Earnings Call Transcript - EGO Q3 2021

Operator, Operator

Thank you for waiting. This is the conference Operator. Welcome to the Eldorado Gold Corporation Q3 2021 Financial and Operational Results conference call. All participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations. Please go ahead, Ms. Wilkinson.

Lisa Wilkinson, Vice President, Investor Relations

Thank you, Operator. And good morning, everyone. I would like to welcome you to our Third Quarter, 2021 Conference Call. Before we begin, I would like to remind you that we will be making forward-looking statements during the call. Please refer to the cautionary statements included in the presentation, as well as the risk factors set out in our annual information forum. Joining me on the call today, we have George Burns, President and Chief Executive Officer, Philip Yee, Executive Vice President and Chief Financial Officer, Joe Dick, Executive Vice President and Chief Operating Officer, and Jason Show, Executive Vice President and Chief Strategy Officer. Our release yesterday details our 2021 Third Quarter financial and operating results. These should be read in conjunction with our Third Quarter financial statements and management's discussion and analysis, both of which are available on our website. We've 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.

George Burns, President and CEO

Thanks, Lisa. And good day, everyone. Here is the outline for today's call. I'll provide a brief overview of Q3 results and highlights before passing it to Phil to go through the financials. Joe will follow by reviewing operational performance and then we will open it up for questions from analysts. I'm very pleased with our third quarter results. Production in Q3 was 8% higher than last quarter based on strong production at Kisladag. We have increased our full-year 2021 production guidance by approximately 6% to 460,000 to 480,000 ounces, up from 430,000 to 460,000 ounces previously. We are working through our budgets right now and we are comfortable with our 2022 production guidance range, which takes into account the commissioning of the HPGR in Q4. We will update the market on 2022 guidance in the New Year. Joe will speak more about our operational performance later in the call. I'm very proud of the operational teams for working safely and effectively to achieve robust production in the first 9 months of the year. Specifically, I would like to congratulate the Kisladag team for delivering strong production year-to-date and successfully completing several operational improvements at the mine. During the quarter, we refinanced our senior secured notes. Phil will speak to this later in the call. Not only were we able to lower the cost of debt, but certain Eldorado subsidiaries in Greece were removed as guarantors, which will allow us to pursue a broader range of funding alternatives for the development of the Kassandra assets. We continue to see strong support in Greece for the Skouries project. The support from the Greek government has allowed us to sign an amended investment agreement and obtain the approval for the dry-stack tailings permit early in the year. We're also seeing strong interest from Greek banks in the EU COVID relief fund. This is very encouraging as we accelerate the process of finalizing financing for this world-class project. In October, we made the decision to suspend mining operations at our non-core Stratoni Mavres Petres mine in Greece, and focus on exploration. The Mavres Petres mine currently lacks reserves to support sustained operations, and we expect to continue our exploration program in this highly prospective area, aiming at identifying and verifying new reserves. During this phase, the mine will be transitioned to care and maintenance. Operations could resume upon positive results from future technical and economic reviews. We will strive to either relocate employees to other Kassandra operations or offer training programs at a new technical training center under development at Stratoni. This was a difficult decision, but necessary to ensure the viability of Kassandra assets and allow Eldorado to continue to invest in the region for the long term. We continue to monitor costs and capex inflation across our operations. In Turkey, inflationary pressures have been mostly offset by the weakening lira. In Canada, mining project activity has picked up in the Val-d'Or region, which is putting pressure on our contractor labor rates. COVID-19 has impacted the supply chain causing minor shipment delays. Based on Q3 and year-to-date cost performance, we are not seeing any notable impact of inflation. At the end of October, we closed the previously announced sale of the Tocantinzinho Project in Brazil to G Mining Ventures. This sale provides Eldorado with immediate value for TZ and allows us to retain meaningful exposure to future value creation through our equity stake in G Mining. TZ will be a cornerstone asset for G Mining. The team has a strong track record of building mines on time and on budget. We believe that G Mining, which now includes our local Brazilian team, are the right group to responsibly advance the asset, and we look forward to following and supporting their success. Shifting over to ESG, I want to update you on the global sustainable integrated management system that we launched in Q1. SIMS integrates sustainability, responsibility, and accountability across Eldorado's core business functions at all levels of the organization. This internal management system is comprised of performance standards addressing occupational health and safety, environment, social and security, by which we will be able to better measure, track and drive our ESG performance. In Q3, we completed SIM self-assessments at our operating sites with positive results. We're now focused on creating action plans that will support our commitment to continuous improvement. One of the key pillars of our sustainability framework is to engage collaboratively with stakeholders to build positive relations and uphold our social license to operate. For example, during the quarter, our team in Quebec announced a partnership with the Lak Simon Anishnabe nation to develop an adult education center in Val-d'Or to support skills and sustainable development of the community. We're also continuing discussions to work towards a long-term collaborative and Sustainable Development Agreement with the Lak Simon nation. In Q3 in Greece, we continue a comprehensive stakeholder engagement process in preparation for environmental social impact studies with the goal to build a mutual understanding and support of a positive shared future in the region. With that, I will turn the call over to Phil, to review our third quarter financial results.

