Eldorado Gold Corporation (EGO) Q4 2020 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Corporation Q4 and 2020 Year End Financial and Operational Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Jeff Wilhoit, Interim Head of Investor Relations. Please go ahead.

Thank you, operator and thanks everyone for taking the time to dial into our conference call today. On the line with me are George Burns, President and CEO; Phil Yee, Executive Vice President and CFO; Joe Dick, Executive Vice President and COO; Jason Cho, Executive Vice President and Chief Strategy Officer; and Peter Lewis, Vice President, Exploration. Our release yesterday details our 2020 fourth quarter and year-end financial and operating results. This should be read in conjunction with our fourth quarter and year-end financial statements and management’s discussion and analysis both of which are available on our website. They have also been filed on SEDAR and EDGAR. All dollar figures discussed today are U.S. dollars, unless otherwise stated. We will be speaking to the slides that accompany this webcast. You can download a copy of these slides from our website. 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 2019 AIF and in the cautionary note on Slide 1. I will now turn the call over to George.

Thanks, Jeff and good morning everyone. Here is the outline for today’s call. I will provide a brief overview of Q4 and 2020 before touching on some of the milestone developments that have taken place since the end of the year that have positively altered the outlook for Eldorado in this young year. Then I will pass it to Phil to go through the financials, Joe will follow by reviewing operational performance, then we will open it up for questions. I am very pleased with the strong operational and financial results in Q4 and over 2020. We delivered on many fronts, including maintaining and achieving our original 2020 guidance and achieving our highest quarterly production in nearly 5 years. Production totaled almost 529,000 ounces for the year amid an improving cost profile. We finished the year in a solid capital position with over $500 million in cash and equivalents, which increases our financial flexibility to fund our growth. And we did this all amid a historically challenging year. I am extremely proud of our teams as they continue to show courage in the face of adversity while working together to deliver on our key catalysts and drive value for stakeholders. Speaking of catalysts, we have had a tremendous start to the year with a major milestone of signing the amended investment agreement in Greece, the pending acquisition of QMX in Quebec and this week’s announcement of a maiden resource at Ormaque that demonstrates our continued exploration success in the region. Our strategy of prudent reinvestment in high-quality opportunities within our portfolio continues to take shape. Chief among these is the advancing the world-class cures project in Greece and our Lamaque operations in Quebec. I’ll talk more on both of these in a moment. Over to Slide 4, many of you have seen our early February news of signing an amended investment agreement in the Hellenic Republic. This is a huge achievement for us as well as for the government and is a testament to the dedication of all involved. The agreement delivers a commercial framework that sets the stage for a productive and mutually beneficial relationship with the government. It also provides a path to unlock transformational value from the Kassandra mines as our development plan of these assets is part of the agreement. It was an honor to be able to attend the signing ceremony in person alongside Christos Balaskas, our VP and General Manager of Greece. Also present were the Minister of Energy and Environment, the Minister of Finance and the Minister of Development and investment. The attendance of the Canadian and U.S. ambassadors also added support for increased trade and investment between North America and Greece. Perhaps a bit of a refresher on the agreement itself, the modernized agreement amends the 18-year-old contract that was put in place by a previous owner under vastly different economic circumstances. At the time, the contract was a simple asset transfer agreement that reflected the distressed nature of the Kassandra mines. This modernized agreement now reflects the use of updated technologies such as dry stack tailings and improved water management and the needs of an investment of this size. It also maximizes value for all stakeholders while bringing about significant economic and environmental improvements. It’s a mutually beneficial agreement we can all be proud of. As you are aware, investor protection mechanisms and permitting assurances were important parts of our ongoing discussions with the Greek government. These are included in the agreement and are similar to clauses offered to other foreign direct investors. The agreement also outlines enhanced fiscal revenues for the Greek state, job creation, community development opportunities and various environmental benefits. Skouries and Olympias are world class assets and we believe it’s important that all stakeholders benefit from their development. A bit more detail on the fiscal revenues for the Greek state, particularly the royalty increase of 10% for all metals contained in concentrate. To clarify, the current 2% royalty at $1,300 gold now becomes a 2.2% royalty. Over to the next slide that sets out the next steps in Greece and specifically at Skouries, as we have mentioned previously, the investment agreement now needs to be ratified by parliament. We expect this to occur by the end of Q1, with the publication in the government gazette shortly thereafter. The arrows here show the staged gates to resume construction at Skouries. It will be a busy year with the approval of the permit to use dry stack tailings expected in Q2 and commencement of preconstruction activities thereafter. We aim to complete a feasibility study in Q3, while concurrently evaluating funding alternatives. We expect a potential investment decision by year-end and thereafter, look to restart construction in 2022. Back to this side of the Atlantic, I want to say a few words on key catalysts delivered this quarter in Quebec. First, the friendly acquisition of QMX strengthens Eldorado’s position in the world-class Abitibi Greenstone District by increasing our landholdings by approximately 550%. Scheduled to close early April, this would add a pipeline of organic exploration opportunities proximal to our existing infrastructure at Lamaque, including about 690,000 ounces of existing mineral inventory. On to the second catalyst, our recent announcement of the 803,000 ounce maiden inferred resource at Ormaque, this early exploration success highlights the outstanding growth potential at Lamaque. The strike continuity, vein orientation and dimensions of Ormaque deposit exhibit important similarities to parts of the nearby historically mined Sigma deposit and mine too. As you can see from the map here, it is ideally positioned along the oral haulage decline now under construction, connecting the Lamaque Triangle underground mine with the Sigma mill. We will be conducting an infill and expansion drilling throughout the course of the year as the deposit remains open in multiple directions, so, very encouraging initial results. Taken together, these two catalysts underscore Eldorado’s commitment to Quebec and Canada as a core jurisdiction in our portfolio. They also support our strategy in the region of developing a pipeline of additional ore sources within and proximal to the Lamaque Triangle mine, which could leverage existing infrastructure and optimize the Sigma Mill, which has a permitted capacity of 5,000 tons per day. I will stop there. Over to you, Phil.

Thank you, George. Good day, everyone. Before getting into our Q4 2020 performance, I would like to highlight the operational and financial turnaround for the company over the last year. Slide 8 exhibits the improved quarterly financial performance in 2020, with adjusted net earnings of $170.9 million and free cash flow generation of $236.2 million for the year. Over to our Q4 and full year financial results on Slide 9. Eldorado’s strong finish in the fourth quarter caps a dramatic year-over-year improvement in virtually every key area of our business in 2020. Gold production totaled 138, 220 ounces in Q4 2020, a sizable increase compared to 118, 955 ounces in Q4 2019. The annual production totaled 528,874 ounces in 2020, a 34% increase from 395,331 ounces in 2019. Despite impacts related to COVID during the year, annual guidance was maintained throughout the year and achieved. Compared to the prior quarter, Q4 saw increased gold production, partially offset by lower realized metal prices. Eldorado generated $278.5 million in total metal revenue in the quarter compared to $191.9 million in Q4 2019. For the year, Eldorado’s metal revenue exceeded $1 billion for the first time since 2014. Gold revenue in Q4 2020 totaled $253.7 million, an increase of 44% over Q4 2019. Gold revenue comprised over 91% of the total metal revenue in 2020, increasing 77% to $938.3 million versus $530.9 million in 2019. This increase resulted from higher gold sales volumes of 137,523 ounces sold in Q4 2020 compared to 118,902 ounces sold in the fourth quarter of 2019. The increase in revenue was also the result of a higher average realized gold price in Q4 2020 of $1,845 per ounce as compared to $1,475 per ounce in the comparative quarter in 2019. The company reported net earnings to shareholders in Q4 2020 of $22.8 million or $0.13 earnings per share. After adjusting for onetime non-recurring items, including a $40 million non-cash write-down related to capital works in progress and a $3.4 million VAT provision associated with the write-down, adjusted net earnings for Q4 2020 increased to $58 million or $0.33 adjusted net earnings per share. This compared to $19.3 million or $0.12 adjusted net earnings per share in the same quarter 1 year ago. Full year 2020 adjusted net earnings also increased significantly compared to prior year, totaling $170.9 million or $1 adjusted net earnings per share compared to $2.4 million or $0.02 adjusted net earnings per share in 2019. The increased net earnings and adjusted net earnings reflect higher gold prices and higher gold sales in 2020 relative to the previous year. The EBITDA totaled $95.1 million in Q4 2020 and increased to $144.2 million in adjusted EBITDA for the quarter after adjusting for, among other things, the previously mentioned $40 million onetime non-cash write-down related to capital works in progress. In comparison, Q4 2019 EBITDA totaled $158.7 million. And after adjusting for a reversal of impairment in 2019, adjusted EBITDA was $80.3 million for Q4 2019. For the full year, adjusted EBITDA totaled $534 million for 2020, a significant increase from $235.6 million for 2019. We also saw increased capital spend in the fourth quarter as efforts were made to advance projects. Eldorado is entering a growth phase, and capital will be higher in 2021 as we position our producing assets for future production and growth. At Kisladag, we are in year two of a multiyear pre-stripping phase that will position the mine for a sustained period of enhanced free cash flow over an increased mine life. In addition, completion of the high-pressure grinding rule circuit at the end of Q3 and the North leach pad expansion at the end of the year will substantially bring to a close the project process capital associated with the successful mine life extension we announced in early 2020. At Lamaque, the capital is focused on underground development as we continue to grow the relatively new mine, and the underground decline connecting the Triangle deposit directly to the Sigma mill is expected to be completed by the end of the year. Olympias will similarly see higher capital in 2021, focused on increased underground development and improvements to position the mine for greater productivity and efficiencies. Depreciation and amortization totaled $70.4 million in Q4 2020 versus $52 million in Q4 2019, reflecting the higher production in the quarter as a significant portion of our property, plant and equipment depreciates over mine life on a unit of production basis calculated based on mineral reserves. We believe that continued exploration and success of the sort that George mentioned at the outset should continue to add meaningfully to mine life and to the overall production profile at our operating mines. There were no significant changes in finance costs in Q4 2020. For the year, finance costs increased to $50.9 million from $45.3 million in 2019 and primarily due to $6.3 million of premiums paid upon the early redemption of $66.1 million of the $300 million senior secured notes during 2020. Q4 2020 reported a $4.6 million tax recovery compared to a $9.8 million tax expense in Q4 2019. Q4 2020 tax reflected the receipt of a $21.7 million investment tax credit in Turkey related to the Kisladag heap leach project, including, among other things, the installation of the HPGR. The investment tax credit received reduces the effective tax rate in Turkey in Q4 2020. I am pleased to report that we ended 2020 in a net cash position. We finished the quarter with $511 million in cash, cash equivalents and term deposits and approximately $29 million available under the revolving credit facility. Perhaps most importantly, Q4 2020 free cash flow totaled $48.4 million, significantly higher than the $5.5 million for Q4 2019. This was lower than the previous quarters due to a lower effective gold price in the quarter and the timing of capital spend. As previously mentioned, this brought our total free cash flow generation to $236.2 million for the year. Subsequent to the end of the year, we have also added to our overall liquidity position. Our revolving credit facility had $70.8 million in credit allocated to cover non-financial letters of credit that were issued to secure certain obligations in connection with our operations. In February 2021, an amendment was completed such that the non-financial letters of credit no longer reduce credit availability under the revolving credit facility. And $100 million in undrawn credit is now available to the company. A prepayment of $11.1 million of principal on the term loan was made in conjunction with this amendment. In addition to this liquidity boost, Eldorado also continued to reduce debt, with an additional $7.5 million payment in December, reducing the balance of the senior notes outstanding to $233.9 million as of the end of the year. In addition, the scheduled principal payment of $33.3 million was completed in December, reducing the term loan balance to $133.4 million at the end of the year. Net leverage is 0.04x EBITDA at the end of Q4 2020. This is a significant reduction from net leverage at 1.25x EBITDA at the end of Q4 2019 and reflects a much stronger balance sheet compared to a year ago. As George discussed earlier, entering 2021 with this increased level of financial strength, increased liquidity and improved credit profile provides added flexibility to take advantage of the many compelling opportunities before us. Against the backdrop of our recent positive news in Greece and in Quebec, we enter 2021 a significantly stronger, more financially flexible company. With that, I will now turn it over to Joe to go through the operational highlights.

Thanks, Phil and good morning everyone. Amid an unprecedented operating environment over the last year, I’m very pleased that our mines achieved 2020 production and cost guidance. It’s important to point out that our guidance remained unchanged throughout 2020, even as global commercial activity slowed to a crawl last spring as the extent of the pandemic became more fully known. We produced 138,220 ounces of gold in the quarter at cash operating costs of $536 per ounce sold and all-in sustaining costs of $959 per ounce sold. I am proud of our team’s accomplishments across our mines and projects. The team at Lamaque deserves particular recognition for outperforming against plan in what was essentially a 49-week year due to government-mandated shutdown of operations in Quebec last spring. Reviewing the 5-year outlook we released in January 14, the midpoint of our new production guidance for 2021 increased by 10,000 ounces compared to the guidance we issued a year ago, due primarily to higher production expectations at Lamaque as minings continues in C4. Looking over the five-year guidance horizon, a substantial period of outperformance at Lamaque, coupled with an improved operating outlook at Kisladag has enhanced our overall five year production profile compared to a year ago. Skouries, Perama Hill and Ormaque represent potential upside. Turning to current operations, Kisladag ended the year, better positioned to deliver on our planned project work going forward. The team on site has progressed on a number of critical initiatives, including the completion of the process pond that will allow us to store more pregnant solution. The installation of two additional CIC trains is on track for the end of the current quarter, which is expected to increase our solution processing capacity from 3,250 to 3,750 cubic meters per hour. The installation of a new carbon column regeneration kiln is on track for scheduled completion during the second quarter of 2021. HPGR commissioning remains on track for the third quarter and we expect to have indicative recovery information by year-end. Phase 1 of the North heap leach pad expansion pictured here in gray on the slide, is expected to be ready for stacking by year-end. We are also progressing well on our multi-year pre-stripping campaign, which is back on track after the COVID slow down. Kisladag is expected to mine in place under leach in excess of 11 million tons in 2021 at an average gold grade of 0.69 grams per ton. The flotation columns installed at Efemcukuru have been successfully commissioned and are now online. This will have a positive effect in 2021 and beyond on the quality of our gold concentrate and the transportation savings related to reduced ton shipped. I am pleased to report that this project was completed on schedule and on budget. In 2020 – in 2021 Efemcukuru is expected to mine and process almost 520,000 tons of ore at an average gold grade of 6.6 grams per ton. Efemcukuru continues to be a steady and safe performer, with stable production and over three years without a lost time incident. We also continue to have success through the drill bit that may allow for meaningful mine life extension through resource conversion at Kokarpinar. At Lamaque, underground mining in the C4 zone began in earnest in the fourth quarter and our results there to date have been better than expected with positive grade reconciliation on the first two stopes taken. We expect to average approximately 2,000 tons per day at Lamaque during 2021 at an average gold grade of 6.6 grams per ton. Our underground crews and contractors are now advancing the decline from both ends between Triangle and the Sigma mill on schedule. As of February 24, we have completed 1,140 meters of advance and we expect to be in the proximity of Ormaque during September on the way to connection of the decline by year-end. Completion of the decline is expected to reduce operating costs, as surface haulage costs are eliminated and the current Triangle haulage ramp is replaced with straight line haulage to the Sigma mill with reduced emissions providing an important environmental benefit as well. Our focus in 2021 is continuing to work to optimize the Lamaque operation. During 2020 we advanced the technical work for further mill expansion, paste backfill tailings alternatives and decline materials handling. We have also had success debottlenecking the mill to 2,200 tons per day and look to improve upon that work in the year ahead. During 2021, we will combine that technical work with our exploration program to better incorporate the regional potential and move our plans forward in a disciplined manner, truly exciting times at Lamaque. Over to Olympias, I am pleased to report that the mine met its full-year production plan in 2020. Mine is expected to reach 443,000 tons in 2021 at average grades of 7.3 grams per ton gold, 104 grams per ton silver, 3% lead and 4% zinc. Underground development along with continued operational efficiency improvements remain the focus at Olympias as we continue to ramp up the mine. We expect to see decline in cash operating costs as a result. As elsewhere throughout the portfolio, there is compelling opportunity for improvement and we look forward to sharing our progress with you in the year ahead. With that, I will turn it over to George for closing remarks.

Thanks, Joe. Before wrapping up, I’d like to again recognize the contributions of George Albino, who stepped down as our Chair of the Board at the beginning of this year, and welcome, Steve Reid to the role. George remains on the Board of Directors. I’d also like to mention the following new appointments to our leadership team. We have a lot of project work ahead of us and I am excited to leverage the skill set of these individuals to deliver our growth plans. Simon Hille joined Eldorado as Vice President, Technical Services in November 2020. He is responsible for technical projects and fostering innovation throughout the company. Sylvain Lehoux was promoted to Vice President and General Manager of Quebec in early December. He will continue to oversee all mine operations in Quebec, while also taking on increased responsibilities as an ambassador for Eldorado in the region. Brock Gill will join as Senior Vice President, Projects & Transformation in March. Previously with BHP, Brock will oversee development engineering activities, project delivery of major capital projects and transformation through business improvement initiatives at Eldorado. With several key catalysts already delivered or under way in this year, 2021 is shaping up to be a pivotal year for Eldorado. We expect this positive momentum to continue as we deliver on our guidance and growth plans. Our focus in 2021 is unlocking the compelling value at Skouries and throughout our portfolio, while continuing to put safety, sustainability and good governance at the core of our business. I’m excited for the dynamic year ahead and look forward to updating the market with all of our exciting progress. Thank you everyone. I will now turn it over to the operator for questions.

[Operator Instructions] The first question is from Cosmos Chiu from CIBC. Please go ahead.

Hi, thanks, George. Phil, Joe and team. Thanks for the conference call. Great to see the revised agreement in Greece and also the resource update at Ormaque. Maybe my first question is on Ormaque. Could you remind me what kind of drill spacing you needed to get Ormaque into inferred and then eventually what kind of drill spacing would you need to get it into M&A and then eventually into reserves?

Yes. Thanks, Cosmos. It’s Peter here. I’ll answer that question. Yes. Given that this is a – it’s a blind deposit that we can’t directly observe at surface, we are fairly aggressive in our initial drill spacing before we are comfortable going to inferred. So the inferred resource that we announced is based on an average spacing of the mineralized lenses, it’s around 70, 80 meters through most of the deposit. And it’s a bit tighter in areas where we wanted some additional confidence. In addition to that, we trimmed the mineralized shapes so that we don’t include anything that’s more than 50 meters from a drill intercept. So we are pretty conservative on our approach at the inferred level. In terms of next steps and converting to indicated resources we are still working on that. And the program that we are initiating right now actually is to go back into the inferred, tighten up the drill spacing and just give us a little bit more – basically verify the geological model that the inferred resource is based on. And then in addition to that, with our haulage decline, we will actually have direct underground exposure part – the upper part of Ormaque, probably early 2022, possibly even late 2021. And that in addition will help us define our strategy going forward. So, we haven’t defined the drill spacing for conversion yet. We need that additional information before we are comfortable doing it and then of course that would be true for defining reserves as well.

Great. Thanks Peter. And to follow-up, I guess, looking at the geometry of Ormaque here, it looks to be a fairly flat lying structure. I seem to remember previously, you explored Minrail as a potential method of mining it. It didn’t really work out. I think there were some technical challenges. Since then, have you given us some more thought in terms of how you might tackle and mine this deposit?

Cosmos, this is Joe. We are in early days of that and we will need a bit more information. But we have looked at it more of a conventional drift infill or a room and pillar. And so at this point, it’s too flat for Minrail. And so I just say at this time, it’s hard to determine, but as we get a little more understanding of great continuity and that kind of thing, we’ll begin method selection. But those are two things that we’ve done the preliminaries on.

Great. And then talking about the decline here, as you mentioned, it’s going to get fairly close to Ormaque by Q3 2021. Do you anticipate doing any kind of work, any kind of development on it at this point in time or is it still too early?

Well, we’ll get a bit more information before we make that decision from the current drill program. And we will get an engineer started on potential options, and we’ll make that decision as soon as practical, but it’s a bit early just yet, Cosmos.

And then, Joe, could you remind me what’s the potential capacity of this decline is?

In what respect, in haulage capacity?

In terms of throughput, yes, haulage capacity.

Yes, I’d have difficulty giving you that right now. I think we’re well in excess of 3,000, 3,500 tons per day, perhaps a bit more than that. But right now, it depending on what we ultimately do, I think that capacity still remains to be determined.

Okay. And then maybe one last question here. Just wrapping it all together, George, as you mentioned, Lamaque previously, there is capacity potential to get it up to 5,000 tons per day. Given what you have today at Ormaque, given that on top of Ormaque, there is actually a lot of inferred ounces, at this point in time, do you think there’s enough to potentially support 5,000 tons per day or do you really have to see what you have at QMX and wait for that to close and then kind of see more regional bases what you have?

Thanks, Cosmos. Well, it’s completely dependent on our exploration success. And you can see we’ve got a number of targets at Lamaque and with QMX potentially closing at the end of the quarter, just going to open up the field for Peter and our team at Lamaque to find additional feed for that plant. So we don’t currently have that in front of us, but when you contemplate the current exploration targets and the direction we’re headed to expand those, over the longer haul, I’m confident we’re going to be pushing that throughput level up. It’s just right now we are not far enough advanced to be able to identify exactly where it’s going to come from.

Great. And those are the questions I have. Looking forward to the rest of 2021 and have a good weekend.

Thanks.

The next question is from Fahad Tariq from Credit Suisse. Please go ahead.

Hi, thanks for taking my question. Maybe first for Phil, in the quarter, in Q4, can you talk about – it looks like cash taxes were quite a bit higher in the quarter. Is there anything of note there?

Well, the cash – hi Fahad, the cash taxes are really tied to Turkey and to the federal tax in Turkey and the Quebec mining duties at Lamaque. And in Turkey, in Q4, the taxes were offset by the receipt of almost – I think it was $27.1 million in investment tax credit. So that offsets the cash taxes. And also, there was an adjustment from a foreign exchange tax as well that we got a refund. So that reduced the effective tax rate in Turkey. In – related to Lamaque, it’s all tied to the Quebec mining duties. And because of the higher production in Q4, our Quebec mining duties increased in Q4.

Got it. Okay. That’s clear. And then just on the investment agreement in Greece. Is there any risk that it does not pass the parliamentary ratification? Is that something we should even be thinking about at this stage?

I would say no. We’ve been working really hard with the Greek government on putting together this mutually beneficial agreement. And as I stated, three key ministers signed the agreement with us. New democracy has a majority in parliament. They wouldn’t have signed the agreement if their party wasn’t intent on passing the agreement into law. So have very high confidence that’s going to happen shortly.

Okay. Great. And then just the last question kind of related to that. I know you said it previously that you’re looking for a funding partner for Skouries, but with an improving balance sheet, it is possible that you could do the project alone. Maybe give us your latest thoughts on how you’re thinking about moving forward with the project.

Well, for sure, our balance sheet is much better positioned. We’ve made tremendous progress over the last 1.5 years in that vein. And from our perspective, it puts us in more of a driver’s seat to come up with an optimum financing for Skouries. Our strategy still remains to look to put in place a joint venture partnership and partly for funding, partly to have another voice to have influence over the multi-decade life of these assets. So at the end of the day, it’s going to be a balance between the various options we have from a joint venture perspective as well as other funding alternatives that we continue to evaluate. And it will boil down to certainty of getting the return on investment, derisking the project however we can and at the same time, getting the best returns for Eldorado shareholders. It’s tough for us at this point to be pretty clear about where we will land on that. And from my perspective, the catalyst that we’ve outlined, which is ratification, approval of dry stack, permitting and advancing the engineering to feasibility level by Q3, all that’s going to underpin certainty on the investment and position Phil and Jason to optimize the financing strategy for it. So in summary, I’d tell you, we’re in a better position from a flexibility perspective, but we’re pursuing all alternatives.

Okay, got it. That's it from me. Thank you.

Thank you.

The next question is from Kerry Smith from Haywood Securities. Please go ahead.

Thank you. Phil, for the 25% royalty increase in Turkey, was that all cash? Because it was retroactive to January 1 of last year. Was that all cash settled in Q4 then?

Hi, Kerry, that was all cash settled in Q3 because it was announced in Q3, and it was retroactive to the start of the year. So you would have seen a higher royalty impact for the full year come through our Q3 numbers. And Q4 would just reflect the incremental amount for Q4.

Okay, got it. Okay. And can you just – for my – just to make sure I’ve got the right numbers, what is the actual royalty now? And is it a sliding scale royalty? Just remind me what the rate is and how it works.

It’s a sliding scale. I’m just – do we have the actual – I don’t have the actual scale in front of me, Kerry, but it is a sliding scale.

Okay. Okay. Well, maybe you can just – I’ll just get it later offline. Okay.

Sure.

And if the decline at Lamaque is completed by year-end, how much equipping is there to do and other work to do before that decline would actually be functional and be able to move mock-up to the plant?

Can you repeat that, Kerry? I missed the end of the question. This is Joe.

Hi, Joe, I was just wondering if you finished the decline by the end of the year, is that – at that point in time, is it fully ready to lay the goal and ready to be utilized for muck haulage? Or is there incremental work to be done? And if so, when would it be ready for ore transport?

Okay. There will be a little bit of incremental work to be completed. I think we could use it, but we make connection by year-end and then we work out the road surfaces and all of that prior to utilization. But it’s not a very long time period. A month, 6 weeks post connection, we’re ready to haul.

Okay. And George, perhaps could you just remind me again, your rough estimate as to what it would cost for capital to expand the Sigma Mill up to, say, 4,000 or 5,000 tons a day, I’d say 5,000 tons a day?

Yes. I mean, we’ve been public with about $50 million, and that capital level envisions putting in a SAG mill, which was in the circuit originally but was sold by a predecessor company. So it’s – I mean, physically, what has to happen, we need additional grinding capacity, and we’d have to upgrade the remaining leach tanks. And we were doing further engineering on that and looking at incremental analysis and depending on how our exploration success unfolds, we’ll make the appropriate decision for the next level of expansion.

Okay, okay. So $50 million and based on what you see today at Ormaque, with those flat-lying, you’ve got, I think it’s 18 separate lenses there, would that geometric configuration support, say, 1,600 tons a day? Would that be a reasonable expectation for the kind of tons that you may be able to pull from that operation?

Kerry, this is Joe. I’ll answer. Based on current knowledge and the inferred resource and the very preliminary work that we have done, we’re more in that 700, 800 tons per day sustained. However, given the step-out capacity, we don’t see that as unrealistic based on how exploration proceeds.

Okay. Okay. That’s helpful. Thank you, Joe. And just for my interest’s sake, what was the $40 million that you had spent at Olympias? What was that for that you canceled?

Kerry, it’s Phil here. So you’re referring to the write-down?

Right.

That was part of the original agreement and plan that was in place. That was related to tunnel that was being developed.

Maybe I can jump in. In the original business plan that’s – I think it’s like more than 10 years old now, the idea was to run Olympias for a phase and then to build a new flotation circuit in the next valley. And so this decline would have been put in place to deliver the ore from the underground Olympias into the next valley into what was perceived to be the Madem Lakkos flotation facility. And that plant was going to be, as I recall, around 900,000 ton capacity. So with our new business plan or public disclosure, the plan is to expand the Olympias plant and then run that plant through the life of mine. So it has better return on investment, which is good for Eldorado and our investors. It’s also maximizes value to the Greek state. So Kerry, essentially by getting the agreement signed, that tunnel longer has a potential future use and as a result, was written down.

Got it. Okay. Okay. That’s helpful. And I guess, Phil, just last question for me. The realized price was $30 an ounce below the LME average. I guess that was just timing of sales, was it?

That’s one of the opportunities and challenges of having concentrate in the portfolio is depending on the timing of the shipments and from the time we market shipped and when we get the final closing from the smelter, the process is that you see ups and downs. And this quarter happened to be a down in comparative price to the quarter.

Alright. Okay, that’s great. That’s all my questions. Thanks very much.

Thank you, Kerry.

The next question is from Josh Wolfson from RBC Capital Markets. Please go ahead.

Thanks. As it relates to the funding aspect for Skouries, what I recall historically is the streaming option had been a low priority. But just kind of looking again at where the commodity prices are and understanding there is a large base metals component, is there any sort of higher consideration for that option now versus the past?

Yes. Josh, it’s Jason. I’d say streaming has a place in terms of how we’re looking at all the alternatives related to funding Skouries. I think we’re trying to keep an open mind to it and understanding that relative cost of capital on precious maybe versus base metal streaming may have its advantages as well. But short answer to your question, yes, we’d be keeping an open mind generally to funding alternatives, including streaming.

Great, thank you. And then I may have missed this earlier. There’s a number of questions on our market sense. Like in terms of time lines for when that ore will be able to be mined and incorporated in the plan, with the decline, I guess, meeting that by the third quarter, what sort of time frame could you look at for that?

It’s a bit preliminary to put a time frame on it. I think we have to first kind of complete the exploration program in place now gain access to the ore body to get reach out and touch it, understand that it’s what we think it is and all the while, while we’re doing that, working on kind of extraction options. So I hate to put a time frame on it, but it’s a year later, perhaps somewhere in that general range. But I think it’s too preliminary just yet.

Yes. Josh, it’s Peter. If I can jump in quickly, just in terms of our plans, we are going to be hitting Ormaque pretty hard. We’re quite excited about the potential there. But we are still at the resource definition and expansion stage, and we’re not even planning – we’re not even to the point yet where we can plan our resource conversion program in detail. So the emphasis over the next 6 months is going to be to get a better sense for the overall resource potential there and what that conversion program looks like. So that will be the next news from us is once we have a better understanding of that.

And to supplement all – this is George. I’d just supplement all that. I mean, as Joe said, we’ll be able to touch the deposit and break some rock, and that’s going to give us a lot of information. Peter outlined, for a portion of the deposit, we’re going to do some more detailed drilling. That will give us another indication. And after touching it and seeing it, they’ll be able to nail down the appropriate drill spacing. And depending on that, that will impact how long it will take to get the confidence we need to put it into production. So it’s still fairly early days to put a definitive time line on it. But it took us a year from discovery to this inferred resource, and I remain optimistic with the capability of our team that it won’t be – it won’t take that long. This looks pretty good to us.

