economics with an estimated after-tax NPV of $392 million at a 5% discount rate, an IRR of 20.4% and a payback period of 3.9 years on the capital investment of $520 million assuming a gold price of $1,300 per ounce. Paul will provide more detail on the feasibility study later on the call. I am extremely proud of the work that Shane Williams, our SVP, Engineering and Capital Projects and our entire project team has undertaken to optimize Kişladağ while maintaining a disciplined approach of allocating capital as we transition away from heap leaching. We expect to release our resource and reserve statement by December of this year. Our business plan on Slide 4 is a similar slide, but I would like again to draw your attention to our significant low risk production growth over the next 3 years. This is being driven by Lamaque and Kişladağ. The Board decision to advance the Kişladağ mill puts us one step closer to achieving our business plan to produce 600,000 ounces of gold annually by 2021. What’s new on this slide is the consolidated guidance for the next few years. We expect to produce an average of 300,000 to 325,000 ounces of gold in both 2019 and 2020 at costs similar to this year. We believe we can achieve this as we replace the ounces we lose from the Kişladağ heap leach with Lamaque coming on stream. On to the next slide, where our efforts remain focused on executing our three key strategic pillars, maintaining a strong base of operations, developing our high return projects and deploying our capital prudently. Just before I hand it over to Phil, I would like to say a few words on Greece. Despite our efforts this quarter, unfortunately we have no updates on the outstanding permits for Skouries. This is incredibly disappointing as we have always acted in a manner consistent with finding a mutually agreeable solution to developing Skouries responsibly. During the quarter, we filed an application for payment with the Government of Greece requesting approximately €750 million for damages arising from the lengthy delays and issuance of permits for the Skouries project. The application is a good faith attempt to resolve the matter with the Greek state without needing to go down the route of arbitration. The Greek state has not responded to this application and continues to disregard contractual obligation under the terms of the transfer agreement. This runs countercurrent to earlier assurances that the Skouries permitting issue would be addressed following the positive conclusion of the arbitration in April of this year. We remain open to dialogue on steps required to allow the Skouries development to proceed and we will continue to take the necessary and prudent steps to protect our investments in Greece. I will leave it there for a moment and will hand it over to Phil to go through the financials.

