Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Third Quarter 2022 financial and operational results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations. Please go ahead, Ms. Wilkinson.
Thank you, operator, and good morning, everyone. I'd like to welcome you to our third quarter results conference call. Before we begin, I would 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 disclosures 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. Other members of the senior leadership team will also be available for the Q&A session. Our release yesterday details our 2022 third quarter financial results and operating results.
This should be read in conjunction with our third quarter financial statements and management's discussion and analysis, both of which are available on our website. They've also been filed on SEDAR and EDGAR. All dollar figures discussed today are US 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, Lisa, and good morning, everyone. Here is the outline for today's call. I'll provide a brief overview of Q3 results and highlights before passing it to Phil to go through the financials and Joe to review our operational performance. We will open the call to questions from our analysts. I'd like to kick off by highlighting our strategic focus areas that are helping us create long-term value for our many stakeholders. Our top priority is delivering our operational guidance for 2022 and completing the Skouries financing by the end of the year, both of which I will speak to in a moment. We're also focused on growth at our existing operations through exploration success. Earlier this month, we released an exploration update with new results that demonstrate the significant potential to increase resources at Lamaque, Efemçukuru, and Olympias. Moving to production.
After a challenging start to the year, our site teams have been able to deliver sequential improvements, and I'm pleased to report that our production results again improved in the third quarter. We continue to see operating trends improve throughout the year and expect strong production in the fourth quarter. Eldorado remains on track to achieve full-year production of 460,000 oz, which is at the low end of our consolidated guidance range. Joe will speak to the operations in more detail later in the call. Now touching on costs. As we noted in previous quarters, we continue to face inflationary pressures similar to the wider market. Year to date, we have experienced cost increases for key commodities and consumables as a result of the inflationary pressures in Turkey and global supply chain issues, and impacts of sanctions imposed on Russia.
However, cost increases denominated in local currencies have been partially offset by the weakening of the Turkish lira, euro, and Canadian dollar. Phil will speak to our costs in more detail later in the call. Shifting to Skouries, in September, we announced that we have entered into a mandate letter with three banks for a credit committee-approved EUR 680 million project finance facility for the development of Skouries, representing 80% of the total funding requirement. The mandate letter is an important step on the path to restart full construction at Skouries. Securing this project financing remains a key focus for Eldorado. We are making progress on negotiating definitive binding loan documents and advancing other approvals and conditions. Both the final decision to restart full construction and the project financing facility remain subject to board approval, which we expect to seek before the end of the year.
We remain confident in the capital cost estimate of $845 million to bring the Skouries project into commercial production, driven by several key factors. First, the project is half built, with most major processing equipment already purchased and installed or in storage. Our activity this year is focused on steel erection and enclosure of the processing facilities, execution readiness, and critical path activities. Second, looking at what is left to be completed on the project, approximately half the remaining capital is related to labor, which is less impacted by escalation. Third, the highly capable execution team is largely in place. We are well-positioned to access a ready pool of labor in the local area for the construction phase. Finally, as part of our approach to capital discipline, we are constantly evaluating our capital cost estimate to ensure we will be well-positioned to execute this project on budget.
I would like to end with a sustainability highlight. Earlier this year, Eldorado was ranked among the best 50 corporate citizens in Canada by Corporate Knights. At Eldorado, we consider sustainability in everything we do, from exploration to closure, and in our relationships with customers, communities, investors, and other stakeholders. Being recognized as one of this year's best 50 corporate citizens in Canada is a testament to the progress we are making against our sustainability commitments. I'll stop there and turn things over to Phil for a review of our financial results.
Thank you, George. Good morning, everyone. Slide five provides a summary of our third quarter financial results. Eldorado reported third quarter net loss attributable to shareholders of $51 million, or a loss of $0.27 per share. After adjusting for one-time non-recurring items, including deferred tax expense related to foreign exchange translation and an impairment of the Certej project, third quarter adjusted net loss was $8 million or a loss of $0.04 per share. Third quarter cash operating costs were $803 per oz sold, and all-in sustaining costs were $1,259 per oz sold. Free cash flow in the quarter was -$26 million, primarily due to lower average realized gold price, mine standby costs, and continued investment in growth capital at Kışladağ and Skouries.
Cost performance in the third quarter was mostly driven by price increases for certain commodities and consumables, primarily electricity at operations in Greece and Türkiye, and fuel and reagents at Kışladağ. Electricity prices rose significantly in Greece following market changes in late 2021 and the Russia-Ukraine war. Despite continued government subsidies, effective average electricity prices rose by approximately 29% in the third quarter compared to the second quarter. Electricity represented approximately 14% of direct operating costs at Olympias in Q3 2022. We expect electricity prices in Greece to remain volatile into 2023. Capital expenditures on a cash basis were $74 million in the third quarter, including continued investment in growth projects at Kışladağ and Skouries. Income tax expense was $27 million in the third quarter, comprised of $16 million current tax expense and $12 million deferred tax expense.
Current tax expense increased in Q3 2022 when compared to Q3 2021 as a result of lower investment tax credits available in Q3 2022. Deferred tax expense was driven by the weakening of the lira and the euro. Turning to slide six. At quarter end, we had unrestricted cash equivalents, and term deposits of $306 million. Our cash balance in the first nine months of the year was impacted by lower cash generated from operations as a result of lower production, capital spending, annual royalty payments, scheduled interest payments, and an investment in G Mining Ventures. We continue to focus on maintaining a solid financial position, which provides flexibility to unlock value across our business. With that, I will now turn it over to Joe to go through the operational highlights.
Thanks, Phil, and good morning. I'd like to start with a health and safety update. We continue to improve our total recordable injury frequency rate year- over-y ear in the third quarter from 5.31 to 5.07. Recently, the Québec Mining Association recognized members of our Lamaque operation with the Workplace Health and Safety Trophy. I'm very proud of the team for this great accomplishment, as it demonstrates that Eldorado is focused on building an engaged safety culture as part of our commitment to a zero-harm workplace. Moving to our operating results. We produced 118,791 oz of gold in the third quarter, with the cash operating costs of $803 per oz sold.
Our operational performance increased in the third quarter over the second quarter, driven by strong performance from Kışladağ and improvements at Olympias. Slide eight looks at our operations in more detail. Starting in Türkiye at Kışladağ, third quarter production was 37,741 oz, a 35% increase compared to last quarter, and cash operating costs were $752 per oz sold. Tons placed on the leach pad continued to increase, which is expected to positively impact gold production in the fourth quarter.
As part of the Kışladağ North Heap Leach project, we are investing in a higher capacity materials handling system that will allow us to increase throughput, which is on track to be operational in the fourth quarter. We have also purchased an agglomeration drum, which will treat a fine ore split of the HPGR product to improve quality, consistency, and permeability on the pad. We are confident that we'll have the agglomeration drum commissioned in the first half of 2023 as the equipment is on site and engineering is progressing well. At Efemçukuru, third quarter gold production was 22,473 oz at cash operating costs of $709 per oz sold. Gold production, throughput, and average gold grade at Efemçukuru were in line with expectations.
Earlier this month, we announced encouraging drilling results at Efemçukuru from the previously untested West Vein target area that highlight the resource growth potential outside the Kestane Beleni and Kokarpinar vein systems. Resource conversion drilling has focused on the Kokarpinar and Bati vein systems, and results will be incorporated into our 2022 mineral reserve and mineral resource update. Now moving to Lamaque. Third quarter gold production was 42,454 oz, and cash operating costs were $650 per oz sold. Production was slightly below plan due to lower tons processed related to COVID absenteeism in July and early August before returning to normal levels. Underground development of high-grade stopes continued to progress well.
In early October, we released exploration results, which included step-out drilling that confirmed extensions to the high-grade veins of the Ormaque deposit several hundred meters east of the current resource. Resource conversion drilling from the Ormaque exploration drift started in June of this year and is expected to include at least 10,000 meters of drilling in the remainder of 2022 and will continue through 2023, targeting the upper two-thirds of the Ormaque deposit. Results of the conversion drilling up to the middle of next year will be incorporated into our 2023 mineral resource and mineral reserve update. Finally, let's move on to Greece. At Olympias, third quarter gold production was 16,123 oz, and cash operating costs were $1,466 per oz sold.
Cost increases related to VAT import charges, electricity, fuel, and other consumables were partially offset by higher gold grade and higher revenue from silver and base metal sales. During the quarter, Olympias production and grade were steady, and ongoing initiatives, along with improvements through EIA modifications approved during the quarter and currently being implemented over the next six months, will better position Olympias to earn an expansion investment. I'll stop there and turn it back to George for closing remarks.