Philip Yee, Executive Vice President and CFO

Thank you, George. Good day, everyone. Starting with Slide 4, we achieved another strong quarter of operational results. Production at Kisladag exceeded our expectations, leading us to increase our 2021 production guidance by 6%. Our costs remain consistent with our annual guidance for 2021. Revenues met our projections, driven by strong sales with an average realized gold price of $1,769 per ounce. Free cash flow for the quarter was $29 million, and we anticipate ongoing free cash flow generation for the rest of the year. In Q3 2021, Eldorado reported net earnings attributable to shareholders from continuing operations of $8.5 million, or $0.05 per share, compared to net earnings of $46 million, or $0.26 per share, in Q3 2020. After adjusting for one-time items, including $31 million in financing costs from the debt refinancing in Q3, adjusted net earnings for Q3 2021 rose to $40 million, or $0.22 per share, up from $29.3 million, or $0.16 per share, last quarter. Cash operating costs in Q3 2021 averaged $646 per ounce sold, up from $537 per ounce in Q3 2020, mainly due to lower-grade ore processed at Kisladag and Lamaque, which resulted in fewer ounces produced compared to Q3 2020. These increases were somewhat offset by a modest decline in cash operating costs per ounce sold at Olympias from higher grades and increased silver and base metal sales, which reduced cash operating costs as a byproduct credit. All-in sustaining costs per ounce sold averaged $1,133 in Q3 2021, up from $918 per ounce in Q3 2020, primarily due to the rise in cash operating costs and higher sustaining capital expenditures. Capital expenditures in Q3 2021 totaled $77 million, compared to $52 million in Q3 2020 and $72 million last quarter, reflecting a planned increase in growth capital spending at Kisladag with the new HPGR project and at Lamaque with the underground beacon project. Tax expenses decreased to $5.6 million in Q3 2021, down from $40 million in Q3 2020, mainly due to the investment tax credit received for Kisladag heap leach improvements and significantly lower foreign exchange and withholding taxes this quarter. Depreciation expense was $50 million in Q3 2021, compared to $57 million in Q3 2020, reflecting lower sales volumes. We still expect total depreciation expense for 2021 to be between $200 and $215 million. Eldorado's Brazil segment is now classified as a discontinued operation in Q3 2021 following the sale of the Tocantinzinho project, which closed this week. The net loss from discontinued operations was $60 million in Q3 2021 due to a reduction in fair value to the upfront consideration, less disposal costs. Deferred consideration of $60 million in cash is due on the first anniversary of commercial production. At the end of Q3, we voluntarily changed our accounting policy to reclassify cash paid for interest on the cash flow statement as financing activity rather than operating activity. This policy change, following our debt refinancing in August 2021, provides a more accurate representation of these cash flows, offering more relevant information for users of financial statements. The consolidated statements of cash flows reflect this change. Moving on to Slide 5, we are committed to maintaining a solid financial position, which enhances our ability to unlock value in our Kassandra assets in Greece. At the end of the quarter, we had unrestricted cash and cash equivalents of $439 million. On August 26, we completed a $500 million offering of senior notes with a coupon rate of 6.25% maturing on September 1, 2029. The proceeds were partially used to redeem the outstanding 9.5% senior secured second lien notes due 2024 and to repay amounts under both the term loan and revolving credit facilities. On October 15, we executed a $250 million amended and restated senior secured credit facility known as the Fourth Arca, which allows for an additional $100 million in credit and has a maturity date of October 15, 2025. The Fourth Arca's revolving credit facility has an interest rate based on [indiscernible] plus a margin of 2.125% to 3.25%, depending on a net leverage ratio pricing grid. Both the senior notes from August and the Fourth Arca removed certain Eldorado subsidiaries in Greece as guarantors, broadening our funding options for developing the Kassandra assets. Our net leverage ratio was 0.16 times as of September 30, 2021, down from 0.89 times at the end of Q1 2020, reflecting a significantly improved credit profile for the company over the past year and a half. With that, I will now turn it over to Joe to discuss the operational highlights.