Thank you, George and good morning everyone. It’s been an exciting first month at El Dorado. We have a lot going on and I am thrilled to be part of it. I will start by highlighting our continued strong cash position which you can see on Slide 6. We ended the third quarter of 2018 with total cash, cash equivalents and term deposits of $385 million compared to $485 million at the end of 2017. During the quarter, we generated $23 million in cash flows from operations, $12 million in sales proceeds from pre-commercial production at Lamaque, while capital expenditures for the quarter totaled $82 million. General and administrative expenses were approximately $2 million lower in Q3 of 2018 as compared to 2017 due to reorganization costs related to the acquisition of Integra Gold in July of 2017. Turning to Slide 7, here is a summary of our Q3 financial results. During the quarter, we generated metal sales revenues of $81 million compared to $95 million in the third quarter of 2017. This was a result of marginally lower metal sales together with the lower average realized gold price of $11.77 per ounce. All revenues during the quarter of 2018 amounted to $76 million from the sale of 64,589 ounces of gold contained in Dory and concentrates. Gold revenues in 2018 included negative price adjustments of $53 per ounce related to finalization of shipments from prior periods. Lower gold revenues together with higher production costs and depreciation, depletion and amortization expense resulted in earnings from mine operations decreasing year-over-year. Production costs were $10.2 million higher in Q3 2018 as compared to Q3 2017 primarily driven by non-cash charges totaling $21.1 million related to the leach pad inventory drawdown at Kişladağ. In addition, there were additional production costs in Q3 2018 from Olympias starting production in 2018. These increases are partially offset by lower production costs at both Efemçukuru and Stratoni. With board approval to advance the Kişladağ mill project, a review of the useful life of the Kişladağ heap leach assets resulted in an impairment charge of $117.6 million during the quarter. After-tax impact was $94 million net of deferred tax – deferred income tax recovery. Net loss was $128 million or $0.16 per share for the quarter compared to a net loss of $4 million or $0.01 per share in Q3 of 2017. Adjusted net loss was $22 million or $0.03 per share during the quarter after adjusting for the impairment charge related to the heap leach assets in Q3 of 2018. And this compares to adjusted net earnings of $1 million or $0.00 cents per share in Q3 of 2017. The impact of the non-cash charges related to Kişladağ heap leach drawdown in Q3 2018 approximates $0.02 per share. The further weakening of the Turkish and Brazilian currencies in relation to the U.S. dollar during the quarter continued to have a negative impact on deferred income tax expenses. However, this was partially offset by a deferred income tax recovery of $24 million related to the impairment of the Kişladağ heap leach during the quarter. Currency volatility will continue to affect our quarterly income tax expense. On to Slide 8 for a few words on capital considerations. In light of the operating and financial performance in the first half of the year, we continue to refine our views on capital requirements and potential funding options to meet our medium to long-term needs. Some general comments on the quarter. The company continues to maintain a strong balance sheet with over $630 million in available liquidity and have the strong base of operations that continues to provide cash flow to help fund our growth. We continue to focus on eliminating nonessential spending with the aim of reducing global G&A and cutting discretionary capital at our non-core projects. Further, we are progressing on optimizing our business plans with operating inside initiatives underway to improve near-term operating cash flow. And lastly, we are actively evaluating strategic and funding options and are engaged in discussions with various third-parties. As mentioned last quarter and consistent with what we have observed exiting Q3, current cash on balance sheet combined with internally generated cash flow fully supports the development of Lamaque and provides ample runway to substantially advance construction at Kişladağ without having to draw on the $250 million revolver. That’s it for me. Over to you, Paul.

Thanks, Phil. On Slide 9, we outlined our production and costs for the quarter. Total gold production in Q3 was 84,793 ounces, which includes 13,430 ounces of pre-commercial production from Lamaque. At Olympias, recovery challenges for the lead circuit as a result of blending a higher ratio of east versus west iron ore led to lower than expected lead concentrate production. Reduced production combined with timing of byproduct shipments through the port delays and lower zinc and lead prices during the quarter contributed to lower byproduct revenues. Gold recovery was broadly in line with expectations during the quarter. However, higher levels of lead reported to the gold concentrate resulting in unsold inventory of approximately 9,500 ounces of payable gold at quarter end expected to be told in Q4. This unsold inventory of gold also contributed to the higher C1 and all-in sustaining cost. A number of opportunities have been identified which will be implemented over the next 6 months, including catching up the backfilling of Boyd’s underground, building an ore inventory to aid with blending of the front end of the plant as well as concentrate blending of Olympias and Stratoni concentrates. We already have a specialist metallurgical team actively working on optimization of the processing plant when trading ore from the each zone. These issues highlight Olympias’ complex metallurgy, but we remain focused on improving byproduct recoveries, which would further reduce cash operating costs and all-in sustaining costs. At Efemçukuru, gold production of 24,493 ounces was marginally lower year-over-year due to lower mill throughput partially offset by higher average treated head grade. Cash operating cost of $456 per ounce were lower year-over-year, reflecting the higher throughput grades along with the ongoing devaluation of the Turkish lira. The leach pad at Kişladağ are going home better-than-expected during the quarter as a result of boosted leach kinetics due to increased cyanide concentrations. Targeted irrigation of leach pad areas as a result of ongoing sonic drilling and side float bleaching. Kişladağ produced 34,070 ounces of gold during the quarter, which although slightly lower year-over-year is notable given no fresh order has been placed on the pad since April of this year. Cash operating cost of $890 per ounce were higher at Kişladağ in Q3 due to $619 per ounce of non-cash operating cost during the quarter. These non-cash operating costs account for the drawdown of ounces from inventory. Due to higher production guidance at Kişladağ, the inventory has now increased by 78,000 ounces. With another accounting change, the non-cash component will now drop to $170 per ounce for the ounces remaining in inventory. Moving to Slide 10, as a result of the Kişladağ leach pad continuing to exceed expectations, Kişladağ guidance has again been revised upward. You will note that we have increased 2018 production by 20,000 ounces to 160,000 to 170,000 ounces and 2019 production by 10,000 ounces to 50,000 to 60,000 ounces. Guidance for 2020 has a wider range of 20,000 to 40,000 ounces, which is reflective of the potential we believe it’s still on the leach pad. Forecast cash operating cost is slightly up in ‘19 and ‘20 reflecting increased cyanide usage. We have provided increased guidance based on recent pad performance and continued metallurgical test work. Moving to Slide 11 highlights of the Kişladağ feasibility study, the CapEx and OpEx are generally in line with the pre-feasibility study. There are no other material changes. Moving to Slide 12, it’s a quick comparison between CapEx, OpEx and sustaining capital figures between the pre-feasibility and feasibility study. CapEx increased by 6% due to adding filters to the tailings filtration plant and changes to the thickness in CIP process. We identified filters as a potential risk, so decided to increase their number to better ensure the plant starts up according to plan. OpEx increased by 4% mainly as a result of the increased cost of power, while sustaining CapEx by 12% due to a deferral in waste stripping cost that will now be included in operating costs. Turkish contractors have submitted bids in U.S. dollars and this is what is reflected in the feasibility study. However, as a result of new Turkish legislation, Turkish contractors will now be required to bid in TL rather than in U.S. dollars. We expect that this may help the overall cost as we move forward with contract negotiations. Slide 13 shows the updated layout of the Kişladağ mill. The new layout reduces the overall footprint and simplifies the material handling around the filter plant with the final product now traveling along straight conveyor to the tailing spend. Going forward, basic engineering and long leach procurement will continue while detailed engineering will begin to key areas to allow advancement of critical enabling work in order to support a fast-track execution schedule. The mill project is expected to begin commissioning in late 2020 with production targeted in 2021. Over to development at Lamaque on Slide 14, the team in Québec continues to work extremely hard in progressing this project which is on track and budget when commissioning has begun. Underground development progress during the quarter with over 2,100 meters completed, which is slightly ahead of plan. The main decline is now at approximately 250 meters below surface. Refurbishment activities at the Sigma mill during the quarter focused on electrical and piping works, installation of mill motors and equipment and construction of the reagent buildings. Two certificates of authorization were received during the quarter, one for the operation of the Sigma mill and the other for the operation of the tailings management facility. Favorable weather allowed for the advancement of Phase 1 of the TMF. Tonnage grade and recovery of material mined to-date from Triangle continues to reconcile well with plan. That’s it from me. Over to you, Peter.

Thank you, Paul. Over the past quarter, we have drilled over 32,000 meters across our exploration assets. I will take a few minutes today to highlight some of the exciting recent news from both the Lamaque project and our Bolcana gold copper porphyry project in Romania, results which we announced in our exploration release yesterday. On Slide 15, we summarized some of the positive results from drilling in the lower part of the Triangle deposit at Lamaque, where earlier this year, we reported on the C8, C9 and C10 share zones. We are particularly excited by the recent discovery of a new wide high-grade stock work issued vein system located in the medium footwall of the C10 in drill hole TM1520. The entire intersection in the lower part of this drill hole starting with C10 totals 193.9 meters averaging 3.7 grams per ton gold. Although we have identified similar high-grade being raised elsewhere in the Triangle deposit, this is by far the most continuous intersection of this style of mineralization we have encountered to-date. This new zone is open in multiple directions and we are currently targeting our follow-up drilling strategy. We have also received some quite encouraging new drill results from the lower share hosted zones with intersections of 4.5 meters grading over 40 grams per ton gold in C10 and 6.9 meters grading 18.95 grams per ton gold in C9B. Notably, both of these intercepts are both the highest grade and the most easterly intercepts on these two share zones giving us optimism that as we continue drilling to these, we will continue to see an increase in the resource potential. Together with the existing inferred resource base in the lower C4, C5 and C7 zones, these new results are trying to highlight the outstanding upside potential of the deposit below those areas included in the 2018 pre-feasibility study, which only included C1, C2 and the upper part of C4. Moving on to Slide 16, the other exploration news I would like to touch on is our recently completed drill program at the large Bolcana gold copper porphyry project in Romania. This year and last we drilled over 56,000 meters on this project and define a porphyry system over a surface area nearly a kilometer by 500 meters and to a depth of over 1,000 meters. Much of this year’s drilling was focused on the upper part of this system, where we have outlined three higher grade mineralized centers that coalesces depth. Some of the best results this year were from the Southern Center, which was previous only partially drilled that includes an intercept of 232 meters grading over a gram per ton gold and 0.24% copper. We are now in the process of updating our geological models for Bolcana in advance of completing an initial resource estimate. For further details and tables of significant drilling results from both these projects, including true thicknesses and grades recalculated with top cuts were appropriate, I refer you to yesterday’s exploration news release. On that, I will turn back to George.

Thanks Peter. Just before I wrap up I want to take a moment to highlight the milestones that we have achieved so far this year. We said we were going to publish three technical studies on Lamaque, Kişladağ mill and Skouries and we delivered. We said we are going to complete a feasibility study for the Kişladağ mill and have a board decision on advancing the project in October this year and we delivered. We said we are going to reach commissioning at Lamaque by the end of this year and we are well on our way to delivering that project. By increasing our production guidance for the second time this year and growing our operating cash flow, we are well-positioned to advance our development projects towards our goal of producing 600,000 ounces of gold per year in 2021. This is an exciting time for our entire global team as our effort and focus are aligned to deliver our business plan. Together, we are building a business that creates value for all of our stakeholders. Thank you. We will now take questions.

[Operator Instructions] And your first question comes from the line of Kevin Chiu from CIBC. Go ahead please. Your line is open.

Hi, it’s actually Cosmos here. Thanks, George, Paul and Peter and of course welcome Phil. Phil, I know you have only been here for a month and I don’t really want to put you on the spot here. But in terms of the capital considerations you sort of touched on it, but the other big component of course is the $600 million debt that comes due in November 2020. So, Phil I am just kind of piece it altogether, you talk about now you have to finance the Kişladağ million of $520 million. Yes, you have that line of credit, but that also has a term that terms out in year 2020, you have a lot of spending as you talk about in years 2019, year 2021. So I am just trying to figure out have you at this point in time assumed that you are going to refinance that $600 million debt?

Thanks, Cosmos. Good morning.

Thanks, Phil.

I think it’s important to really look at this in right perspective. I mean, we have been having active discussions with capital providers looking at different options, looking at different alternatives, but the real focus up until now has been completing the feasibility work at Kişladağ. I mean, I think that’s the big step, the major step as we progress towards looking at funding alternatives.

So should I expect more sort of comprehensive analysis at a future date maybe?

I think as we advance we will definitely have some more details more specifics, but I think at this point, the first step was to make sure that the Board approval to advance on the Kişladağ mill.

Yes, of course. Maybe switching gears a little bit, Olympias certainly wasn’t a good quarter I actually didn’t really know that it was an issue in terms of east zone versus west. I guess my question is number one is the pace plant now, has it been built and if that’s functioning well and what’s the mineral that’s causing issues and how do you blend it down? And I guess overall taking a step back my question is certainly Olympias had negative earnings in Q3, when would you expect that to turn positive?

Okay. So first question, Cosmos, is around the pace plant, that the pace plant is now working reasonably well at the end of Q3. So we have struggled with that a little. We are now getting material underground and that was part of the issue that drove us to take more east zone material than west zone. So, we had some voids in the west. We ended up having to mine more material from the east and it’s really that high of a proportion of east zone that gave us metallurgical problems and taught us that too much east is going to cause issues. Normal blend would be a quarter to or third of the oil coming from the east and we feel that we can manage that and have managed that reasonably well in the past.

And what’s the key difference here like what’s the key mineral that’s causing issues, how does the mineralogy different at east versus the west?

Yes, we are doing a lot of work on that at the moment, Cosmos and I can’t really provide you with a lot more sort of simple color at this point.

And in terms of timing as we talked about unfortunately negative earnings in Q3 if I look at your segment when would it start generating cash?

Look, I mean the first two quarters were pretty good, I think we could jump in Q3 and realize that we were placing, struggling in terms of that blend of east and west with moving back into the west and we are already saying better results. So I wouldn’t expect another quarter like Q3 necessarily. We certainly will do better than that in Q4 and I think as we sort out some of these issues in the plant and get a better handle on it we will continue to improve.

Okay, of course. That’s all I have. Thanks a lot.

Thanks, Cosmos.

[Operator Instructions] Your next question comes from the line of Mike Parkin from National Bank. Go ahead please. Your line is open.

Hi, guys. Thanks for taking my questions. On the Kişladağ feasibility study, what was the Turkish lira exchange rate that you assumed in that?

It didn’t really use an exchange right, because the bids that came in were in U.S. dollars. Yes, just for reference in terms of sort of budgeting for Turkey, we are looking at about 5.75, but again, we will be doing a lot more work with the Turkish contractors and they will be now bidding in TL as we move forward and get more detailed negotiations happening on those contracts.

Okay. And assuming that is what you go ahead with, what was the overall CapEx to build it breakdown in terms of some of it I mentioned is still going to be U.S. dollar based, like you are trying to get 100% exposed to the Turkish lira, is that how we should interpret it?

No, I mean a lot of ghee is sort of purchased equipment that’s coming from offshore. We think there is probably about a third of the cost would be sort of lira denominated, so local salaries, local equipment to the ability that it’s manufactured locally. So, obviously earthworks will be a good component to steel work to some extent, so about a third of the cost will be in TL, but we think that TL will drive those.

And then once it’s operating what would you expect the breakdown between what would you think would be lira denominated OpEx once the mill is up and running?

Yes. I think it would be a little bit more than a third, labors around the sort of 25% mark and that’s obviously sort of closely TL. There is some local purchase, but the other big cost, diesel and reagent, so cyanide is being brought in, diesel was obviously linked to world prices. So about a third I would suggest.

Okay. And then switching over to Olympias, has there been any – we had kind of limited disclosure on that asset in Q2, is there a thought towards providing the market a little more color in terms of the byproduct grades and production breakdown?

Yes. We have tended to sort of to concentrate on gold, but as you can appreciate those byproduct numbers do make a pretty big swing in the cash costs and grade recovery and obviously revenues can make a big difference. So it’s something we will have to have a look at as we move forward.

Okay. And with the concentrate that you produced is it something that you need to kind of mix with better quality concentrate to be able to sell or are you confident that you can sell what was produced in Q3 as is?

We have generally sold it as is. We are looking really at blending some of this material and potentially future just to improve payability on it, so it just reduces the level of deleterious materials to increase, improve payability on that material, but it is sellable in its own right.

Okay. So how should we kind of think about the penalty applied to the Q3 continent that could you give us like a sense of what like as a percentage additional hit you have incurred to move it?

Yes. So it would be a tough one to answer it perhaps get back to you with some more information on that. The only reason I sort of broke a little bit is there are number of different contracts and a number of different sort of markets with varying penalties. So I think we need to look a little bit deeper to give you a proper answer for that one.

Okay, I would appreciate that. And that’s it for me. Thanks, guys.

Thank you.

Your next question comes from the line of Kerry Smith from Haywood Securities. Go ahead please. Your line is open.

Thanks, operator. George or Phil, how much capital is left to spend at Lamaque between now and the end of commercial production?

Yes, it’s $25 million to $30 million left to complete Lamaque.

Okay, that will all be spent in Q4 correct?

Well, there will be some cost associated with pre-commercial production in Q1.

Okay. So, that’s $25 million to $30 million to get to commercial production?

Correct.

Okay. And are there any I know you got the two permits in the quarter, are there any other permits that you need or are you now fully permitted here and it’s ready to go?

There is some minor routine permits but I can tell you they have been coming in as scheduled and we are confident we will be ready to run from a permitting perspective at the end of the year.

Okay. And George, can you give an update on what the latest rumors are our expectations increases as to when an election might called?

Kerry, that’s a moving target if you read what’s happening in Greece. I think most people are saying sometime in April May would be probably the earliest for snap elections and the elections has to happen by October of next year, so I mean having been in this role for a 1.5 years, I have heard a lot about snap elections and none of them have come true. So I just caution – I think we can all count on October next year there will be election and I think the closer you get to October the higher the probability, there maybe an early election, but it’s – there is a lot of moving issues in Greece that will determine that outcome.

Okay. And just circling back to Cosmos question about the financing and the refinancing of the debt, how could the board actually make a decision to push ahead and approve Kişladağ without having a financing plan in place, because you pretty clearly can’t finance Kişladağ and refinance the debt and do it with the debt having been paid off, you have to refinance the debt in order to do that, so how to actually do that?

Well, Kerry, both the management team and the board are quite comfortable where the balance sheet currently sits with $630 million of available liquidity. That balance sheet comfortably allows us to not only complete Lamaque, but substantially advanced the Kişladağ mill project and that’s without drawing on the $250 million, no doubt in 2020 with the bond and the revolver needing to be renewed or dealt with there is some work to be done on financing, but we are comfortable and confident that we will put together a financing strategy and package that will meet our medium to long-term needs. So the board was comfortable at approving us to continue to advance the Kişladağ mill project under those conditions. And I think Phil pointed out we have been doing I think a good job over the last couple of quarters of improving our business and setting us up to be able to negotiate the best available package to enable the completion of the Kişladağ mill project and as a result of all that we needed to have more certainty around Kişladağ getting the feasibility study completed and approved by the board and management allows us to be in a better position to come up and finalize that optimized financing package. So again, Kerry, we are all comfortable that we have got a good project. We are confident about the path forward. And we think we are in a very good position now to be able to bring some certainty around the financing post 2020 or in 2020.

Okay. And that $630 million of liquidity that you referred to, that’s a combination of your cash plus the cash, you think you will generate between now and the startup of Kişladağ I guess is that correct?

Well, the $630 million is the current cash we have available at the end of Q3 plus the undrawn $250 million revolver. So on top of that yes, we will have operating cash flow over the next couple of years to help fund Kişladağ and then we are obviously keenly aware of the timing on both the bond and the ARCA and working hard and confident we will have the solutions.

Okay. Yes, sorry, I thought I misunderstood you, I thought you said that, that $630 million excludes the line of credit, but it includes, I understand now. Okay, and just on this Bolcana project is it now are those three the areas that you have drilled, are they now completely delineated and cutoff or is there still room for expansion laterally and not getting [indiscernible] or are they cutoff now?

Near surface, we fairly well defined the outlines of potentially economic mineralization. As you go deeper in the system, it is still open, but yes, near surface we have defined it on roughly 100x100 meter drill spacing.

Okay, perfect. Thanks very much.

Thanks Kerry.

Your next question comes from the line of Mike Jalonen from Bank of America. Go ahead please. Your line is open.

I can pronounce my name right. Hi, George. Just I am looking at….

Hi, Mike.

Okay. Hi, everyone there. Just looking at Page 4 of your slide deck, I noticed seeing there that with the mill expansion in 2021, you get a nice boost in production of 600,000 ounces. I am noticing that Kişladağ will be around my – eyeballing a properly 305,000 and 310,000 ounces in 2021, does that assume the mill is running at design capacity on January 1 as I tried to make that assumption?

Definitely not. We will be in commissioning January 1, but the key thing that’s driving that higher production at first year is we are basically mining some of the highest grade ore right out of the bottom of the pit, so the first half of the year we are in the ramp-up but the entire year we have got really good grades.

What will be that grade approximately?

That’s up by every brand. It’s the best grade we have got remaining and it’s pretty well easily accessed in the bottom of the pit, Mike.

Mike, that was one of the key factors earlier in the year when we made the decision to cease placement of material on the leach pad knowing recoveries were in the 40% range versus 80% putting the highest grade material up on the pad just didn’t make a lot of sense. So, it’s really grade and ramp up in the first half of the year delivering a really strong first year.

Okay. Well, thank you and good luck.

Thanks Mike.

Your next question comes from the line of Dan Rollins from RBC Capital Markets. Go ahead please. Your line is open.

Yes, thanks very much. Just on the balance sheet, Phil, maybe obviously your probably ultimate goal would just be to refinance the debt with on the high-yield side, but if you were to have to rank your alternatives between project debt going after some of the private equity groups, streams, off-takes, where would you sort of rank those on realistic expectations when we look to refinance the balance sheet in the next 6 to 12 months?

Thanks, Dan. Yes, I mean, we have done some – we have had some discussions as I have mentioned with various cap providers and that includes for example some of the options that you outlined. And I think it’s going to really come down to cost of capital as well. And as we evolve towards the financing side, we will take a look at what really makes the most sense. I think at this point as George mentioned renewing the dealing with the ARCA and dealing with the bonds is pretty important, but there is other options that are on the table as well. For example, streaming could be a consideration as well, but it’s all going to come down to cost of capital.

Okay, perfect. And then George just back to your comment, obviously it’s ramp up, but on your comment on Kişladağ, I assume the first 6 months of ramp up is sort of lower grade material, you are not planning on running the high grade from the bottom of pit during the initial 6 months. Is that correct?

Yes. We will start up with low grade material as we are doing the initial commissioning, but it’s a fairly simple circuit from our perspective. The real significant issue for us to focus on I think for commissioning is the filter part of the plant and we are looking at a staged ramp-up of the filters, they are 16 in the design, they are in sort of 4 batches of 4, so we will initially startup with 4 filters and 1 ball mill and get our learning early on those first 4 filters, but beyond that it’s a fairly simple circuit. We will start with low grade, but we are pretty optimistic that the commissioning will go quite well and we will be putting high grade in fairly early in the year.

Okay, perfect. Earlier this year there was potential discussions about maybe non-core asset sales, I think Tocantinzinho has come up a potential option on that, is that something the company is actively pursuing at this point in time or could that be pursued potentially post figure out what the capital situation is post the refinancing?

So, yes, we are continuing to progress valuation of Tocantinzinho by furthering engineering. I think we have mentioned we have completed a value engineering exercise that identified some pretty significant capital savings. And we are currently refining the capital estimate in essentially the value of Tocantinzinho. And I think all that’s going to put us in a better position to be able to understand what the market value for that asset is and if we could find the right buyer with cash, it’s definitely would be a non-core asset that could become a part of the financing strategy for more near-term growth. So all I can tell you is we are working on it and believe that could potentially be part of the financing of the company.

Okay, thanks very much and enjoy your weekend.

Thank you.

Your next question comes from the line of John Bridges with JPMorgan. Go ahead please. Your line is open.

Hi, good morning. I was just intrigued you were saying that under the new rule state contractors have to bid in Turkish lira. I was just wondering to what extent or how would a local contractor hedge their cost to protect themselves. I am just wondering under those circumstances the bids could actually be higher, because people would be more cautious about putting a price out or offering a price what do you think?

So I mean from our perspective, the FX rate definitely had an impact on the bids we received. We requested bids in Turkish lira. Given the recent volatility in FX, contractors submitted U.S. bids to protect themselves no doubt, our strategy will be to allow for inflation impacts in the bids, so we will be seeking and negotiating Turkish lira bids with indexing against inflation to protect them from what may happen there. Historically we have seen a neutral to net benefit in FX versus inflation, so we think we can control factors that way. Another thing I would point you to in terms of path forward and finalizing contractors given the financial issues in Turkey, a lot of government projects infrastructure projects have been stopped and so contractors are going to be hungry and looking for work and so we will take advantage of that competitive nature. And then if there are any input costs like steel we can put the factors in to accommodate any changes in their input cost. So there is a way to handle all this to make sure that Turkish denominated cost remain Turkish lira and that we don’t have contractors sort of protecting themselves. So we think there is some upside here for us and we will obviously be attacking that opportunity.

Okay, that will make sense. Thanks. And then sort of following on from Mike’s question, the stuff that you were putting on the leach pad set to close to a gram, has that been so to written off in this impairment, would you be able to go back up there and put that through the mill. Would that be useful as a sort of early speed for the commissioning plant or is that going to be tacked on to the end of the life of the mine?

So I mean, late last year when we discovered the lower recovery challenges associated with heap leaching between then and earlier this year when we stopped crushing, we tried to target the lowest grade material with the best heap leach recovery and left the highest grade material in the plant as best we could. And so you are right there was high grade material placed late last year and early this year. The recoveries we are anticipating on heap leaching are well below the 80% of the mill closer to 40%. At this point our business plan, our guidance and our feasibility study assumes we will get heap leach recovery only. We did increase the cyanide concentrations last year. We are seeing some benefits and improved kinetics and we believe we can probably squeeze a bit more out of the lemon, the lemon being the 10 years of placements up on that path. But frankly, we are not going to get anywhere near 80% recovery and there obviously will be an opportunity once we finish leaching the pad to figure out if there is any economic material that we could potentially pickup and put through the mill maybe in the later stages of the mill life. So that is an opportunity, but it’s not built into any of the economics at this point. And our near-term focus is to maximize production out of the pad trying to squeeze every ounce possible.

Okay, great. That makes sense. Good luck guys. Thank you.

Thank you.

Your next question comes from the line of Tanya Jakusconek from Scotiabank. Go ahead please. Your line is open.

Thanks. Good morning, everybody. Paul, just on Kişladağ, I mean it’s really doing much better than we had anticipated and what do you think the overall recovery you are getting on the heap right now?

I think it’s hard to say on an individual sell basis. So, I can say that overall recovery across the whole heap leach is now just over 60%, but that includes material like the upside that’s obviously got to 80%. So, that’s really as much as we can give you in terms of sort of an overall pad recovery.

And I looked at the feasibility last night with the higher capital and operating costs for this mill option and you kind of always wonder if you have looked at the incremental internal rate of return on the mill option relative to just restarting the heap leach scenario, have you done that work and do you have the internal rate of return of what that would be?

So Tanya, the economics for heap leaching are substantially lower. I can’t give you a number, but I can tell you the mine life for Kişladağ for heap leaching was less than 2 years versus 9 and the recoveries on material that we would be heap leaching over that 2-year period were dramatically lower. So there is a huge difference in value between the two alternatives and we are confident we are on the right path there.

Okay. And George, now that I have you on, what about in terms of financing and we have talked about that revolver and the debt that need to be financed in 2020, is it still an option to bring in a joint venture partner for Kişladağ to share some of those capital costs that needs to be spent, is that still an option?

That is one of the options that we are considering. And obviously as Phil stated we are in a pretty good position now with the mill project that we can kind of bring to ground each one of these options and do trade-off studies and land on the lowest cost of capital for the growth we have in front of us. So I think we are in the right position now to be able to advance.

I guess with the feasibility study in hand it’s much easier to get a buyer to come and look than it was with the pre-feas?

I think for sure on both debt and potential partnerships, there is increase certainly being in feasibility study, so, yes.

Thank you very much.

Thanks.

And with that, I would like to turn the call back over to Peter Lekich for some closing remarks.

Alright, thank you everybody and we look forward to good Q4.

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