Moody's lowers Eldorado's rating outlook to 'negative'

2nd November 2017 By: Henry Lazenby - Creamer Media Deputy Editor: North America

Moody's lowers Eldorado's rating outlook to 'negative'

Eldorado's flagship Kisladag mine, Turkey
Photo by: Eldorado Gold

VANCOUVER ( – Moody's Investors Service has revised the rating outlook for Vancouver-based gold producer and project developer Eldorado Gold to negative from stable.

The international advisory service has also affirmed Eldorado's B1 Corporate Family Rating, B1-PD Probability of Default Rating, and B1 senior unsecured note ratings.

Eldorado's Speculative Grade Liquidity Rating (SGL) rating was also lowered to SGL-2 from SGL-1, Moody's advised in a press release on Thursday.

"The negative outlook reflects Eldorado's elevated leverage, the execution risk in developing key projects in Greece, where government actions have delayed development, and production challenges at its main operating mine in Turkey," said Moody's analyst Jamie Koutsoukis.

The negative outlook reflects the execution risk Eldorado continues to face in bringing its projects to production in Greece, where the current government has hampered mine development. It also reflects concerns regarding production levels at Kisladag, its largest earnings before interest, taxes, depreciation and amortisation (Ebitda) contributor. If either are unable to perform to expectations, leverage will remain elevated, Moody's warned.

Eldorado last week again reduced the production guidance at its low-grade, Turkey-based Kisladag mine, as recoveries continue to lag behind plan, while its development projects in Greece have been dealing with severe regulatory delays, forcing the company to threaten shuttering the development projects and withholding the foreign investment that the country's ailing economy desperately requires.

According to Moody's, Eldorado's B1 corporate family rating is constrained by elevated leverage (4.7X adjusted debt/Ebitda expected for 2017), modest scale (330 000 gold-equivalent ounces to be produced in 2017), gold price volatility, relatively high geopolitical risks, limited mine diversity (two gold mines in Turkey), and execution risks related to its material development projects in Greece.

Eldorado, however, benefits from low cash costs ($530/oz in the third quarter, according to Moody's calculation), large reserves, growing output that should support deleveraging below 3x in 2018, and good liquidity.

Delays on its two main mining projects in Greece have been driven by setbacks in receiving permits and licences, reflecting the risk of operating in a jurisdiction with higher political risk and lack of proven mining legislation and regulations. Also, the company will generate lower cash flow from operations as gold recovery from the leach pad at its main operating mine, Kisladag, has not met expectations.

Eldorado has cut its production guidance there for 2017 from 230 000 oz to 240 000 oz at the beginning of 2017, to between 170 000 oz and 180 000 oz currently, and raised its cost guidance, with 2018 still being evaluated.

Koutsoukis further pointed out that Eldorado has good liquidity (SGL-2), with a cash balance of $546-million at September 2017, and an undrawn $250-million unsecured revolving credit facility that matures in November 2020.

"The large cash balance will allow Eldorado to fund Moody's estimated free cash flow consumption of about $350-million in 2018 as the company continues to spend on developing its new mines. Moody's expects the company will maintain good covenant headroom. The company does not have any material debt maturities until 2020 when its credit facility and $600-million unsecured notes become due," Koutsoukis stated.

Eldorado last week reported headline earnings of $1.3-million, or nil per share, compared with adjusted net earnings of $33.5-million, or $0.05 a share in the comparable period a year earlier.

Third-quarter gold sales of 65 439 oz and gross profit from continuing gold mining operations were lower year-on-year, owing to lower output and sales at Kisladag.

Revenue fell 18% year-on-year to $95.4-million.

Shares in Eldorado have fallen 62.5% this year. The stock fell last week to its lowest level in 15 years – C$1.57 – after Eldorado cut its gold output forecast for its flagship Kisladag mine. The stock was trading at C$1.60 apiece on Thursday at midday.