Joseph Dick, Executive Vice President and COO

Thanks, Phil, and good day, everyone. I'd like to start by highlighting an important health and safety milestone for operations. In September, we achieved a triple zero month with no recordable incidents in three key areas: medical treatment, modified work, and lost time. This is the first time we have reported a triple zero month since 2012, and I'm extremely proud of the team for this accomplishment. We produced 125,459 ounces of gold in the third quarter, an 8% increase from Q2 production of 116,066 ounces. Our third quarter operating performance continued to be strong. And as George mentioned, we have increased our 2021 production guidance range to between 460,000 and 480,000 ounces of gold, up from between 430,000 and 460,000 ounces. This is driven by stronger than planned performance at Kisladag. We remain focused on disciplined capital allocation across our operations. Specifically, we have been looking more closely at the capital allocation at our Kassandra mines in Greece as our transformation efforts continue to progress. As a result, we expect both sustaining and growth capital expenditures to be at the low end of the guidance range for the year. Slide 7 looks at our operations in more detail. Starting in Turkey with Kisladag, our third quarter gold production totaled 51,040 ounces, a 16% increase over the last quarter. Cash operating costs were $612 per ounce. We achieved increased throughput at Kisladag in the third quarter related to several operational improvements that were implemented in the mine, leach pad, solution handling, and carbon regeneration earlier this year. The commissioning of the high-pressure grinding roll circuit is underway and nearing completion. We expect the HPGR to increase gold recovery by approximately 4% and enhance the already positive results achieved from the CIC trains and the new carbon regeneration kiln completed in the first half of the year. Our multiyear pre-stripping campaign continues to progress, and studies are actively underway to assess the potential for accelerating this work, to bring forward value at Kisladag. We continue to be on track for phase 1 completion and stacking to begin in mid-2022. Over to Olympias, third-quarter gold production totaled 23,305 ounces at cash operating costs of $552 per ounce. At Olympias, we have a strong track record of extending mine life through exploration success. In September, our exploration news release included drill results at Kokarpinar focused on both the conversion drilling with inferred resources and testing of the previously undrilled Northwest Splay. The results of the resource drilling were encouraging and have the potential to significantly extend the current reserve base and mine life of the asset. Turning to our Canadian operations, third-quarter gold production at Lamaque totaled 37,369 ounces, a 5% increase over last quarter. Cash operating costs were $646 per ounce. The decline between Triangle and the Sigma mill is on schedule and will complete in the fourth quarter. The decline will replace the current group with the straight-line haulage to the Sigma mill, eliminating surface haulage costs. At the end of September, we published an exciting exploration update, which included recent results from Ormat infill drilling. The results confirmed high-grade continuity within our lenses of the maiden inferred resource and expanded several lenses laterally. Through our host testing deeper levels, we identified new mineralized zones. These results showcase a high-quality and strong growth potential at our Lamaque mine. Preliminary mine planning studies are underway to assess the initial scope of the Ormat resource within the operation. Once completed, the underground decline will enable the team to drift over to the deposit and gain additional information to integrate the promising new discovery into our future mine plans. At Olympias, third-quarter gold production totaled 13,745 ounces, a 6% increase over last quarter. Cash operating costs were $952 per ounce. Third-quarter production at Olympias reflects some initiatives that were implemented in relation to the transformation efforts at the Kassandra assets. I would like to end with a brief update on our technical studies. The updated feasibility study for Skouries remains on track for completion in the fourth quarter. At this point, the study has not been completed, so we're not in a position to disclose any details. However, the Lamaque PEA is expected to be completed in the first quarter of 2022, and an updated technical study at Perama Hill remains on track for completion in early 2022. With that, I'll turn it back to George for closing remarks.

George Burns, President and CEO

Thanks, Phil and Joe. With continued strong operational results, a solid financial position, and numerous upcoming catalysts, Eldorado remains well-positioned to provide additional growth and value creation. Thank you for your time. We'll now turn it over to the Operator for questions.

Operator, