Hi, George. Thank you very much for joining us today. How are things in Vancouver?
Things are well, and thanks for having me.
You're welcome. George, Eldorado Gold has gone through significant transformation in the past year with many improvements across your various operations, including improving gold recoveries at your mine in Turkey, ratifying the investment agreement with the Greek government, strengthening your balance sheet. Before we go into these various topics, I wanna provide an overview of where I wanna keep our discussion over the next few minutes, beginning with an overview of Eldorado's assets, the Kışladağ mine in Turkey, the Lamaque mine in Quebec, the Skouries mine in Greece, and I wanna conclude with a discussion on valuation. George, let's begin with a brief overview of Eldorado Gold for those viewers who might not be familiar with the company. How many mines do you have? Where are the mines located, and how many ounces do you produce annually?
Yeah. We have three operating regions, Turkey, Canada and Greece. We have four operating mines and two development projects. To begin with, in Turkey, we have the Kışladağ open pit heap leach facility. We also have the Efemçukuru underground mine that produces gold concentrate. In Canada, our newest operation is Lamaque. It's an underground mine that produces gold ore. In Greece, we have the Olympias operating mine. It produces three concentrates, a gold con, a lead con, and a zinc con. Our two development projects are both in Greece, Skouries project and the Perama Hill project. Our guidance for this year is we'll produce between 460,000 and 490,000 ounces of gold.
George, as you mentioned, Eldorado Gold has four producing mines, but in the interest of time, I just wanna touch on two of your larger mines, beginning with Kışladağ. This is your flagship mine. It's an open pit mine based in Turkey. You produced 175,000 ounces of gold last year. Can you just provide an overview of this mine and also how it's doing currently in terms of its operating performance?
Yeah. Kışladağ's had a long history of creating value for Eldorado. It's a large open pit mine. We crush the ore, stack it on the mining facility, and then leach the gold out of the crushed ore. Last year, we invested in a high pressure grinding roll circuit. Essentially, it's an improved crushing circuit that exposes more of the gold. We're expecting to get a 4% improved recovery from this new circuit. It was delivered on budget and commissioned in December of last year. This year we're working through optimization of this circuit. This mine has a 15-year mine life.
We'll continue to create a lot of value for our shareholders, and we think we have the opportunity to further optimize it with this new crusher, improve fragmentation, and then additional work on debottlenecking the plants, the open pit, and optimizing agglomeration and leaching, which should all lead to improved performance. It's been a great asset for Eldorado, and it's got a 15-year mine life, and we're really excited about the future in front of us for this asset.
You're also spending some money this year on pre-stripping, but also on a new heap leach pad, which can improve recoveries. Can you just tell us what this might do to the overall operations?
Sure. At Kışladağ, the recovery prior to this investment was about 52% gold recovery. With this new high pressure grinding roll, we're gonna get a 4% improvement in the recovery. That's based on metallurgical work, but we're pretty optimistic through operating that facility this year that there is upside. Additionally, the open pits, we invested in a dispatch system. We're working on improved productivity and efficiencies out of our mining fleet. If we can couple improved productivity from the mining fleet, debottlenecking the plant, we can see some additional upside that push throughput, boost the recovery and really enhance the margins from this high quality asset.
George, your second largest mine in terms of production is Lamaque mine, which is in Quebec. Last year, it produced 153,000 ounces. Can you just provide an overview of this mine, please, and also touch on the technical study that was recently done?
Yeah, Lamaque's been a fantastic acquisition for Eldorado. We purchased the asset in 2017. Within nine months of acquisition, we did a feasibility study and announced a maiden reserve. In less than two years from acquisition, we put this project into commercial production. It's pretty exciting. In just three years of operation, we've produced 444,000 ounces. We've ramped up the production, but project to date production is about 16% higher than we estimated in the pre-feasibility study. We've done that through exploration success and debottlenecking both the underground and the plant.
Right now, just recently completed a technical study that gives really good visibility on the reserve case of the Triangle underground mine, but it highlighted the opportunity to convert the lower Triangle mine into reserves and then also to bring into the production profile an inferred resource in the Lamaque discovery we made two years ago. Right now we're focused on exploration and delivering the new production profile. One of the things I'd like to talk about is in the original pre-feasibility study, based on the exploration results at the time, the peak production level was 130,000 ounces. We just put out, I'd say five-year guidance, earlier this year, and the peak production level now is about 210,000 ounces. It's been, you know, a fantastic acquisition.
We're continuing to have success on exploration, and we think we've got a long, bright future for this asset.
Last year, you also acquired an explorer called QMX. Why don't you just tell us a little bit about this asset and why you acquired it?
Yes. QMX was a junior exploration company just off to the east of our property package. Really, that acquisition was an effort to duplicate the success we had with Lamaque to date. Eldorado, about seven years ago, purchased a toehold into Integra, a junior exploration company. Over a couple of years, we were able to be comfortable with the project, helped influence Integra and focus their exploration and project design and that really led to a friendly acquisition in 2017 when I joined the company. With the QMX acquisition, we've got considerable amount of upside in our infrastructure. We got one of the best workforces on the planet, and it's in perhaps one of the best jurisdictions on the planet.
The whole strategy here is to acquire a land position just off to the east of our infrastructure and then deploy the exact same strategy, exploration, create additional reserves that could then either allow us to further expand our plant, and/or extend mine life. The beauty of our infrastructure, the plant currently, has a nameplate of 2,500 tons per day. In a prior life, this asset did 5,000 tons a day, and it's still permitted at that 5,000 ton a day level. We've got the ability with additional capital to expand the production capacity of the plant. With this much larger footprint, with the QMX acquisition, it's actually about 5.5 times the surface area of the original Lamaque operation that we acquired.
We've got a long runway of exploration targets, and we think that'll just build to the success we've already had in this fantastic asset.
Last year, you also acquired a 10% position in Probe. Maybe you can just touch on that and what the reasoning was.
Here again, the toehold in Probe, which is just slightly about 11%. It kind of replicates the strategy with Integra and with QMX. Once again, it's the next property to the east of our recently acquired QMX land package. Again, what we're doing is partnering with the Probe leadership team, you know, keeping close to that project and with their continued success, you know, that might be a future acquisition for us and give us additional runway to for production growth and value creation for Eldorado.
George, we touched on two of your producing mines, and now I want to focus on an advanced development project called Skouries, which is a copper porphyry mine based in Greece. When in production, it's gonna be both an open pit and an underground mine. You and your team are slowly moving this project forward, and when in production, it's gonna be a real game changer at $2,000 gold and $4.50 copper. You recently came out with a feasibility study on this project. Can you just give us a brief overview of the feasibility study, and net present value, also the internal rate of return and the CapEx?
Sure. Yeah. Skouries is one of the better undeveloped gold-copper porphyries on the planet. We're pretty fortunate that not only do we own this asset, but a lot of the infrastructure is already in place. The main equipment for the concentrators actually is already installed. In terms of the project scope, it's both open pit and underground. It's got about a 23-year mine life. We just completed a feasibility study on the capital cost and economics for the project. Capital is about $845 million. It's about a two and a half-year construction period. It's got an internal rate of return of 19%, less than four-year payback. It's a very low cost operation. The all in sustaining costs are slightly negative.
The reason is that copper revenue will pay all the operating and sustaining capital costs. Essentially the gold production will be free cash flow, and the copper will be a slight free cash flow from the copper. In terms of the average and the production rate, it's gonna produce about 150,000 ounces of gold per year. Then depending on your copper price assumption, and in this case, we're using a $3.85 copper in the feasibility study, so $3.85 per pound, that equates to 172,000 ounces of gold equivalent copper. When you combine the two, it's 312,000 ounces per year on average over a 23-year mine life. During the first five years, the grades are a bit better, so the production's a bit stronger.
It's gonna generate a massive amount of cash flow for Eldorado in the first five years of operation. It's an exciting time. The other thing I would highlight about this project is it's a pretty fantastic overall design. The first decade of the open pits mine, we're deploying dry stack tailings. We'll filter the water out of the tailings to conserve water, minimize footprints for tailings disposal. Then when the open pit finishes, we continue to run the underground, and the underground will also be dry stack filtering, except then the tailings will be deposited back in the open pit. At the end of the mine life, the pit gets fully reclaimed, which is a pretty unique and pretty awesome design that we have for this gold copper porphyry project.
If you mentioned in order to complete Skouries, it has a CapEx of $875 million. A year ago it looked like you might have to give up a large percent of this project to fund it. Now that's changed, and it has totally changed because of your various funding options, with your primary one being the COVID relief funding. Why don't we just start with that and just give us an overview of how this program works.
Sure. You know, we're focused right now on getting the funding in place to be able to restart construction this summer. One of the really awesome things that's occurred for us in the last six months is that the Greek banks are looking to deploy their capital for projects with strong economic profile, and Skouries fits that criteria. In the E.U., like most countries, there's funding available to help get the economy moving. The E.U. has put together COVID relief funding that Greece has been approved for EUR 5 billion in the first tranche. We're working with Greek government essentially to put project financing in place that could cover up to 80% of the capital required to get Skouries construction completed.
The unique thing about this financing is it's very competitive low cost financing. It looks like it'll run less than 2% interest rate on up to 80% of the capital when you combine the Greek bank and the E.U. COVID relief funding available. That's one of our really strong alternatives in terms of funding the remaining capital. We're also in discussions with prospective joint venture partners, and we have streamers also putting together proposals. What we're trying to do by mid-year is to conclude all these opportunities for financing such that we can make a decision in the best interest of our shareholders. Then with board approval, get this project into construction to generate a heck of a lot of value for our shareholders.
George, I just wanna spend some more time on this COVID relief funding. Just so I understand it. The EU and also the Greek government would put up 80%. You would only have to put up 20% of that $845 million.
Yeah. That's correct. The funding eligibility is up to 80% combined funding between the EU and Greek banks. Yes, that would leave the balance 20% for Eldorado.
There's a good chance that you could own 100% of this project.
Yeah, for sure. I think that's the beauty. The optionality that we have now is immensely in our favor. You know, we've got, I think, some pretty good prospective partners that could contribute value and certainty to the outcome of the investment. We'll be evaluating all these various potential funding options, come up with the best scenario for our shareholders. This low cost project financing is, you know, a remarkable opportunity for us.
I just wanna touch on equity partners. If you do bring somebody in, can you just tell me again exactly who would the partner be?
Yeah. We have peer mining companies that are looking at the possibility of becoming a joint venture partner on our assets in Greece. We also have EBRD, the European Bank for Reconstruction and Development, that often invests in mining projects around the planet. They've been working with us for a couple of years on environmental and social baseline studies. That's a normal part of their process if they get involved in helping finance a funding project or a mining project. In fact, we'll be putting out that study in the next month or so. That'll, kind of, give a good indication of all the efforts we have in both social and environmental for developing this project. You know, there's quite a few interested parties on the equity side.
Again, we'll be looking at that as one of the alternatives for funding our Skouries construction.
I just wanna move on now and take the conversation toward politics. The current government in Greece seems to be a lot more pro-mining than previous ones. How long can this government stay in power, and when is the next election?
Yeah, I mean, we're getting very strong support from Prime Minister Mitsotakis and the New Democracy government. Maybe just to give a little background on what's happened the last couple of years under their leadership. You know, we negotiated an investment agreement. That investment agreement has various protections for the investment. That was actually cast into law in Parliament. Second thing I would point to is some of the challenges that we've had in the past from the prior government were resolved through the courts in our favor. We think that really puts a strong certainty around our ability to get permits in the future. Then beyond that, I mentioned that we've designed this for dry stack tailings.
That required modifications of the environmental permit, and that was approved in the second quarter of last year. As of today, New Democracy continues to be strongly in the lead in the polls. Regular elections are scheduled for early next summer, and so at this point, it looks like they'll likely get a second term, and that bodes pretty well for Eldorado, given the strong support we've seen from this government.
