Eldorado Gold Corporation (EGO) Q2 2023 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Second Quarter 2023 Financial and Operational Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Lynette Gould, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to welcome you to our second quarter 2023 results conference call. Before we begin, I'd like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call, please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures in our management's discussion and analysis as well as the risk factors set out in our annual information form. Joining me on the call today, we have George Burns, President and Chief Executive Officer; Phil Yee, Executive Vice President and Chief Financial Officer; and Joe Dick, Executive Vice President and Chief Operating Officer and Simon Hille, Senior Vice President, Technical Services and Operations. Other members of the senior leadership team will also be available for the Q&A session. Our release yesterday details our second quarter 2023 financial and operating results. This should be read in conjunction with our second quarter 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. After the prepared remarks, we will open the call for Q&A. At this time, we will invite analysts to queue for questions. I will now turn the call over to George.

Thanks, Lynette, and good morning, everyone. Here's the outline for today's call. I'll provide a brief overview of Q2 results and highlights before passing it to Phil to go through the financials. And then to Joe and Simon to review our operational performance. Then we'll open the call to questions from our analysts. Turning to Slide four, as we mentioned on our Q1 quarterly call, we closed the Skouries project financing of €680 million in early Q2. Subsequently, we have completed two draw downs in April and May for a total of €65.9 million. On June 14, we were pleased to complete an 81.5 million Canadian strategic investment into Eldorado by European Bank of Reconstruction and Development. These funds will be invested in construction at Skouries and will be credited against the company's 20% project funding commitment. In addition to our Greek bank syndicate, EBRD provides another well-aligned strategic partner for the Skouries project. The investment by EBRD was a culmination of a three-year rigorous process which included completion of an environmental and social impact assessment consistent with our commitment to high environmental and social standards. With the proceeds from EBRD now contributed, we do not expect any further funding for Skouries will be required from Eldorado in 2023 as the project financing facility is expected to cover remaining spending until Q1 2024. During the quarter, we also completed a bought deal offering for gross proceeds of CAD 135.2 million. These funds are expected to be used for the fund growth initiatives across our global portfolio including some not currently contemplated within our five-year plan. The growth initiatives may include but are not limited to Perama hill where we expect to start community consultations later this year, expansion of Olympias to 650 million tons per annum, bringing the Ormaque discovery into production and exploration opportunities in Türkiye and Quebec. We anticipate we will be able to provide more detailed information around the cost, priority and timing of each opportunity with our updated 2024 guidance in the first part of next year. Moving to Slide five starting with production, consolidated production across the portfolio came in slightly below our expectations for the quarter as a result of extraordinary rainfall at Kışladağ, fire forest fires near Lamaque and lower grade and recoveries at Olympias to the mine sequencing as we advanced productivity improvements. As we are expecting stronger production in the second half of the year, we are well positioned to meet our 2023 production guidance of between 475 and 515,000 ounces. Additionally, we are maintaining our capital expenditure guidance of $394 million to $437 million, including 240 million to 260 million towards the advancement of Skouries project for 2023. Turning to Skouries, we continue to be focused on project execution in order to deliver the project by the end of 2025 as planned. During the quarter, we advanced a number of early works projects and continued to award key contracts. We were pleased with the progress to-date and continue to ramp up personnel with 350 people on site, which will increase to approximately 900 by year end. Joe will talk about the progress and operations in more detail later in the call. Shifting to cost, first half cash operating cost per ounce sold and all-in sustaining costs are in line with our annual guidance ranges driven by continued lower input costs. Phil will speak to our cost and financial position in more detail later in the call. Finally, I'd like to congratulate the team at Lamaque, who were awarded the pre-distinction award in the environment category at the 2023 Quebec Mining Association Convention. The team was recognized as an innovative project in partnership with MRC, [indiscernible] aimed at the progressive restoration of the sigma tailings pond using compost produced locally. The award highlights our commitment to continued innovation in the area of sustainable development. I'll stop there and turn the call over to Phil for a review of our financial results.

Thank you, George. Good morning, everyone. Slide six provides a summary of our second quarter results. Eldorado reported net earnings attributable to shareholders of 1.5 million or $0.01 per share in the second quarter. After adjusting for one-time, non-recurring items, adjusted net earnings were 16.1 million or $0.09 per share in the second quarter. These one-time non-recurring items included a non-cash deferred tax expense of 21.4 million due to foreign exchange translation related to the Lira. Adding back a non-cash gain of 8.4 million on the revaluation of new derivative instruments, primarily on gold collars entered into during the quarter and the loss of 1.6 million on redemption option derivatives related to the senior notes. Free cashflow in the quarter was negative 21.7 million. However, excluding the capital investment in Skouries, free cash flow generation in the quarter was a positive 13.2 million. Cash flow generated by operating activities before changes in working capital totaled 82.4 million compared to the first quarter of 94.5 million, primarily due to higher income taxes paid during the quarter. Second quarter cash operating costs averaged $791 per ounce sold and all-in sustaining cost averaged $1,296 per ounce sold. All-in sustaining costs per ounce sold in the second quarter were higher than expected. With consolidated gold production expected to be weighted to the second half of the year, we expect decreasing unit costs in the second half, and are maintaining our annual cost guidance for 2023. In Türkiye during the quarter, we continue to see lower fuel and electricity prices in line with the first quarter. However, there were increasing royalty expenses as a result of the higher realizable price. Over the second half of the year, we expect to see lower unit costs across the portfolio and remain on track to be within our guidance. So $1198 to $1,290 per ounce sold for 2023. Capital expenditures on an accrual basis were 99.4 million in the second quarter, which included an investment in growth projects at Kışladağ and at Skouries where we continued to advance procurement and the project. In the second quarter, we recorded a deferred income tax expense of 17 million, which included a 21 million expense related to net movements of local currencies against the U.S. dollar, primarily the Turkish Lira. Current tax expense of 21.8 million was lower in the quarter compared to Q2 of 2022, primarily related to operations in Türkiye. Subsequent to the quarter end, Türkiye enacted a change to its corporate tax rate, increasing it from 20% to 25% for 2023 and subsequent years. This change reverts the tax rate back to the level of last seen in 2021. This change was enacted into law on July 15, and is retroactive to January 1, 2023. As a result of the 5% rate increase, the estimated impacts related to net earnings for the six months ended June 30, 2023, or 7 million of additional cash-based current tax expense and 30 million of additional non-cash deferred tax expense, both of which will be recorded as changes to net earnings during the three and nine months ended September 30, 2023. Turning to Slide seven. At quarter end, we had unrestricted cash, cash equivalents and term deposits of 456.6 million. Excluding, the impact of the equity funding and the Skouries growth capital during the quarter, the second quarter ending cash balance was 272 million an increase compared to Q1 2023 ending cash balance of 262 million. With production expected to improve over the second half of the year, we expect to see our cash from operations improving further. With the closing of the Skouries project financing in April availability under Eldorado's $250 million revolving credit facility was reduced as Eldorado's funding commitment for the Skouries project is fully backstopped by letter of credit under that revolving credit facility. The availability under the facility as of June 30, was 112 million. As the company invest further into the project, the letter of credit will be reduced to Euro for Euro. To protect the downside on the gold price, while we build Skouries, we locked in zero cost collars for approximately 32% of our overall goal production, which amounts to about 16,667 ounces per month for the next 2.5 years that commenced in June of 2023. For 2023, the floor price is $1,700 per ounce with a ceiling price of $2,736 per ounce. 2024 has a floor price of 1800 and a ceiling price of 2765. And for 2025, we have locked in a floor price of 1900 and assumed price of 2667. We continue to focus on maintaining a solid financial position, which provides flexibility to unlock value across our global business. With that, I will now turn it over to Joe to go through the operational highlights.

Thanks, Bill and good morning. Starting on Slide eight. I'd like to start by congratulating our team in Greece for completing their first verification against the mining association of Canada's towards sustainable mining protocols. Of note, we achieved Triple A scores across all indicators for tailings management, and biodiversity underlining, Eldorado's commitment to responsible mining practices. As a Canadian company voluntarily implementing a globally recognized program like PSM across all of our international operations speaks to the integrity of our teams, and the results support our strategic commitment to sustainability. In the second quarter, our lost time injury frequency rate rose slightly to 1.08 per million man hours worked from 0.96 in quarter two of 2022. We continue to take proactive steps to improve workplace safety and to ensure a safe working environment for our employees and contractors. At Skouries activity in Q2 continued, we advanced engineering and procurement and initiated the transition to full construction with the finalization of project financing during April. General works were focused on [indiscernible], site preparation, relocation of temporary facilities, recommissioning of the non-contact water reinjection well system and the haulage of aggregates for construction purposes. Additionally, the first phase of underground development continues to advance the west decline and the foundation work for the primary crusher is underway. Mobilization of the first major earthworks contractor for haul roads needed to undertake all other major earthworks is progressing well with work on several fronts planned. Milestones in the second half of the year include finalizing of the awards of the remaining major procurement and contract packages including, and additional two major earthworks contracts, two major civil contracts for pining and concrete, a major contract for mechanical and piping and a major contract for electrical and instrumentation. As previously stated project spending at Skouries is expected to be $240 million to $260 million in 2023. The spending is focused on finalizing detail engineering, which is now 48% complete and forecasted to be 90% complete by the end of this year. As of June 30, [indiscernible] is 62% complete and it's also expected to be in the 90% range -- complete range by year end. Economic activity in Greece is increasing. So moving through the commitment phase of the project is important to mitigate potential cost and schedule pressures. While, we have yet to see material impacts from this activity thus far, we see the keys to ongoing success as maintaining or improving our pace of contract awards, and to continue meeting the productivity levels as estimated in the December 2021 usability study plan as the construction ramp up progresses. The several major contracts expected to be awarded during the third quarter, we will be updating from the feasibility study estimate to the project control budget throughout the quarter and expect to provide further information by the end of Q3. Now moving on to Slide 10, on our operating results, we produced 109,435 ounces of gold in the second quarter with cash operating costs of $791 per ounce sold. We're slightly below our expectations for the quarter. We do remain on track to meet our guidance. I'll pass it over to Simon to the second quarter performance center operations Türkiye and Canada.

Thanks, Joe. Starting in Türkiye on slide 11. At Kışladağ second quarter production was 34,180 ounces, and cash operating costs of $687 per ounce sold, which represents a 22% increase in production and a 14% reduction in cash costs over Q2 2022. Extraordinary rainfall in May and into early June at levels nearly equivalent to our annual averages negatively impacted Kışladağ production. The enriched gold solution was [indiscernible] with the excess volumes recirculated through the pad and the lower than planned solution grades reporting to the gold recovery circuit. The leach circuit board of balance is stabilizing and is expected to be in normal operating volumes by the end of the quarter and production is expected to improve accordingly. During the quarter, we conducted a six-day process facility shutdown and throughout that period successfully achieved some key milestones including the time for the new final agglomeration circuit, the first rotation of the HPGR rows and replacement of 1800 meters of belt for the major overland conveyor. Following the time, we then commissioned the final agglomeration circuit and it is currently performing as expected. The North Heap Leach pad which serves the remaining life of mine is now operational with stacking having commenced in mid-July as planned. Although time in operation is limited, we are progressing well. We have met and expect to sustain the targeted stacking rate in August. We expect the positive impact from the combined effect of the now fully upgraded materials handling system, the new final agglomeration system, the new leach pad, and ongoing improvement in mine performance and we expect to meet our tons price target during Q3 and the balance of the year. We are maintaining Kışladağ's guidance between 160,000 and 170,000 ounces of gold produced for the full year of 2023. On Slide 12 at Efemçukuru, second quarter gold production was 23,644 ounces and cash operating costs of $697 per ounce sold. Gold production, throughput and average gold grade and Efemçukuru were in line with the plan for the quarter. Development towards the Kokarpinar area is on track and it's expected to continue to extend mine life. For 2023, Efemçukuru production guidance remains at 80,000 ounces to 90,000 ounces of gold. And now moving on to Lamaque at Slide 13. Second quarter gold production was 38,745 ounces and cash operating costs of $676 per ounce sold. The team at Lamaque has done a remarkable job, given the challenges they have faced related to the forest fires in Quebec and the air quality impact they have had in the [indiscernible] area. As a result of the air quality issues, 25% of the June underground production shift canceled and some surface activities suspended. We maintained mill throughput by lower grade stockpile material being processed. And when the stockpiles were depleted, we brought forward scheduled maintenance from July into June to offset the unplanned downtime with reduction in future planned downtime. The team was able to safely resume underground operations by water fogging, the ventilation intake to achieve normal air quality for mine activities and by providing an alternative route to safely transport employees to the mine without utilizing forestry roads. During July, the air quality has improved and we have operated and continued to operate normally. I'd like to thank the team for putting people first through this event as always. While surface exploration work was halted due to the closure of forest access roads, we continued underground drilling and remain on track to complete our infill drilling program targeting the upper two thirds of the Ormaque deposit in 2023. Our plan to take a bulk sample and announce Ormaque in overall reserves during the fourth quarter of 2024 is also remains on track. In June, we were pleased to take the delivery of the first electric haul truck Sandvik Model TH550B and you can see picture here, with the team taking part of the official ribbon cutting ceremony to commemorate the event. Lamaque is the first to apply this underground technology in Quebec. With a 50-ton capacity and increased [indiscernible], this equipment will play a key role in improving production efficiency, reducing diesel particulate matter and mitigating our greenhouse gas emissions. We expect to take delivery of the second truck in early 2024. During the second half of the year, we expect to see continued stable processing rates at grades higher than processed during the first half of the year. We are maintaining Lamaque 2023 production guidance of 170,000 to 180,000 ounces of gold. I will hand the call back to Joe to review the second quarter results at Olympias.

Thanks Simon. Moving to Olympias on Slide 14, second quarter gold production was 13,866 ounces, and cash operating costs were $1,439 per ounce sold. Mine and process tons were up from the prior quarter and at record levels for Olympias. However, production was lower in cash costs higher due primarily to lower byproduct credits and lower payability. Zinc concentrate let revenue was lower than planned due to lower zinc price and payability at $435 per ounce gold sold, led concentrate revenue was lower than planned due to silver grade at $230 per ounce sold. [Indiscernible] concentrate revenue was slightly favorable with higher gold price offset by lower gold payability. Some positive milestones accomplished during the quarter are expected to mitigate those impacts along with our continued trend of higher mine output through efficiency. The first milestone was the transition to mechanical voting of drilled grounds with bulk emulsion blasting agent, a first-time application of this methodology in Greece. The anticipated improvement of approximately 15% per plastic round is now being achieved as it is phased into the operation. The full transition to bulk emulsion system is expected to be completed over the balance of the year. The second milestone was mechanical completion of a major upgrade to the Olympias ventilation system, which we commissioned during the first week of July. Ventilation system startup was enabled by completion and energization of the new Olympias 150kv substation during June. The substation not only powers the ventilation system, it provides for greater dewatering capacity from the pump station commissioned last year, while improving the overall power factor for Olympias. A new substation in our ongoing progress toward ventilation on demand both impact power demand favorably. The bulk emulsion and ventilation projects were scheduled for early Q1 completion. Their delay has affected mine plan sequence and it has delayed lower mine development, both of which are contributing factors to the byproduct and great variances outlined earlier. These projects now online we expect to increase production from the flat zone shown in green on the slide, which is expected to improve our byproduct metal production resulting in higher byproduct credits, and in turn lower operating costs. We are maintaining the guidance of 60,000 to 75,000 ounces of gold at Olympias for 2023. I'll stop there and turn it back to George for closing remarks.

Thanks team. As part of closing, I'd like to first acknowledge the Lamaque and Kışladağ teams for their proactive work in mitigating weather-related risks. At Kışladağ extreme rain during the quarter did not get in the way of completing our construction projects which are operating at or above design criteria. And that Lamaque, we protected our people first, but our team was able to limit production impacts that were caused by the wildfires. And the second thing I'd like to emphasize is, we're at a major inflection point in Eldorado. Skouries is fully financed, ramping up and on track with schedule and cost. Kışladağ moves to an optimization phase after completing these construction projects. And Olympias, yes, Q2 ASIC was high, but it was largely different driven by sequencing delayed access to high grade stopes, which are going to come out in the second half. And also from what we're seeing prices out of our control. However, we are on track to deliver guidance at Olympias in 2023. And the biggest thing is, we've delivered these transformational projects as Joe outlined emulsion blasting, new substation energized, expanded ventilation, it supports the ramp up was much stronger second half results. And it also gives us the ability to ramp up production coming out of the flat zone, which are larger stopes yielding better productivity. If you look at Olympias, one year ago, we were operating at a 380,000 ton per annum rate from underground, and now we're operating in a 480,000 ton per annum rate. This positions Eldorado in a good position to deliver production growth, cash flow growth, and leading shareholder returns versus our peers. Thank you for your time. I'll now turn it over to the operator for questions from our analysts.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Cosmos Chiu of CIBC. Please go ahead.

Maybe my first question is on your income statement. I guess there seems to be some debate today on the foreign exchange gain of $14.681 million, should it be adjusted out? Should it be included? I guess my question is, I think, Phil, you kind of touched on it. But what's the nature of that foreign exchange gain, which seems to be larger than previous quarters? And is it one of those things that could reverse later on in Q3? Are we going to see like something like to the same magnitude in Q3 but in a different direction. I'm just trying to see understand today and also what we should expect quickly through?

Hi Cosmos. So, maybe I can start by just talking about the background behind the FX gain. So, Eldorado operates, as you know, in multiple jurisdictions, which exposes us to different currencies other than the U.S. dollar and I think the most notable impact in Q2 was the weakening -- further weakening of the Turkish Lira. At the end of q1, the Turkish lira was around 20 and at the end of Q2 is around 26. So that in itself created a large portion of that FX gain. So in terms of the issue in terms of whether, if I understand your question correctly, should that FX gain be adjusted in our adjusted EPS? When you go from earnings to adjusted earnings, normally you try to back out items that are unique that are one-time occurrences that are non-recurring. And I would say like our foreign exchange gain, we report foreign exchange gains or losses every quarter. It is a regular, I guess, a regular reporting feature of our operations. So, that's I think that would explain the context behind whether the foreign exchange gain were there to be realized portion or unrealized that should be adjusted.

Understood. And I agree as well. And that's, I guess, looking into Q3, I'm seeing that the Turkish Lira continues to weaken, like, are we going to see kind of the same sort of potential foreign exchange gain in Q3 as well. Again, it depends, we're only July 28 but if it continues to kind of trend in this direction, is this something that we should, again, be aware of in Q3?

Yes. I think that's a good question. And I would say that the way we have looked at it, with the results of the recent elections and runoff elections in Turkey, we are expecting that up there, with the continuation of the current government that they would likely be -- we'd like to take some time for changes to have an impact on the lira. And we expect that the lira would weaken further in the summer. Summer, for example, the tourism season, a week earlier, does support tourism, it does support exports, which supports -- helps them with their balance of payments. So we're expecting a weakening in the summer. The forecast at this point, based on information that we've looked at is that there will likely still be some weakening, not expecting to be significant. It's currently sitting below 26, 27 Lira to the U.S. dollar, we're expecting it to perhaps, go down to 30, which would be less significant than what we incurred in Q2. But at some point here, we expect, with some of the changes that are taking place, the increase in interest rates and some of the other measures that the government is taking in Turkey that -- we're hoping that the lira will begin strengthening at some point.

Maybe switching gears a little bit on Skouries. As you talked about, there's a number of contracts that will be finalized in Q3. I guess my question is twofold. Number one, it seems like there's still some earthworks to be done, some concrete to be poured. Like the crusher, the foundation with a crusher, I seem to remember, that it's already half built. And so I just want to make sure that some of this, earthworks and concrete floors and major contracts are, in addition to, what's been done in the past. And indeed, Skouries is more than half built, from what my understanding. And number two, I guess you're talking, there's an update coming up in terms of the budget control versus the feasibility study. Clearly, you might not be able to tell us too much today, but overall -- are you seeing costs, sort of evading overall cost pressures or baiting in terms of inflationary pressures. And how is it, negotiating with these contractors, this time around versus the last go around at it when you last built Skouries over five years ago.

Cosmos, this is Joe, I'll take your question. So, the first part is Greece outfield. So, the process planned is well advanced. So in the process plant, concrete is poured, structural steel was up and all major equipment is set. There are additional pieces of or motors, gearboxes, other things to go in. They are all procured and laid down at Skouries. The major works for the plant include piping, electrical and instrumentation associated with the plant, the primary crusher has to be the foundation of how it has to be built and the crusher set -- we think the crusher is on site and didn't lay down. So, that kind of summarizes the plan. So it is roughly 65%, 70% complete. The major works in addition to the plant include the filter plant. So, from prior construction to now, we have modified the project to go from conventional Skouries tailings to dry stack requiring a filter plant. So the filter plant has been procured and the construction from the foundation up through setting up the equipment needs to occur. The dry stack tailings itself the facility for storage of dry stack tailings need to be constructed, which basically is an embankment pre-strip to the pit needs to be completed which will feed that embankment. And there are, water treatment plant axillary facilities and a few other things. So characterizing it as half built overall probably in the range of 40% complete on a total basis at this point. And as we looked at updating forecasts or budgets, Cosmos you recall the feasibility study estimate was completed in December of 2021. And, you know, we felt as though we were in good position, having already matured the or put in early procurement in for the filter plant. We had most of the other equipment already laid down. So we felt like we're pretty insulated from inflationary pressures. And that remains true today but that is 18 months old, there have been other things that are impacted. And that's primarily labor, and bulk purchase of pipe, cable, that kind of thing, which is happening now. So we would anticipate kind of the normal inflationary pressures that others have seen that period 2021 to now. And that covers everything, labor from engineering through completion of project. So I mean to summarize all of that. Yes, we feel really good the plant is well-advanced. I haven't been on many projects where the plant is in this position at this time. We'll have it early and actually have it available for commissioning, well, in advance of startup, which is not common. That gives me great relief. Secondly, as we think about the insulation that we have from the inflationary pressures, what we see -- we're going to experience some of that, but we feel pretty good about where we sit, having delivered the project reasonably in line with the feasibility study, estimate project to date. So all things good, normal conditions for projects exist. And you'll hear more when we complete the update of estimate, following about the movement of the project from today at about 30% committed to about 60% to 70% committed end of the quarter. Does that help, Cosmos?

Yes. That helps perfectly, Joe. And maybe one last question. Overall, weather related issues in Q2 looking at full year guidance and looking at what you've done so far in the first half. Clearly you will need to increase production at Kışladağ and also Lamaque to hit your guidance for the year. But maybe focusing on Kışladağ, sounds like heavy rainfall did not impact stacking, but impacting of each kinetics. It sounds like some of that lower grade solution still needs to be extracted in Q3. I'm just wondering, in terms of we know that, H2 is going to be better than H1. The weather-related issues is that I'm still going to impact Q3. And in terms of the improvement, is it going to be qQ4 better than sort of Q3. At this point in time, we're not sure.

We're expecting Q3 to be stronger than we would have thought of three months ago. And it's simply because that excess solution. We expect to be processed during Q3. So. And when you look at Kışladağ, overall the way, I put it is, we delivered the projects, the system, as you said, the placements are at design already. And we just commissioned the North Leach pad in early July. So we're in a really good position to put the tons up there. And we're in a good position to get that diluted solution through the plant in Q3. But I say it all that in the context, we got another unexpected rain event when things happen, but that's not likely to happen. We're expecting a very strong second half of Kışladağ. And at Lamaque, I mean, it was already second half loaded, just sequencing and grades. What happened in q2 with the wildfires, and as Simon pointed out, we lost quite a few shifts in June. We've got a solid plan. We've got higher grade stopes coming. We expect to deliver a strong second half. So I'd say we're in a really good position right now to deliver the guidance. And the last piece of the puzzle you didn't mention it was Olympias. But again, delay in high-grade access to stopes, both gold grades, and particularly silver. Those stopes are coming out in the next quarter, we had a second half planned to be stronger supporting with all this capital that we've invested, and we believe we're in a good position to deliver our guidance for the year.

Our next question comes from Mike Parkin of National Bank. Please go ahead.

Hey, guys, thanks for taking my questions. Most of it's been answered. But just circling back in Kışladağ, you've got the new pad, is that solution of a new pad report to a different pond that was versus the pond that was diluted with the rainfall?

Hi, Mike. It's Simon here. That's correct. So the collection system for the South Heap Leap pad is separate from the North Heap Leach pad. So any of the stacking and solution that will put through on the northeast leach pad will be isolated from the south. And so that won't be diluted in any way from the rainfall events. So that is certainly well picked up.

Okay. And it's nice to hear that you're expecting to have the impact of the heavy rains pretty much behind you by the end of this quarter. Just follow up on Cosmos question, is it fair to assume kind of Q3 is better than Q2, but probably pretty stellar Q4, given you're going to have quite a bit of gold in solution to be pulling from in the fourth quarter?

Yes. The way I look at it, we were expecting a strong second half. And that the catalyst partly is the solution inventory that's going to come out Q3. But the rest of it is, we've been at the top of the pyramid on the Soft Leach Pad. And limited for space, we now have the North Leach Pad, we're placements are ongoing, we'll have both sets of those solutions reporting to independent ponds. And we're ramping up the production as planned coming out of the new circuit. So all the larger grasshoppers, the conveyor, we're in a strong position for the second half. And I guess the other thing was the agglomeration drum, what we wanted to get out of that system was get those fines combined and get good permeability through the heap and it is performing. So predicting Q2 versus Q3 and how they're going to pan out. It is tough to say on this call right now, I just tell you, stronger second half leech kinetics are going to be better that solution inventory is going to come out. And we're going to have solutions coming out of both heap. So we're pretty confident about the second half.

That sounds good. And I guess also going back to the high pressure grinding rolls, you're still even in that optimization phase there where you're able to tweak things and boost recoveries going forward a bit as up on top of that, additional solution, correct?

Yes. I mean, our second half remains as planned. That we'll be testing how fine we can crush the or with poor is power and recycle through the HPGR in combination with the success with the agglomeration. So we have to maintain good permeability. If we go too fine, you lose in the end. So yes, the second half is all about optimizing throughput, crush size and agglomeration to get optimum cash out of a future or placement. So yes, we remain optimistic focused on the upside at Kışladağ. We'll have more to talk about early next year when we have that data in front of us.

Okay. And more familiar with kind of rainy season impacts on heap leaches. In Mexico, where you typically see like a shocking of the pad, on the back, but the rainy season there, is that something you had to do in June? And therefore is already in your offering cost? Or is it something that you don't necessarily do? Because of the longer leap cycle like Kışladağ?

That's correct. We don't have to be as dramatic as what happens in other places in terms of reagent addition. We had up to set points, if you like, within the back half of June and early July, to ensure that we had sufficient [indiscernible] concentration, but not to the level that you would be familiar with it in other places.

[Operator Instructions] Our next question comes from Fahad Tariq of Credit Suisse. Please go ahead.

I just want to circle back on Skouries and the update in Q3, I just want to make sure I'm understanding it correctly. Based on the comments, are you seeing directionally without getting into specifics, but directionally, that estimate could be revised higher based on labor productivity, how the contracts are awarded, inflationary pressures over the past few years?

So what we're saying is that we'll have a number of major contracts finalized. And that will inform the cost estimate. So we'll update the market as to any changes there. And in terms of productivities, to-date, the productivities we're seeing on construction are consistent with the estimate. So we'll have another quarter worth of activities on the ground to take a look at but I wouldn't say we're going to be in a position where we've got a lot of intel on productivities. So far things are as expected. And as the construction ramps up, as we said, we're going to be approaching 900 people, next year is when we're really going to get a taste of the productivities versus the feasibility study. But last year, we did the cladding and building around the mill that came in as planned. We've begun to do some roadwork; we're starting to pour some concrete for the primary crusher. There is some data coming in, but it's aligned with the estimate. So it's just simply another data point in Q3 with major contracts being let a little bit more construction to activity on the ground. And we'll take a fresh look at the estimate and inform. But you shouldn't be reading in that we're concerned about anything right now. It's going to be another normal data point in a construction project like this.

That's all the time we have for today. And this concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.