Eldorado Gold Corp (EGO) 2023 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Second Quarter 2023 Financial and Operational Results Conference Call. (Operator Instructions)

I would now like to turn the conference over to Lynette Gould, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to welcome you to our second quarter 2023 results conference call.

Before we begin, I'd like to remind you that we will be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary statements included in the presentation and the disclosure on non-IFRS measures in our Management's Discussion & 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; Joe Dick, Executive Vice President and Chief Operating Officer; and Simon Hille, Senior Vice President, Technical Services and Operations. Other members of the senior leadership team will also be available for the Q&A session.

Our release yesterday details our second quarter 2023 financial and operating results. This should be read in conjunction with our second quarter financial statements and Management's Discussion & Analysis, both of which are available on our website. They have also been filed on SEDAR+ and EDGAR. All dollar figures discussed today are U.S. dollars, unless otherwise stated. We will be speaking to the slides that accompany this webcast. You can download a copy of these slides from our website. After the prepared remarks, we will open the call for Q&A.

At this time, we will invite analysts to queue for questions. I will now turn the call over to George.

Thanks, Lynette, and good morning, everyone. Here is the outline for today's call. I'll provide a brief overview of Q2 results and highlights before passing it to Phil to go through the financials, and then to Joe and Simon to review our operational performance. Then we'll open the call to questions from our analysts.

Turning to Slide 4. As we mentioned on our Q1 quarterly call, we closed the Skouries project financing of EUR 680 million in early Q2. Subsequently, we have completed 2 drawdowns in April and May for a total of EUR 65.9 million. On June 14th, we were pleased to complete an CAN 81.5 million strategic investment into Eldorado by European Bank of Reconstruction and Development. These funds will be invested in construction at Skouries and will be credited against the company's 20% project funding commitment.

In addition to our Greek bank syndicate, EBRD provides another well-aligned strategic partner for the Skouries project. The investment by EBRD was a culmination of a 3-year rigorous process which included completion of an environmental and social impact assessment consistent with our commitment to high environmental and social standards. With the proceeds from EBRD now contributed, we do not expect any further funding for Skouries will be required from Eldorado in 2023, as the project financing facility is expected to cover remaining spending until Q1 2024.

During the quarter, we also completed a bought deal offering for gross proceeds of CAD 135.2 million. These funds are expected to be used to fund growth initiatives across our global portfolio, including some not currently contemplated within our 5-year plan. The growth initiatives may include, but are not limited to, Perama Hill, where we expect to start community consultations later this year, the expansion of Olympias to 650 million tonnes per annum, bringing the Ormaque discovery into production, and exploration opportunities in Turkiye and Quebec. We anticipate we will be able to provide more detailed information around the cost, priority, and timing of each opportunity with our updated 2024 guidance in the first part of next year.

Moving to Slide 5, starting with production. Consolidated production across the portfolio came in slightly below our expectations for the quarter as a result of extraordinary rainfall at Kisladag, forest fires near Lamaque, and lower grade in recoveries at Olympias due to mine sequencing as we advance productivity improvements. As we are expecting stronger production in the second half of the year, we are well positioned to meet our 2023 production guidance of between 475,000 ounces and 515,000 ounces. Additionally, we are maintaining our capital expenditure guidance of $394 million to $437 million, including $240 million to $260 million towards the advancement of Skouries project for 2023.

Turning to Skouries, we continue to be focused on project execution in order to deliver the project by the end of 2025 as planned. During the quarter, we advanced a number of early works projects and continued to award key contracts. We are pleased with the progress to date and continue to ramp up personnel with 350 people on site, which will increase to approximately 900 by year-end. Joe will talk about the progress in operations in more detail later in the call.

Shifting to cost, first half cash operating cost per ounce sold and all-in sustaining costs were in line with our annual guidance ranges, driven by continued lower input costs. Phil will speak to our cost and financial position in more detail later in the call.

Finally, I'd like to congratulate the team at Lamaque who were awarded the Predistinction Award in the Environment category at the 2023 Quebec Mining Association Convention. The team was recognized as an innovative project in partnership with MRC. (inaudible) aimed at the progressive restoration of the Sigma tailings pond using compost produced locally. The award highlights our commitment to continued innovation in the area of sustainable development.

I'll stop there and turn the call over to Phil for a review of our financial results.

Thank you, George. Good morning, everyone. Slide 6 provides a summary of our second quarter results. Eldorado reported net earnings attributable to shareholders of $1.5 million or $0.01 per share in the second quarter. After adjusting for onetime nonrecurring items, adjusted net earnings were $16.1 million or $0.09 per share in the second quarter. These onetime nonrecurring items included a noncash deferred tax expense of $21.4 million due to foreign exchange translation related to the lira, adding back a noncash gain of $8.4 million on the revaluation of new derivative instruments, primarily on gold collars entered into during the quarter, and a loss of $1.6 million on redemption option derivatives related to the senior notes.

Free cash flow in the quarter was negative $21.7 million. However, excluding the capital investment in Skouries, free cash flow generation in the quarter was a positive $13.2 million. Cash flow generated by operating activities before changes in working capital totaled $82.4 million compared to the first quarter of $94.5 million, primarily due to higher income taxes paid during the quarter.

Second quarter cash operating costs averaged $791 per ounce sold and all-in-sustaining costs averaged $1,296 per ounce sold. All-in-sustaining costs per ounce sold in the second quarter were higher than expected. With consolidated gold production expected to be weighted to the second half of the year, we expect decreasing unit costs in the second half and are maintaining our annual cost guidance for 2023. In Turkiye during the quarter, we continued to see lower fuel and electricity prices in line with the first quarter. However, there were increasing royalty expenses as a result of the higher realized gold price.

Over the second half of the year, we expect to see lower unit costs across the portfolio and remain on track to be within our guidance of $1,190 to $1,290 per ounce sold for 2023. Capital expenditures on an accrual basis were $99.4 million in the second quarter, which included an investment in growth projects at Kisladag and at Skouries, where we continue to advance procurement and the project.

In the second quarter, we recorded a deferred income tax expense of $17 million, which included a $21 million expense related to net movements of local currencies against the U.S. dollar, primarily the Turkish lira. Current tax expense of $21.8 million was lower in the quarter compared to Q2 of 2022, primarily related to operations in Turkiye.

Subsequent to the quarter end, Turkiye enacted a change to its corporate tax rate, increasing it from 20% to 25% for 2023 and subsequent years. This change reverts the tax rate back to the level last seen in 2021. This change was enacted into law on July 15th and is retroactive to January 1, 2023. As a result of the 5% rate increase, the estimated impacts related to net earnings for the 6 months ended June 30, 2023 are $7 million of additional cash-based current tax expense and $30 million of additional noncash deferred tax expense, both of which will be recorded as changes to net earnings during the 3 and 9 months ended September 30, 2023.

Turning to Slide 7. At quarter end, we had unrestricted cash, cash equivalents and term deposits of $456.6 million. Excluding the impact of the equity funding and the Skouries growth capital during the quarter, the second quarter ending cash balance was $272 million, an increase compared to Q1 2023's ending cash balance of $262 million. With production expected to improve over the second half of the year, we expect to see our cash from operations improving further.

With the closing of the Skouries project financing in April, availability under Eldorado's $250 million revolving credit facility was reduced as Eldorado's funding commitment for the Skouries project is fully backstopped by a letter of credit under that revolving credit facility. The availability under the facility as of June 30 was $112 million. As the company invests further into the project, the letter of credit will be reduced euro for euro.

To protect the downside on the gold price while we build Skouries, we locked in 0 cost collars for approximately 32% of our overall gold production, which amounts to about 16,667 ounces per month for the next 2.5 years that commenced in June of 2023. For 2023, the floor price is $1,700 per ounce with a ceiling price of $2,736 per ounce. 2024 has a floor price of $1,800 and a ceiling price of $2,765. And for 2025, we have locked in a floor price of $1,900 and a ceiling price of $2,667. We continue to focus on maintaining a solid financial position, which provides flexibility to unlock value across our global business.