George, that's a great overview of Skouries and what it can do when it comes into production in terms of creating shareholder value. One of the things I don't understand, and I'm hoping you can help me with this, but the stock's been trading at a discount depending on whose research you look at 0.6x-0.7 x on a Price to NAV basis. You're getting value for your assets in Turkey and also your assets in Quebec. It would appear the street is giving you very little value to Skouries. Can you just speak to that, and why do you think that is?
Yeah. From my perspective, there's a couple reasons where our valuation's depressed versus our peers. The first thing I'd say is I think it's a great opportunity for our shareholders and prospective shareholders. My reasoning behind that is, you know, as I've outlined, the quality of Skouries is undeniable. It's the economics of having, you know, production in the 140,000 ounce range at a negative all-in sustaining cost is a pretty unusual high quality asset. Here again, we've got to get the financing in place. That's always an overhang on a development project. Then we need to execute and deliver this project on budget and on schedule. And as always, the market then responds when the free cash flow is flowing.
In my view, the price to NAV that Eldorado's trading at, which is roughly around 0.6, is about 50% lower than most of our peers. I think it is really all about getting Skouries across the line. What I'm expecting to see once we get the financing in place and board approval to restart construction, we'll see a bit of a re-rate in our share price. Then as we de-risk the construction and then ultimately deliver the commercial production, you know, Eldorado's performance is gonna be improved substantially. We're already operating at lower than average costs for the industry. By bringing Skouries into production, we're gonna dramatically reduce our costs and increase our margins and as well increase our overall production profile.
End of the day, I just think it's an awesome opportunity for us and our shareholders to get this fantastic asset into production, and the market will recognize it as this unfolds over the next couple of years.
George, you just mentioned that as you move this project forward, you could see a significant re-rate on your stock. Can you just give us a timeline associated with that? When can we expect this to once again go into construction but also production?
Yeah. Our target is to get the various funding opportunities in front of us by the middle of the year so that we can make a decision and get Skouries into construction this summer. Target is midyear. In terms of the market reaction, you know, really, I think by having the funding in place and getting the project back into construction, we'll begin to see a correction in the P/NAV and move more in line with our peer group. At the end of the day, in large mining projects, you know, there is the risk on financing and there's the risk associated with execution of the construction. I expect to see our share price fully recognize the value of this asset once you see commercial production in about two and half to three years.
George, as we wrap up, what can investors expect in terms of news flow in the coming months from Eldorado Gold?
I think, you know, in the next month or so, we'll be putting out that social and environmental report. I think that'll get some additional visibility on the project itself from a social and environmental perspective. The next major news piece will be a decision on the funding and a decision to restart construction. As I said, we're expecting that to be midyear, early Q3. You know, each quarter as we put out our results, we'll be giving the market updates on how the construction's going. I'm feeling pretty confident about our ability to deliver this on budget and on schedule in spite of the high inflationary period, you know, we're seeing around the planet. The reason for that is we just completed the feasibility study in December, so we got fresh numbers.
Number two, the main equipment in the plant is purchased and installed. We're not gonna deal with the inflationary pressures that one would normally when they're building a plant from scratch. We think we're pretty well positioned to be able to deliver this. I think if you just look at our track record the last few years during COVID, we've been very successful at putting in the high-pressure grinding mill circuit in Kışladağ on budget. We just completed a decline at Lamaque in December of last year. That was a two-year project done entirely during the COVID crisis, and we brought that project on budget and on schedule. We've got the team to be able to deliver this and looking forward to breaking ground and getting this into construction.
George, that was a great overview of Eldorado Gold, and I wanna thank you for spending time with us today. To all of our viewers, if you have any further questions for George and his team, by all means, send us an email to info@wallstreetcapital.com. Or if you would like some research on Eldorado Gold, send us an email, and we'll send it along. George, once again, thank you.
Tanya Jakusconek, thank you very much for the opportunity.