Thanks, team. Looking forward to the remainder of the year, top priorities and strategic focus is on delivering our 2022 operational guidance, making Skouries' full construction decision, and signing Skouries' project financing loan documents by the end of the year. This will position us well to execute on our growth strategy and maximize the value for our stakeholders. Thank you for your time. I will now turn it over to the operator for questions from our analysts.
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Cosmos Chiu with CIBC. Please go ahead.
Thanks, George, Phil, and Joe. Maybe I'll start off with, you know, your guidance for the year. You know, George, as you mentioned, and you've mentioned it for a while now, you're targeting the lower end of guidance. You know, if my mathematics is correct, it looks like you still need about a 13% increase quarter-over-quarter in Q4 to get to that lower end of guidance. Could you maybe, you know, share with us, the operations that will drive that increase in Q4?
Sure. Thanks for the question, Cosmos.
Thank you.
Yeah, you're right. We deliver a strong fourth quarter. We've had sequential increases in our production quarter-over-quarter this year and expect to deliver a stronger fourth quarter than third quarter. To hit that 460,000 oz bottom end of the guidance, we need to be around 135,000 oz. What will drive that higher production? Number one, Kışladağ. Throughout the year, we've been ramping up our ability to agglomerate using the conveyors. We've seen consistent improvement. As Joe mentioned on our call today, we've deployed larger Grasshopper conveyors in the conveyance system, which are capable of delivering higher tonnage rates to the pad. Kışladağ tonnage is gonna be a big driver. We also had really good placements in Q3, both tons and grades.
Given it's a heap leach operation, what we place in Q3 will play a fairly significant role in what we produce in Q4. Kışladağ's definitely a key driver again for the fourth quarter expected increase in production. Lamaque also, we're well positioned for high-grade stopes for the fourth quarter, so expect to see a strong quarter at Lamaque. Efemçukuru crews are a steady mine that, you know, quarter in, quarter out delivers and expect that to happen again. We are making good progress on Olympias on transitioning and transforming that operation, so expecting a good fourth quarter there as well.
Great. Maybe two follow-ups on that, George. As you mentioned, Lamaque, we're expecting a higher Q4. In the MD&A today, you also mentioned, you know, there was some COVID related absenteeism in Q3, but that's since been resolved. I don't know how it is in British Columbia, I guess, you know, the mine is in Quebec, but in Ontario, there's a bit of a surge now in COVID once again. You know, are you at all concerned about that happening again, you know, COVID related absenteeism in Q4? If you are, what kind of contingency plans do you have in place?
Yeah. You know, definitely COVID, this year has been an issue around the globe, including at our operations. At Q1, we were definitely impacted significantly. We did see a bit of a bump in Q3, but no material impact on our business. We continue to be ready with our protocols to try to, you know, reduce and stop transmission. But I think we're well positioned to have a strong fourth quarter. Joe, I'm not sure if you'd have anything to add to that.
Not too much, George. I would just say in Lamaque, in particular, we have engaged contractors for additional labor support as necessary in fourth quarter. Like, you know, that may become necessary in a COVID situation.
Great. That's good to hear, Joe. One last question to Kışladağ. As you mentioned in the MD&A, you know, there was some debottlenecking of the belt agglomeration circuit. How is that going? You know, you also mentioned in the MD&A that, you know, you're getting some mobile higher capacity conveyors in place in late 2022 and some agglomeration drums in place in 2023. You know, to fully debottleneck that belt agglomeration circuit, do you need those in place? You know, again, how's that going?
Yeah. Maybe I'll just start off to say that the one thing that we've really learned this year is that on the Kışladağ heap leach, permeability is a key. To get good permeability through the pad, agglomeration is the key. It's a matter of getting the fines to stick together and build a good agglomerate that can hold up during the leaching cycle. You know, we understand the recipes that are required. Having the larger conveyors allows us to be able to agglomerate effectively at higher tonnage rates. Then by putting in the agglomeration drum next year, we'll take a stream off of the HPGR product, the fines portion of that product, and run that through the drum. We think we're gonna get even a higher quality agglomerate as a result of that capital investment.
Again, that's expected to be commissioned in the first half of next year. I think we're on a very good trajectory to be able to reach the full potential in the Kışladağ operation. You know, we'll keep the market informed as those results continue to unfold. At this point, I'd tell you know, we're doing an effective job with just belt agglomeration, and we're seeing the recoveries that were expected in this capital investment. It's, for me, it's about, you know, what's the upside beyond what we originally expected.
Great.
This is Joe Cosmos.