With that, I will now turn it over to Joe to go through the operational highlights.

Thanks, Phil, and good morning. Starting on Slide 8. I'd like to start by congratulating our team in Greece for completing their first verification against the Mining Association of Canada's Towards Sustainable Mining Protocols. Of note, we achieved AAA scores across all indicators for tailings management and biodiversity, underlining Eldorado's commitment to responsible mining practices. As a Canadian company, voluntarily implementing a globally recognized program like TSM across all of our international operations speaks to the integrity of our teams and the results support our strategic commitment to sustainability.

In the second quarter, our lost time injury frequency rate rose slightly to 1.08 per million man hours worked from 0.96 in quarter 2 of 2022. We continue to take proactive steps to improve workplace safety and to ensure a safe working environment for our employees and contractors. As Skouries activity in Q2 continued, we advanced engineering and procurement and initiated the transition to full construction with the finalization of project financing during April.

General works were focused on tree cutting, site preparation, relocation of temporary facilities, recommissioning of the noncontact water reinjection well system and the haulage of aggregates for construction purposes. Additionally, the first phase of underground development continues to advance the west decline and the foundation work for the primary crusher is underway. Mobilization of the first major earthworks contractor for haul roads needed to undertake all other major earthworks is progressing well with work on several fronts planned.

Milestones in the second half of the year include finalizing of the awards of the remaining major procurement and contract packages, including an additional 2 major earthworks contracts, 2 major civil contracts for piling and concrete, a major contract for mechanical and piping, and a major contract for electrical and instrumentation. As previously stated, project spending at Skouries is expected to be $240 million to $260 million in 2023. The spending is focused on finalizing detail engineering, which is now 48% complete and forecasted to be 90% complete by the end of this year.

As of June 30, procurement is at 62% complete and is also expected to be in the 90% complete range by year end. Economic activity in Greece is increasing, so moving through the commitment phase of the project. it's important to mitigate potential cost and schedule pressures. While we have yet to see material impacts from this activity thus far, we see the keys to ongoing success as maintaining or improving our pace of contract awards and to continue meeting the productivity levels as estimated in the December 2021 Feasibility Study Plan as the construction ramp-up progresses.

With several major contracts expected to be awarded during the third quarter, we will be updating from the Feasibility Study estimate to the project control budget throughout the quarter and expect to provide further information by the end of Q3.

Now moving on to Slide 10 on our operating results. We produced 109,435 ounces of gold in the second quarter with cash operating costs of $791 per ounce sold. While slightly below our expectations for the quarter, we do remain on track to meet our guidance.

I'll pass it over to Simon to review the second quarter performance at our operations in Turkiye and Canada.

Thanks, Joe. Starting in Turkiye on Slide 11. At Kisladag, second quarter production was 34,180 ounces and cash operating costs of $687 per ounce sold, which represents a 22% increase in production and a 14% reduction in cash costs over Q2 2022. Extraordinary rainfall in May and into early June at levels nearly equivalent to our annual averages negatively impact Kisladag production. The enriched gold solution was diluted with the excess volumes recirculated through the pad and the lower than planned solution grades reporting to the gold recovery circuit.

The leach circuit water balance is stabilizing and is expected to be normal operating volumes by the end of the quarter, and production is expected to improve accordingly. During the quarter, we conducted a 6-day process facility shutdown, and throughout that period successfully achieved some key milestones, including the tie-in for the new final agglomeration circuit, the first rotation of the HBGR rolls and replacement of 1,800 meters of belt for the major overland conveyor.

Following the time, we then commissioned the final agglomeration circuit and it is currently performing as expected. The North Heap Leach Pad which serves the remaining life of mine is now operational with stacking having commenced in mid-July as planned. Although time in operation is limited, we are progressing well. We have met and expect to sustain the targeted stacking rate in August.

We expect a positive impact from the combined effect of the fully -- now fully upgraded materials handling system, the new final agglomeration system, the new leach pad and ongoing improvement in mine performance, and we expect to meet our [tonnes plates] target during Q3 and the balance of the year. We are maintaining Kisladag's guidance between 160,000 and 170,000 ounces of gold produced for the full year of 2023.

On Slide 12, at Efemcukuru, second quarter gold production was 22,644 ounces at cash operating costs of $697 per ounce sold. Gold production, throughput and average gold grade at Efemcukuru were in line with the plan for the quarter. Development towards the Kokarpinar area is on track and is expected to continue to extend mine life. For 2023, Efemcukuru production guidance remains at 80,000 ounces to 90,000 ounces of gold.

And now moving on to Lamaque in Slide 13. Second quarter gold production was 38,745 ounces at cash operating costs of $676 per ounce sold. The team at Lamaque has done a remarkable job given the challenges they have faced related to the forest fires in Quebec and the air quality impact they have had in the Valdor area. As a result of the air quality issues, 25% of the June underground production shifts were cancelled and some surface activity suspended. We maintained mills throughput by lower grade stockpile material being processed, and when the stockpiles were depleted, we brought forward scheduled maintenance from July into June to offset the unplanned downtime with a reduction in future planned downtime.

The team was able to safely resume underground operations by [water fogging] the ventilation intake to achieve normal air quality for mine activities and by providing an alternative route to safely transport employees to the mine without utilizing forestry roads. During July, the air quality has improved and we have operated and continue to operate normally. I'd like to thank the team for putting people first through this event as always.

While surface exploration work was halted due to the closure of forest access roads, we continued underground drilling and remain on track to complete our infill drilling program targeting the upper 2/3 of the Ormaque deposit in 2023. Our plan to take a bulk sample and announce Ormaque inaugural reserves during the fourth quarter of 2024 also remains on track.

In June, we were pleased to take the delivery of the first electric haul truck, Sandvik model TH550B, and you can see it featured here with the team taking part of the official ribbon-cutting ceremony to commemorate the event. Lamaque is the first to apply this underground technology in Quebec. With a 50-tonne capacity and increased range and speed, this equipment will play a key role in improving production efficiency, reducing the diesel particulate matter and mitigating our greenhouse gas emissions. We expect to take delivery of the second truck in early 2024.

During the second half of the year, we expect to see continued stable processing rates at grades higher than processed during the first half of the year. We are maintaining Lamaque's 2023 production guidance of 170,000 to 180,000 ounces of gold.

I'll hand the call back to Joe to review the second quarter results at Olympias.

Thanks, Simon. Moving to Olympias on Slide 14. Second quarter gold production was 13,866 ounces and cash operating costs were $1,439 per ounce sold. Mine and processed tonnes were up from the prior quarter and at record levels for Olympias. However, production was lower and cash costs higher, due primarily to lower byproduct credits and lower payability.

Zinc concentrate revenue was lower than planned due to lower zinc price and payability at $435 per ounce of gold sold. Lead concentrate revenue was lower than planned due to silver grade at $230 per ounce sold. High rate concentrate revenue was slightly favorable with higher gold price offset by lower gold payability. Some positive milestones accomplished during the quarter are expected to mitigate those impacts along with our continued trend of higher mine output through efficiency.

The first milestone was the transition to mechanical loading of drilled grounds with the bulk emulsion blasting agent, a first-time application of this methodology in Greece. The anticipated improvement of approximately 15% per blast of ground is now being achieved as it is phased into the operation. The full transition to bulk emulsion system is expected to be completed over the balance of the year.

The second milestone was mechanical completion of a major upgrade to the Olympias ventilation system, which we commissioned during the first week of July. Ventilation system startup was enabled by completion and energization of the new Olympias 150 kV substation during June. The substation not only powers the ventilation system, it provides for greater dewatering capacity from the pump station commissioned last year, while improving the overall power factor for Olympias. The new substation and our ongoing progress toward ventilation on demand both impact power demand favorably.

The bulk emulsion and ventilation projects were scheduled for early Q1 completion. Their delay has affected mine plan sequence and has delayed lower mine development, both of which are contributing factors to the byproduct and grade variances outlined earlier. With these projects now online, we expect to increase production from the blast zone shown in green on the slide, which is expected to improve our byproduct metal production resulting in higher byproduct credits and in turn lower operating costs. We are maintaining the guidance of 60,000 to 75,000 ounces of gold at Olympias for 2023.

I'll stop there and turn it back to George for closing remarks.

Thanks, team. As part of closing, I'd like to first acknowledge the Lamaque and Kisladag teams for their proactive work in mitigating weather-related risks. At Kisladag, extreme rain during the quarter did not get in the way of completing our construction projects which are operating at or above design criteria. And at Lamaque, we protected our people first, but our team was able to limit production impacts that were caused by the wildfires.

And the second thing I'd like to emphasize is, we are at a major inflection point in Eldorado. Skouries is fully financed, ramping up, and on track with schedule and cost. Kisladag moves to an optimization phase after completing these construction projects. In Olympias, yes, the Q2 ASIC was high, but it was largely driven by sequencing delayed access to high-grade stopes, which are going to come out in the second half, and also from lower zinc prices out of our control. However, we are on track to deliver guidance at Olympias in 2023.

And the biggest thing is, we've delivered these transformational projects, as Joe outlined, emulsion blasting, new substation energize, expanded ventilation. It supports the ramp up, a much stronger second half results, and it also gives us the ability to ramp up production coming out of the flat zone, which are larger stopes yielding better productivity. If you look at Olympias, 1 year ago, we were operating at a 380,000-tonne per annum rate from underground, and now we're operating at a 480,000-tonne per annum rate. This positions Eldorado in a good position to deliver production growth, cash flow growth and leading shareholder returns versus our peers.

Thank you for your time. I'll now turn it over to the operator for questions from our analysts.

(Operator Instructions) Our first question comes from Cosmos Chiu of CIBC.

Thanks, George, Phil, Joe, Simon, and Lynette. Maybe my first question is on your income statement. I guess, there seems to be some debate today on the foreign exchange gain of $14.681 million. Should it be adjusted out? Should it be included? I guess, my question is, I think, Phil, you kind of touched on it, but what's the nature of that foreign exchange gain, which seems to be larger than previous quarters? Is it 1 of those things that could reverse later on in Q3? Are we going to see something like to the same magnitude in Q3, but in a different direction? I'm just trying to understand today and also what we should expect for Q3.

Maybe I can start by just talking about the background behind the FX gain. So, Eldorado operates, as you know, in multiple jurisdictions, which exposes us to different currencies other than the U.S. dollar. And I think the most notable impact in Q2 was the weakening -- for the weakening of the Turkish lira. At the end of Q1, the Turkish lira was around 20 and at the end of Q2, it was around 26. So that in itself created a large portion of that FX gain.

So, in terms of the issue, in terms of whether, if I understand your question correctly, should that FX gain be adjusted in our adjusted EPS? When you go from earnings to adjusted earnings, normally you try to back out items that are unique, that are onetime occurrences, that are nonrecurring. And I would say like our foreign exchange gain, we report foreign exchange gains or losses every quarter. It is a regular -- I guess, a regular reporting feature of our operations. So that's -- I think that would explain the context behind whether the foreign exchange gain, whether it's the realized portion, unrealized, that should be adjusted.

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

Yes. I think that's a good question. And I would say that the way we have looked at it, with the results of the recent elections and run-off elections in Turkey, we're expecting that with the continuation of the current government that they would likely be -- would like to take some time for changes to have an impact on lira, and we expect that the lira would weaken further into summer. Summer, for example, it's tourism season. A week earlier, it does support tourism. It does support exports, which helps them with their balance of payments.

So, we were expecting a weakening in the summer. The forecast at this point, based on information that we've looked at, is that there will likely still be some weakening, not expecting to be significant. It's currently sitting about 26, 27 lira to the U.S. dollar. We're expecting it to perhaps go down to 30, which would be less significant than what we incurred in Q2. But at some point here, we expect with some of the changes that are taking place, the increase in interest rates and some of the other measures that the government's taking in Turkey, that we're hoping that the lira will begin strengthening at some point.

Maybe switching gears a little bit on Skouries, as you talked about, there is a number of contracts that will be finalized in Q3. I guess, my question is twofold. #1, it seems like there's still some earthworks to be done, some concrete to be poured, like the crusher, the foundation with the crusher. I seem to remember that it's already half built. And so, I just want to make sure that some of this earthworks and concrete cores and major contracts are in addition to what's been done in the past. And indeed, Skouries is more than half built, from my understanding.

And #2, I guess we're talking, there's an update coming up in terms of the budget control versus the feasibility study. Clearly, you might not be able to tell us too much today. But overall, are you seeing costs sort of abating? Overall, cost pressure is abating in terms of inflationary pressures. And how is it negotiating with these contractors this time around versus the last go around at it when you last built Skouries over 5 years ago?

Cosmos, this is Joe. I'll take the question. So, the first part is Skouries half built. So, the process planned is well advanced. So, in the process planned, concrete is poured, structural steel is up, and all major equipment is set. There are additional pieces of -- or motors, gearboxes, other things to go in. They are all procured and laid down at Skouries. The major works for the plant include piping, electrical and instrumentation. Associated with the plant, the primary crusher has to be, the foundation up has to be built. And the crusher set, the crusher is on site and in laydown.

So that kind of summarizes the plan. So, it is 65%, 70% complete. The major works, in addition to the plant, include the filter plant. So, from prior construction to now, we have modified the project to go from conventional slurry tailings to dry stack, requiring a filter plant. So the filter plant has been procured and the construction from the foundation up through setting of the equipment needs to occur. The dry stack tailings itself, the facility for storage of dry stack tailings need to be constructed, which basically is an embankment. Pre-strip of the pit needs to be completed, which will feed that embankment. And there are water treatment plant, auxiliary facilities, and a few other things.

So, characterizing it as half-built, overall probably in the range of 40% complete on a total basis at this point. And when we -- as we looked at updating forecasts or budgets, Cosmos, as you recall, the feasibility study estimate was completed in December of 2021. And we felt as though we were in good position having already procured the -- or put an early procurement in for the filter plant. We had most of the other equipment already laid down. So we felt like we're pretty insulated from inflationary pressures, and that remains true today. But that is 18 months old. There have been other things that are impacted and that's primarily labor and both purchase of pipe, cable, that kind of thing, which is happening now. So we would anticipate kind of the normal inflationary pressures that others have seen for that period 2021 to now. And that covers everything, labor from engineering through completion of project.

So, I mean, to summarize all of that, yes, we feel really good. The plant is well advanced. I haven't been on many projects where the plant is in this position at this time. We'll have it early and actually have it available for commissioning well in advance of startup, which is not common. That gives me great relief.

Secondly, as we think about the insulation that we have from the inflationary pressures, what we see, we're going to experience some of that, but we feel pretty good about where we sit having delivered the project reasonably in line with the feasibility study estimate project to date. So, all things good. Normal conditions for projects exist and you'll hear more when we complete the update of estimate following about movement of the project from today at about 30% committed to about 60% to 70% committed in the quarter.

Does that help, Cosmos?

Yes. That helps perfectly, Joe. And then, maybe 1 last question. Overall, weather-related issues in Q2, looking at full-year guidance and looking at what you've done so far in the first half, clearly you'll need to increase production at Kisladag and also Lamaque to hit your guidance for the year. But maybe focusing on Kisladag sounds like heavy rainfall did not impact stacking but impacted your reach kinetics. It sounds like some of that lower grade solution still needs to be extracted in Q3. I'm just wondering, in terms of we know that H2 is going to be better than H1. The weather-related issues, is that still going to impact Q3? And in terms of the improvements, is it going to be Q4 better than sort of Q3? At this point in time, we're not sure.

We're expecting Q3 to be stronger than we would have thought of 3 months ago, and it's simply because that excess solution we expect to be processed during Q3. So -- and when you look at Kisladag overall, the way I'd put it is, we delivered the projects, the system, as you said, the placements are at design already, and we just commissioned the North Leach pad in early July. So, we're in a really good position to put the tons up there, and we're in a good position to get that diluted solution through the plant in Q3. And I say all that in the context, we got another unexpected rain event, things happen, but that's not likely to happen. We're expecting a very strong second half at Kisladag.

And at Lamaque, I mean, it was already second-half loaded, just sequencing and grades. What happened in Q2 with the wildfires, and as Simon pointed out, we lost quite a few shifts in June. We've got a solid plan. We've got higher grade stopes coming, we expect to deliver a strong second half. So, I'd say, we're in a really good position right now to deliver the guidance.

And the last piece of the puzzle you didn't mention was Olympias, but again, delay in high-grade access to stopes, both gold grades, and particularly silver. Those stopes are coming out in the next quarter. We had a second half planned to be stronger, supporting with all this capital we've invested and we believe we're in a good position to deliver our guidance for the year.

Our next question comes from Mike Parkin of National Bank.

Most of it's been answered, but just circling back on Kisladag, you've got the new pad. Does that solution of a new pad report to a different pond that was versus the pond that was diluted with the rainfall?

That's correct. So, the collection system for the South Heap Leach Pad is separate from the North Heap Leach Pad. So, any of the stacking and solution that we'll put through on the North Heap Leach Pad will be isolated from the South, and so that won't be diluted in any way from the rainfall event. So that is certainly well picked up.

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

Yes. The way I'd look at it, we were expecting a strong second half, and the catalyst partly is the solution inventory that's going to come out in Q3, but the rest of it is, we've been at the top of the pyramid on the South Leach Pad and limited for space. We now have the North Leach Pad where placements are ongoing. We'll have both sets of those solutions reporting to independent ponds, and we're ramping up the production as planned coming out of the new circuit. So, all the larger grasshoppers, the conveyor, we're in a strong position for the second half.

And I guess, the other thing with the agglomeration drum, what we wanted to get out of that system was get those fines combined and get good permeability through the heap, and it is performing. So, predicting Q2 versus Q3 and how they're going to pan out, it's tough to say on this call right now. I just tell you, stronger second half, leach kinetics are going to be better, that solution inventory is going to come out, and we're going to have solutions coming out of both heaps, so we're pretty confident about the second half.

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

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

Okay. And I'm more familiar with kind of rain season impacts and heap leaches in Mexico where you typically see like a shocking of the pad on the back with the rain season there. Is that something you had to do in June and therefore is already in your operating costs, or is it something that you don't necessarily do because of the longer leach cycle at Kisladag?

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

Our next question comes from Fahad Tariq of Credit Suisse.

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

What we're saying is that we'll have a number of major contracts finalized and that will inform the cost estimate. So, we'll update the market as to any changes there. And in terms of productivities to date, the productivities we're seeing on construction are consistent with the estimate. So, we'll have another quarter worth of activities on the ground to take a look at, but I wouldn't say we're going to be in a position where we've got a lot of intel on productivities. So far, things are as expected.

And as the construction ramps up, as we said, we're going to be approaching 900 people. Next year is when we're really going to get a taste of the productivities versus the feasibility study. But last year, we did the cladding and building around the mill that came in as planned. We've begun to do some roadwork. We're starting to pour some concrete for the primary crusher. There is some data coming in, but it's aligned with the estimate. So, it's just simply another data point in Q3 with major contracts being let, a little bit more construction activity on the ground, and we'll take a fresh look at the estimate and inform. But you shouldn't be reading in that we're concerned about anything right now. It's going to be another normal data point in a construction project like this.

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