Yes. And one final comment is the bulk of the resource has been defined. It’s relatively shallow. It’s within the upper 400 meters. So we have the option of doing the delineation drilling, the conversion drilling from surface or from underground once we get access there. So it’s something we can advance quite rapidly.

Got it. And then one last question, which I’m sure you’re not going to like because it’s on time lines again. But as it relates to the updated PEE – PEA, sorry, for Lamaque, is there any sort of idea when we could see that and obviously incorporating Ormaque? And maybe to simplify this, is that something that we would expect in 2021 or is this going to be still the ways off?

The preliminary view is toward the end of the year. And I think as we learn more, we are certainly going to want to be as inclusive as we can with that PEA. So we will update on a quarterly basis, but our present thinking is at or near year end.

Okay, that’s great. Thank you very much.

The next question is from Mike Parkin from National Bank. Please go ahead.

Hi, guys. Thanks for taking the questions. Most of them answered. But in terms of Ormaque, is there – what’s the timeline in terms of metallurgical work on that or do you feel confident that the existing milling setup is suitable for it?

You can start.

Yes, I will start. I will just comment on the geological aspects of it. And just in terms of mineralogy, it’s very similar to what we already have at Triangle, so we don’t foresee any significant metallurgical issues. In terms of more detailed test work, just to confirm that that’s not currently scheduled. And certainly, once we get access underground, we will have the opportunity to do a more comprehensive program as well.

And I think the other thing that gives us confidence is that these flat-lying veins were very similar to or that was mined at Mine 2 and part of the Sigma. So between historical mining of similar flat-lying veins and the geology that Peter described, we have pretty high confidence that’s going to be very similar metallurgy to what we have seen in the camp.

Okay. That’s it for me, guys.

Thanks Mike.

The next question is from Mike Jalonen of Bank of America. Please go ahead.

Hey, George and Phil. I just had a bigger picture question, gold, 1,725, down 45 today, probably a question I get next week at some dealers conference I’ve heard about. Just wondering, capital allocation, like I got you guys now into negative free cash flow this year. Maybe Phil’s numbers disagree with mine. But when do you start – if gold stays down, are you going to push out projects or slow down spending or anything like that or you are just happy to follow the plan you have now if gold price stayed depressed? Thanks.

So maybe I will just start out and then Phil can follow-up. So I’d say the answer is no. I mean, our growth is focused on high-quality, high-return investment opportunities. So, even at vastly lower metal prices, these projects make sense. And from my perspective, particularly when you looked at Skouries, it’s going to change the baseline of our company. Our ASIC is going to drop dramatically. Skouries can be a cash flow generating machine at current spot prices, but even at depressed metal prices, it’s a fantastic asset. So I can’t see in my view of any downside potential in metal prices that our growth opportunities wouldn’t make sense. And obviously, all those comments are tied to successful financing that we will have clarity around before the end of the year. And maybe, Phil, on the cash flow question?

Yes, hi, Mike. So we prepared our budget with a 1,750 gold price. And we are expecting to generate positive free cash flow in 2021. It’s not going to be at the level that we have reported for 2020, because our capital has increased as I outlined earlier. But obviously, there is priorities, we are in growth mode and it’s important for the company to continue to grow our assets and then generate value. If gold was to take a significant nosedive, obviously, there is other things that we would have to reconsider. But I think given where market forecast consensus are it looks to remain in this area, in this range at this point. And where it is right now, like I said, we are – we still expect to be in a good financial position.

Okay.

Yes. Mike.

Sorry, George.

Yes. I was just going to add on that obviously the drop yesterday and today is not great news. But I think when you look at the impacts that COVID has had across the planet and all the challenges that countries are going to be dealing with to get economies back in track, in our way of thinking, we are going to be seeing a pretty solid gold price and there will be volatility around it, but our outlook remains positive.

Okay, thanks for that. And I will see you next week at the [indiscernible] Hotel. I will buy you a beer in the lobby bar. Thanks.

Thanks Mike.

Thanks Mike.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. George Burns for any closing remarks.

Thanks everybody for dialing in. It’s been – the last 2 years at Eldorado have been pretty darn successful in terms of return to our shareholders. I think this will be another breakout year for us. We are excited about the opportunities in front of us and look forward to keeping you updated. Thank you.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.