Hi, Joe. Yeah.
Maybe just to add a little bit of the belt or the materials handling upgrade. As of now, seven new Grasshoppers are in place. We had four of them at the end of Q3. We're up to seven now. That helps us a bit with throughput, but it really does support improved agglomeration right now. We're commissioning the larger stacker and horizontal feed conveyor as of the first week in November.
Great. That's good to hear. Maybe one last question, just quickly on the financial side. You know, the earnings came out lower than what consensus had expected, in part, I think, due to taxes. It's always challenging, you know, taxes. I think you recorded $27 million in taxes when it was a $27 million loss. I know there's a lot of adjustments that go through with the write downs and everything else. But you know, is there anything that you can help us with for Q4 in terms of, you know, are these complications in terms of, you know, foreign exchange adjustments and deferred taxes, is that gonna continue into Q4? Anything that we should be aware of? 'Cause I think that's been getting you offside in terms of some of the earnings estimates.
Yeah. It was, it's definitely an issue in the third quarter, and I'll let Phil comment on your questions.
Yeah. Hi, Cosmos.
Hi, Phil.
Yeah. I think your question is very valid. You know, our financial performance in Q3, you know, the difference in our, for example, our earnings per share results compared to where we had expected to be was impacted by income tax, as you pointed out, was also impacted by depreciation. You know, we had a lower effect of gold price as well in Q3, which had a slight impact, and that was really mainly impacted by the deferred timing on our concentrate sales, as the gold price was dropping in Q3.
In terms of your comment on taxes and the FX, you know, the reason our taxes in Q3 2023 were higher was we didn't have as much of an investment tax credit to offset it as we did compared to the same quarter last year. So that affects our current income tax expense. You know, we only pay tax on earnings in Türkiye and then the Quebec mining duties. On the deferred tax side, it's impacted really by the weakening FX, you know, both the lira, the weaker Canadian dollar as well as the euro. The deferred tax impact of the weakening currency is adjusted out of EPS. So I don't know if that helps you in terms of your modeling.
I think just one more comment, Cosmos, in terms of depreciation. You know, depreciation's really calculated on the basis of, you know, on a unit of production basis, per ton mined. As we, you know, the increase in per ton mined over the quarters has resulted in a slight increase in depreciation.
Great. Thanks, Phil. Yeah, that helps for now. I'm sure I'll come back to you later to you know, help to fine-tune my model, when it comes to Q4. Thanks, George, Phil, and Joe for answering my questions. Have a good weekend.
Thanks, Cosmos.
Once again, if you have a question, please press star then one. The next question comes from Mike Parkin with National Bank Financial. Please go ahead.
Hi, guys. Thanks for taking my question. Specifically on refining costs, both at Olympias and Efemçukuru. You know, if I'm looking at Olympias, what was reported for Q3, if I compare that to the average refining costs of 2021 on a quarterly basis, it's up 150%. What's driving that? Do you expect that to kind of ease off into 2023 or remain elevated?
Phil, do you wanna take that?
Hi, George.
Hi, Mike.
Hi.
In terms of our refining costs, it's really tied to the concentrate sales. Our strategy this year has been to divert as much of our concentrate sales away from the Chinese smelters in order to, you know, bypass the additional VAT. You know, we're progressing on that, but I think the reason for the increase is really the portion of concentrate sale contracts that are still impacted by the Chinese VAT.
Okay. That's the same for Efemçukuru as well?
No, that doesn't affect. It's not, it's only Olympias. Efemçukuru's concentrate is not impacted by the Chinese VAT.
Okay. I was just noticing, like, it's got a similar kind of 100% delta year to date. Well, Q1 was actually pretty low, but all of 2021, you're sitting at around, you know, an average of 1.5 million, and then it was 3.5 in Q2, 3.7 in Q3. What's driving that one?
Okay. That could be. I can confirm this, Mike, but I would suspect that's due to the restructuring of the way the contracts for concentrate sales are set up. In the past, the refining costs and the shipping costs were separate from the sales. For 2023, there was negotiated that they were basically blended together. That basically is tied to the payability impact. That's my you know, I think, high level answer. Let me look into it further and get you a little bit more detail.
Okay, that sounds good.
Yeah, just-
And one-
George, just one thing I'd add to that is that electricity costs are up with most of our customers, so they're passing through their higher costs for electricity onto the concentrates they're buying.
Okay. That's it for me. Thanks, guys.
The next question comes from Tanya Jakusconek with Scotiabank. Please go ahead.
Good morning, everybody. Thank you for taking my questions. Two I have. I just wanted to circle back on inflationary pressures. I've been on several company calls over the last few days and have been hearing that some of your competitors are seeing relief in inflationary pressures in various portions of labor and/or consumables, transportation, et cetera. Are you seeing that yourself or can you comment on what you are seeing? That's my first question.
Yeah. Thanks, Tanya. Yeah, I mean, from my perspective, if you look at a US dollar basis across our sites, I mean, our higher costs are electricity, some consumables and freight. Some of those are driven off the higher energy costs. You know, given Turkey and Greece, where there is more of an electricity energy crisis, we're probably being impacted a bit more than others on that, and we still see volatility in that area going forward with the natural gas crisis that's still unfolding in Europe. I mean, beyond that, I'd say we're being pretty much sheltered on most of our costs due to the stronger U.S. dollar.
I guess from a U.S. dollar basis, I'd say, yeah, we're being cushioned and our real concern looking forward is just how the energy crisis unfolds during this next year while Europe works on, you know, a new balance of energy inputs. Phil probably has more to add to that.
Sure. Thanks, George. Hi, Tanya. I would say probably the most notable impact of the inflationary impact is in electricity in Türkiye and in Greece. They're different in each jurisdiction. In Greece, you know, the government has been providing a subsidy program to lower the effective cost of the electricity since the beginning of the year. It's been fairly volatile. But what we saw in Q3 is that, you know, the price did go up about 29% from Q2 despite the subsidies that are in place. If you go back to last quarter, Q2, the effective price went down 26% in Q2 from what it was in Q1.
It's been somewhat volatile, but I would point out that, you know, electricity prices overall for Eldorado is about 10% of our consolidated operating costs. In Turkey, electricity prices at Efemçukuru went down, but at Kışladağ they went up. It's overall, I think what we're seeing right now in Q4, and it's only the end of October, is that we're seeing the gross electricity price in Greece start to decline. Like I said, we're only one month into Q4, and we're not, you know, we don't have all the information yet on in terms of the impact of the subsidies, but it is volatile. The other item is diesel. Diesel is really only impacts Kışladağ, and it's about 11% of the total operating cost at Kışladağ. We did see an 8% reduction in diesel prices from Q2 to Q3.
Okay. What about consumables, Phil? Like, are you seeing any relief in cyanide at all? Are you seeing any relief in, I would say, explosives with the lower fuel price, but anything else that you would point to? Freight must be also containers and other must be lower.
Yeah. In terms of reagents, and the main impact of that, again, is at Kışladağ with the heap leach project. We saw a slight increase, about 3% from Q2 to Q3. Sorry, what was the other?
Okay, so you're not seeing any relief in cyanide is what you're saying?
Not yet. Yeah.
Okay. Explosives, freight?
No, we're not seeing any relief at this point. But in terms of the like, the comment that was made earlier, some of our suppliers are experiencing increased electricity costs and inputs as well. That's kind of being passed through.
Okay. My second question is just to do with just signing off and making these agreements with your parties on the Skouries project definitive agreements. Can you just walk us through exactly, you know, what are you waiting for? What are yours, you know, on the other side of these agreements, what are we waiting for and looking for, like, to close these? I'm just, you know, I was a bit surprised that it was announced as non-definitive, you know, agreements. I'm just wondering what we're waiting for to get these definitive agreements in place.
Sure, Tanya, I'll take that. I begin with the fact that we're negotiating definitive documents with Greek banks who aren't that familiar with mining. When we hammered out the non-binding agreement that we announced, essentially prior to that, it was educating them on the project and them then coming up to speed with their third party advisors on mining. I would say that document was fleshed out a lot more than most documents, and it was all done with the intention of ensuring there was a good understanding between the banks and us about how we were going to proceed. From there, it's really hammering out the definitive legal documents that allow us to sign and then execute the financing.
I would call this normal course discussions where our lawyers and financial experts are hammering out the language required for those final documents. You know, we remain confident we're gonna get that finished by the end of the year. I can tell you there's a good collaborative atmosphere among the banks and our team. Both parties want to get this done before the end of the year and feeling good we'll accomplish that goal.
Just legal documents left to be finalized. Everything else, technical due diligence, any other due diligence has been done?
That's correct.
Okay. Okay, look forward to that. Thank you.
Thank you.
This is all the time that we have for questions 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.