Eldorado Gold Corp (EGO) 2018 Q3 法說會逐字稿

Good morning. My name is James, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Eldorado Gold Corporation 2018 Q3 Results Conference Call. (Operator Instructions)

I'd now like to turn the call over to your host, Peter Lekich. Please go ahead.

Thank you, operator, and thank you, ladies and gentlemen, for taking the time to dial in to our Q3 2018 financial and operating results conference call.

With me in Vancouver this morning are: George Burns, President and CEO; Phil Yee, Executive Vice President and CFO; Paul Skayman, COO; and Peter Lewis, VP Exploration.

Again, this quarter, we will be speaking to slides that accompany this webcast. You can also find a copy of these slides on our website.

Before we begin, I would like to remind you that any projections included in our discussion today are likely to involve risks, which are detailed in our 2017 AIF, and in the cautionary note on Slide 1. We had 2 releases that went out yesterday: one detailing our exploration highlights for the year so far, and the other being our quarterly results.

Our Q3 operating and financial results release should be read in conjunction with our Q3 financial statements and management's discussion and analysis, which are both available on our website and have been filed on SEDAR and EDGAR.

Lastly, all dollar figures discussed today are in US dollars unless otherwise stated.

I will now turn the call over to George.

Thanks, Peter, and good morning, everyone. First off, I'd like to welcome Phil Yee to our team. Phil has been with us for about a month and is getting up to speed very quickly.

You will hear from Phil in a moment, but I'll start with a quick overview of Q3, then I'll pass the baton over to Phil for a review of our financial results and some comments on capital considerations.

Paul will follow with an update on operations and development, and Peter will then say a few words on exploration.

Starting with the highlights on Slide 3, gold production exceeded expectations this quarter, driven by better-than-expected recoveries from the Kisladag heap leach pad. We're again increasing our 2018 production guidance to 345,000 to 350,000 ounces of gold, up from 330,000 to 340,000 ounces of gold.

With cash operating costs higher this quarter due to lower sales volumes at Olympias, and higher C1 costs at Kisladag, due to an accounting method change that increased noncash costs, our full year cost guidance of $600 to $650 per ounce is now marginally higher than original guidance.

At Lamaque, I'm pleased to report that the project is progressing on schedule and budget. We have already commissioned the crusher and have started wet commissioning of the plant. The team there has been working extremely hard to keep the project on track to reach commercial production in early 2019.

Our continued exploration success at Lamaque confirms our convictions of long-term potential of this asset. Recent drill results show excellent mineralization at depth in the Triangle deposit below those areas included in the 2018 prefeasibility study.

Peter will say some words on Lamaque drilling later on the call.

The most significant news this quarter is a completion of the feasibility study for the Kisladag Mill and the subsequent Board approval to advance the project. The study shows robust economics with an estimated aftertax NPV of $392 million, at a 5% discount rate and IRR of 20% -- 20.4% and a payback period of 3.9 years on a capital investment of $520 million, assuming a gold price of $1,300 per ounce.

Paul will provide more detail on the feasibility study later on the call.

I'm extremely proud of the work that Shane Williams, our SVP Engineering and Capital Projects, and our entire project team has undertaken to optimize Kisladag, while maintaining a disciplined approach of allocating capital as we transition away from heap leaching.

We expect to release our resource and reserve statement by December of this year.

Our business plan on Slide 4 is a similar slide, but I would like, again, to draw your attention to our significant low-risk production growth over the next 3 years. This is being driven by Lamaque and Kisladag. The Board decision to advance the Kisladag Mill puts us one step closer to achieving our business plan to produce 600,000 ounces of gold annually by 2021. What's new on this slide is the consolidated guidance for the next few years. We expect to produce an average of 300,000 to 325,000 ounces of gold in both 2019 and 2020 at costs similar to this year. We believe we can achieve this as we replace the ounces we lose from the Kisladag heap leach with Lamaque coming on stream.

Under the next slide, where our efforts remain focused on executing our 3 key strategic pillars: maintaining a strong base of operations; developing our high-return projects; and deploying our capital prudently.

Just before I hand it over to Phil, I'd like to say a few words on Greece. Despite our efforts this quarter, unfortunately, we have no updates on the outstanding permits for Skouries. This is credibly disappointing as we have always acted in a manner consistent with finding a mutually agreeable solution to developing Skouries responsibly. During the quarter, we filed an application for payment with the Government of Greece, requesting approximately EUR 750 million for damages arising from the lengthy delays in issuance of permits for the Skouries project. The application is a good faith attempt to resolve the matter with the Greek state without needing to go down the route of arbitration. The Greek state has not responded to this application and continues to disregard contractual obligation under the terms of the transfer agreement.

This runs countercurrent to earlier assurances that the Skouries permitting issue would be addressed following the positive conclusion of the arbitration in April of this year. We remain open to dialogue on steps required to allow the Skouries development to proceed, and we'll continue to take the necessary and prudent steps to protect our investments in Greece.

I'll leave it there for a moment, and we'll hand it over to Phil to go through the financials.

Thank you, George, and good morning, everyone. It's been an exciting first month at Eldorado. We have a lot going on, and I'm thrilled to be part of it.

I'll start by highlighting our continued strong cash position, which you can see on Slide 6. We ended the third quarter of 2018 with total cash, cash equivalents and term deposits of $385 million compared to $485 million at the end of 2017.

During the quarter, we generated $23 million in cash flows from operations, $12 million in sales proceeds from pre-commercial production at Lamaque, while capital expenditures for the quarter totaled $82 million.

General and administrative expenses were approximately $2 million lower in Q3 of 2018 as compared to 2017, due to reorganization costs related to the acquisition of Integra Gold in July of 2017.

Turning to Slide 7, here's a summary of our Q3 financial results. During the quarter, we generated metal sales revenues of $81 million compared to $95 million in the third quarter of 2017.

This was a result of marginally lower metal sales together with the lower average realized gold price of $1,177 per ounce.

Gold revenues during the quarter of 2018 amounted $76 million from the sale of 64,589 ounces of gold contained in doré and concentrates. Gold revenues in Q3 2018 included negative price adjustments of $53 per ounce (technical difficulty) related to the finalization of (technical difficulty) shipments from prior periods.

Lower gold revenues, together with higher production costs and depreciation, depletion and amortization expense, resulted in earnings from mine operations decreasing year-over-year. Production costs were $10.2 million higher in Q3 2018 as compared to Q3 2017 primarily driven by noncash charges, totaling $21.1 million related to the leach pad inventory drawdown at Kisladag. In addition, there were additional production costs in Q3 2018 from Olympias starting production in 2018.

These increases are partially offset by lower production costs at both Efemcukuru and Stratoni.

With Board approval to advance the Kisladag Mill project, a review the useful life of the Kisladag heap leach assets resulted in an impairment charge of $117.6 million during the quarter. Aftertax impact was $94 million, net of deferred tax -- deferred income tax recovery.

Net loss was $128 million or $0.16 per share for the quarter compared to a net loss of $4 million or $0.01 per share in Q3 of 2017. Adjusted net loss was $22 million or $0.03 per share during the quarter after adjusting for the impairment charge related to the heap leach assets in Q3 of 2018. And this compares to adjusted net earnings of $1 million or $0.00 per share in Q3 of 2017.

The impact of the noncash charges related to the Kisladag heap leach drawdown in Q3 2018 approximate $0.02 per share.

The further weakening of the Turkish and Brazilian currencies in relation to the U.S. dollar during the quarter continued to have a negative impact on deferred income tax expenses. However, this was partially offset by a deferred income tax recovery of $24 million related to the impairment of the Kisladag heap leach during the quarter. Currency volatility will continue to affect our quarterly income tax expense.

On to Slide 8 for a few words on capital considerations. In light of the operating and financial performance in the first half of the year, we continue to refine our views on capital requirements and potential funding options to meet our medium- to long-term needs.

Some general comments on the quarter. The company continues to maintain a strong balance sheet with over $630 million in available liquidity and has a strong base of operations that continues to provide cash flow to help fund our growth. We continue to focus on eliminating nonessential spending with the aim of reducing global G&A and cutting discretionary capital at our noncore projects. Further, we are progressing on optimizing our business plans with operating and site initiatives underway to improve near-term operating cash flow. And lastly, we are actively evaluating strategic and funding options, and are engaged in discussions with various third parties.

As mentioned last quarter, and consistent with what we've observed exiting Q3, current cash on balance sheet combined with internally generated cash flow, fully supports the development of Lamaque and provides ample runway to substantially advance construction as Kisladag, without having to draw on the $250 million revolver.

That's it for me. Over to you, Paul.

Thanks, Phil. On Slide 9, we outline our production and cost for the quarter. Total gold production in Q3 was 84,783 ounces, which includes 13,430 ounces of pre-commercial production from Lamaque.

At Olympias, recovery challenges for the lead circuit as a result of blending a higher ratio of East versus West zone ore, led to lower-than-expected lead concentrate production. Reduced production, combined with timing of by-product shipments due to port delays and lower zinc and lead prices during the quarter, contributed to lower by-product revenues.

Gold recovery was broadly in line with expectations during the quarter. However, higher levels of lead reported to the gold concentrate, resulting in unsold inventory of approximately 9,500 ounces of payable gold at quarter-end expected to be sold in Q4. This unsold inventory of gold also contributed to the higher C1 and all-in sustaining costs.

A number of opportunities have been identified which will be implemented over the next 6 months, including catching up the backfilling of voids underground, building an ore inventory to aid with blending at the front end of the plant as well as concentrate blending of Olympias and Stratoni concentrates.

We already have a specialist metallurgical team actively working on optimization of the processing plant, when trading ore from the East zone.

These issues highlight Olympias' complex metallurgy, but we remain focused on improving by-product recoveries, which would further reduce cash operating costs and all-in sustaining costs.

At Efemcukuru, gold production of 24,493 ounces was marginally lower year-over-year due to lower mill throughput, partially offset by higher average traded head grade.

Cash operating costs of $456 per ounce were lower year-over-year, reflecting the high throughput grades, along with the ongoing devaluation of the Turkish lira.

The leach pad at Kisladag [are going to perform] better than expected during the quarter as a result of boosted leach kinetics due to increased cyanide concentrations, targeted irrigation of leach pad areas as a result of ongoing sonic drilling, and side slope leaching. Kisladag produced 34,070 ounces of gold during the quarter, which were low -- slightly lower year-over-year, is notable given no fresh ore has been placed on the pad since April of this year.

Cash operating costs of $890 per ounce were higher at Kisladag in Q3, due to $619 per ounce of noncash operating costs during the quarter. These noncash operating costs account for the drawdown of ounces from inventory. Due to higher production guidance at Kisladag, the inventory has now increased by 78,000 ounces. With another accounting change, the noncash component will now drop to $170 per ounce for the ounces remaining in inventory.

Moving to Slide 10. As a result of the Kisladag leach pad continuing to exceed expectations, the Kisladag guidance has again been revised upward. You'll note that we've increased 2018 production by 20,000 ounces to 160,000 to 170,000 ounces; in 2019, production by 10,000 ounces to 50,000 to 60,000 ounces. Guidance for 2020 has a wider range of 20,000 to 40,000 ounces, which is reflective of the potential we believe is still on the leach pad.

Forecast cash operating costs are slightly up in '19 and '20, reflecting increased cyanide usage.

We've provided increased guidance based on recent pad performance and continued metallurgical test work.

Moving to Slide 11, our highlights of the Kisladag feasibility study. You'll note that CapEx and OpEx are generally in line with the prefeasibility study. There are no other material changes.

Moving to Slide 12. It's a quick comparison between CapEx, OpEx and sustaining capital figures between the prefeasibility and feasibility study. CapEx increased by 6% due to adding filters to the tailings filtration plant and changes to the thickeners in CIP process. We identified filters as a potential risk, so decided to increase their number to better ensure the plant starts up according to plan.

OpEx increased by 4%, mainly as a result of the increased cost of power, while sustaining CapEx fell 12% due to a deferral in waste stripping cost that will now be included in operating costs.

Turkish contractors have submit a bid in US dollars and this is what is reflected in the feasibility study. However, as a result of new Turkish legislation, Turkish contractors will now be required to bid in TL rather than in US dollars. We expect that this may help the overall cost as we move forward with contract negotiations.

Slide 13 shows the updated layout of the Kisladag Mill. The new layout reduces the overall footprint and simplifies the material handling around the filter plant, with the final product now traveling along a straight conveyor line to the tailings dam.

Going forward, basic engineering and long lead procurement will continue while detailed engineering will begin for key areas to allow advancement of critical enabling work in order to support a fast-track execution schedule. The mill project is expected to begin commissioning in late 2020 with production targeted in 2021.

Over to development at Lamaque on Slide 14. The team in Québec continues to work extremely hard in progressing this project, which is on track and budget. Wet commissioning has begun. Underground development progressed during the quarter, with over 2,100 meters completed, which is slightly ahead of plan. The main decline is now at approximately 250 meters below surface.

Refurbishment activities at the Sigma Mill during the quarter focused on electrical and piping works, installation of mill motors and equipment, and construction of the reagent buildings. Two Certificates of Authorization were received during the quarter: one for the operation at the Sigma Mill, and the other for the operation of the Tailings Management Facility. Favorable weather allowed for the advancement of Phase 1 of the TMF.

Turning to grade and recovery of material mine to date from Triangle continues to reconcile well with plan.

That's it for me. Over to you, Peter Lewis.

Thank you, Paul. Over the past quarter, we have drilled over 32,000 meters across our exploration assets. I'll take a few minutes today to highlight some of the exciting recent news from both the Lamaque project and our Bolcana gold-copper porphyry project in Romania, results which we announced in our exploration release yesterday.

On Slide 15, we've summarized some of the positive results from drilling in the lower part of the Triangle deposit at Lamaque, where earlier this year, we reported on the C8, C9 and C10 shear zones.

We're particularly excited by the recent discovery of a new, wide, high-grade stockwork to sheeted vein system located in the immediate footwall to C10 in drill hole TM-15-20. The entire intersection in the lower part of this drill hole, starting with C10, totals 193.9 meters, averaging 3.7 grams per ton gold. Although we've identified similar high-grade [veineries] elsewhere in the Triangle deposit, this is by far the most continuous intersection of this style of mineralization we've encountered to date. This new zone is open in multiple directions, and we're currently targeting our follow-up drilling strategy.

We've also received some quite encouraging new drill results from the lower shear-hosted zones, with intersections of 4.5 meters, creating over 40 grams per ton gold in C10, and 6.9 meters grading 18.95 grams per ton gold in C9B. Notably, both of these intercepts are both the highest grade and the most east of the intercepts on these 2 shear zones, giving us optimism that as we continue drilling to the east, we will continue to see an increase in the resource potential.

Together with the existing and third resource base in the lower C4, C5 and C7 zones, these new results from Triangle highlight the outstanding upside potential of the deposit below those areas included in the 2018 prefeasibility study, which only included C1, C2 and the upper part of C4.

Moving on to Slide 16. The other exploration news I'd like to touch on is our recently completed drill program at the large Bolcana gold-copper porphyry project in Romania. This year and last, we've drilled over 56,000 meters on this project, and defined a porphyry system over a surface area of nearly 1 kilometer by 500 meters and to a depth of over 1,000 meters. Much of this year's drilling was focused on the upper part of the system where we have outlined 3 higher-grade mineralized centers that coalesce at depth. Some of the best results this year were from the southern center, which was previously only sparsely drilled and include an intercept of 232 meters rating over a gram per ton gold and 0.24% copper.

We're now in the process of updating our geological models for Bolcana, in advance of completing an initial resource estimate.

For further details and tables of significant drilling results from both these projects, including true thicknesses and grades recalculated with top cuts where appropriate, I'll refer you to yesterday's exploration news release.

On that, I'll turn back to George.

Thanks, Peter. Just before I wrap up, I want to take a moment to highlight the milestones that we have achieved so far this year. We said we were going to publish 3 technical studies on Lamaque, Kisladag Mill and Skouries, and we delivered.

We said we were going to complete a feasibility study for the Kisladag Mill and have a Board decision on advancing the project in October this year, and we delivered.

We said we were going to reach commissioning at Lamaque by the end of this year, and we are well on our way to delivering that project.

By increasing our production guidance for the second time this year and growing our operating cash flow, we are well positioned to advance our development projects towards our goal of producing 600,000 ounces of gold per year in 2021.

This is an exciting time for our entire global team as our effort and focus are aligned to deliver our business plan. Together, we are building a business that creates value for all of our stakeholders.

Thank you. We will now take questions.

(Operator Instructions) And your first question comes from the line of Kevin Chiu from CIBC.

It's actually Cosmos here. Welcome, Phil. If you know, Phil, I know you've only been here for a month, and I don't really want to put on the spot here, but in terms of the capital considerations, you sort of touched on it. But the other big component, of course, is the $600 million debt that comes due in November 2020.

So Phil, I'm just trying to piece it all together. You talk about -- now you've got to -- you have to finance the Kisladag Mill, $520 million. Yes, you have that line of credit, but that also has a term; that terms out in year 2020. You have a lot of spending as you talk about in years 2019, year 2021. So I'm just trying to figure out, have you, at this point in time, assumed that you're going to refinance that $600 million debt?

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

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

I think, as we advance, we'll definitely have some more details, some more specifics. But like, at this point, the first step was to make sure that the Board provided approval to advance on the Kisladag Mill.

Yes, of course. Maybe switching gears a little bit. Olympias, certainly wasn't a good quarter. I didn't -- actually didn't really know that it was an issue in terms of East zone versus West. I guess my question is: Number 1, is the paste plant now, has it been built? And if that's functioning well? And what's the mineral that's causing issues? And how do you blend it down? And I guess, overall, taking a step back, my question is, certainly Olympias had negative earnings in Q3; when would you expect that to turn positive?

Now.

Okay. So first question, Cosmos, was around the paste plant. That -- the paste plant is now working reasonably well at the end of Q3. So we've struggled with that a little. We're now getting material underground and that's -- that was part of the issue that drove us to take more East zone materials than West zone. So we had some voids in the West. We ended up having to mine more material from the East. And it's really that higher proportion of East zone that gave us metallurgical problems and taught us that too much East is going to cause issues. Normal blend would be 1/4 to 1/3 of the oil coming from the East, and we feel that we can manage that; and have managed that reasonably well in the past.

And what's the key difference here? Like, what's the key mineral that's causing issues? How is the mineralogy different to East versus the West?

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

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

Look, I mean, the first 2 quarters were pretty good. I think we tripped up in Q3 and realized that we were placing -- struggling in terms of that blend of East and West. We're moving back into the West and we're already seeing better results. So I wouldn't expect another quarter like Q3 necessarily. We're certainly -- we'll do better than that in Q4. And I think as we sort out some of these issues in the plant and get a better handle on it, we'll continue to improve.

(Operator Instructions) Your next question comes from the line of Mike Parkin with National Bank.

On the Kisladag feasibility study, what was the Turkish lira exchange rate that you assumed in that?

Didn't really use an exchange rate because the bids that came in were in US dollars. Yes, just for reference, in terms of sort of budgeting for Turkey, we're looking at about TRY 5.75. But again, we'll be doing a lot more work with the Turkish contractors and they'll now be bidding in TL as we move forward and get more detailed negotiations happening on those contracts.

Okay. And assuming that is what you go ahead with, what would the overall CapEx to build it -- break down in terms of, like some of it, I imagine, is still going to be U.S. dollar based. Are you trying to get 100% exposed to the Turkish lira? Is that how we should interpret it?

No. The -- I mean, a lot of the gears -- sort of purchased equipment is coming from offshore. We think there's probably about 1/3 of the cost would be sort of lira denominated. So local salaries, local equipment to the ability that it's manufactured locally. So obviously, earthworks will be a good component, steelwork to some extent. So about the 1/3 of the cost will be in TL. We think TL will drive those.

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

Yes. I think it would be little bit more than 1/3. Labor is around the sort of 25% mark, and that's obviously, sort of closely TL. There's some local purchase. But the other big costs, diesel and reagents; so cyanide is being brought in. Diesel's obviously linked to world prices. So about 1/3, I would suggest.

Okay. And then switching over to Olympias. Has there been any -- we had kind of limited disclosure on that asset in Q2. Is there a thought towards providing the market a little more color in terms of the by-product grades and production breakdown?

Yes. We've turned it to sort of -- to concentrate on gold. But as you can appreciate, those by-product numbers do make a pretty big swing in the cash cost and grade recovery; and obviously, revenues can make a big difference. So it's something we'll have to have a look at as we move forward.

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

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

Okay. So how should we kind of think about the penalty applied to the Q3 con then? Is that -- could you give us like a sense of what, like as a percentage of additional hit you'll -- you've incurred to move it?

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

Your next question comes from the line of Kerry Smith from Haywood Securities.

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

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

Okay. And that will all be spent in Q4, correct?

Well, there'll be some costs associated with pre-commercial production in Q1.

Okay. So that's $25 million to $30 million to get to commercial production then?

Correct.

Okay. And are there any -- I know you've got the 2 permits in the quarter. Are there any other permits that you need? Or are you now fully permitted there and is ready to go?

There's some minor routine permits, but I can tell you they've been coming in as scheduled. And we're confident we're -- we'll be ready to run from a permitting perspective at the end of the year.

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

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

Okay. And just circling back to Cosmos' question about the financing and the -- or the refinancing of the debt. How could the Board actually make a decision to push ahead and approve Kisladag without having a financing plan in place? Because you pretty clearly can't finance Kisladag and refinance the debt or -- and do it with a debt having to be paid off. You have to refinance the debt in order to do that. So how did they actually do that?

Well, Kerry, both the management team and the Board are quite comfortable where the balance sheet currently sits with $630 million of available liquidity. That balance sheet comfortably allows us to not only complete Lamaque, but substantially advance the Kisladag Mill project. And that's without drawing on the $250 million. Now there's no doubt in 2020, with the bond and the revolver needing to be renewed or dealt with, there's some work to be done on financing. But we are comfortable and confident that we will put together a financing strategy and package that will meet our medium- to long-term needs. So the Board was comfortable at approving us to continue to advance the Kisladag Mill project under those conditions.

And I think Phil pointed out, we've been doing, I think a good job over the last couple of quarters of improving our business, and setting us up to be able to negotiate the best available package to enable the completion of the Kisladag Mill. And as a result of all that, we needed to have more certainty around Kisladag. Getting the feasibility study completed and approved by the Board and management allows us to be in a better position to come up and finalize that optimized financing package.

So again, Kerry, we're all comfortable that we've got a good project. We're confident about the path forward. And we think we're in a very good position now to be able to bring some certainty around the financing post-2020, or in 2020.

Okay. And that $630 million of liquidity that you referred to, that's a combination of your cash, plus the cash you think you'll generate between now and the startup of Kisladag, I guess. Is that correct?

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

Okay. Yes, sorry, I thought you -- I misunderstood you. I thought you said that, that $630 million excluded the line of credit, but it includes. I understand now. Okay. And just on this Bolcana project, is it now -- are those 3 -- the areas that you've drilled, are they now completely delineated and cut off? Or is there still room for expansion laterally? I'm not going to (technical difficulty) or are they cut off now?

Yes. Near surface, we've clearly well-defined the outlines of the potentially economic mineralization. As you go deeper in the system, it is still open, but yes, near surface we've defined it on, yes, roughly 100-by-100 meter drill spacing.

Your next question comes from the line of Mike Jalonen from Bank of America.

George, just -- I'm looking at -- I'm just looking at Page 4 of your slide deck. I noticed seeing there that with the mill expansion in 2021, you get the nice boost in production of 600,000 ounces. I'm noticing that Kisladag will be around -- eyeballing it properly, 305,000 to 310,000 ounces in 2021. Does that assume the mill is running at well, design capacity, January 1? Can I make that assumption?

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

What would be that grade approximately?

That's up over a gram. It's the best grade we've got remaining, and it's pretty, well, easily accessed in the bottom of the pit, Mike.

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

Your next question comes from the line of Dan Rollins from RBC Capital Markets.

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

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

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

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

Okay. Earlier this year, there was potential discussions about maybe noncore asset sales. I think Tocantinzinho has come up as a potential option on that. Is that something the company is actively pursuing at this point in time? Or is -- would that be pursued potentially post figuring out where -- what the capital situation is post the refinancing?

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

Your next question comes from the line of John Bridges with JPMorgan.

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

So I mean, from our perspective, the FX rate definitely had an impact on the bids we received. We requested bids in Turkish lira given the recent volatility in FX. Contractors submitted U.S. bids to protect themselves, no doubt. Our strategy will be to allow or inflation impacts in the bids. So we'll be seeking and negotiating Turkish lira bids with indexing against inflation to protect them from what may happen there. Historically, we've seen a neutral to net benefit in FX versus inflation, so we think we can control factors that way.

Another thing I'd point you to in terms of path forward and finalizing contracts is, given the financial issues in Turkey, a lot of government projects, infrastructure projects have been stopped. And so contractors are going to be hungry and looking for work. And so we'll take advantage of that competitive nature. And then, if there are any input costs, like steel, we can put factors in to accommodate any changes in their input cost. So there's a way to have all this to make sure that Turkish denominated cost remained Turkish lira and that we don't have contractors sort of protecting themselves. So we think there's some upside here for us and we'll obviously be attacking that opportunity.

Okay. That all makes sense. And then sort of following on from Mike's question: the stuff that you were putting on the leach pads, close to 1 gram. Has that been sort of written off in this impairment? Would you be able to go back up there and put that through the mill? Would that be useful as a sort of early seed for the commissioning plant? Or is that going to be tacked on to the end of the life of the mine?

So -- I mean, late last year when we discovered the lower recovery challenges associated with heap leaching, between then and early last -- earlier this year when we stopped crushing, we tried to target the lowest-grade material with the best heap leach recovery and left the higher -- highest-grade material on the plant as best we could. And so you're right, there was high-grade material placed late last year and early this year. The recoveries we are anticipating on heap leaching are well below the 80% of the mill, closer to 40%.

At this point, our business plan, our guidance and our feasibility study assumes we will get heap leach recovery only. We are -- we did increase the cyanide concentrations last year, we are seeing some benefits in improved kinetics. And we believe we can probably squeeze a bit more out of the lemon, the lemon being the 10 years of placements up on that pad. But frankly, we're not going to get anywhere near 80% recovery.

And there, obviously, will be an opportunity once we finish leaching the pad, to figure out if there is any economic material that we could potentially pick up and put through the mill, maybe in the later stages of the mill life. So that is an opportunity, but it's not built into any of the economics at this point, and our near-term focus is to maximize production out of the pad, trying to squeeze every ounce possible.

Your next question comes from the line of Tanya Jakusconek from Scotiabank.

Paul, just on Kisladag. I mean, it's really doing much better than we had anticipated. And what do you think your overall recovery -- you're getting on the heap right now?

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

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

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

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

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

I guess with a feasibility study in hand, it is much easier to get a buyer to come and look and -- than it was with the pre-fease.

Yes, for sure. I think for sure, on both debt and potential partnerships, there is increased certainty being at feasibility study. So yes.

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

All right. Thank you, everybody, and we look forward to a good Q4.

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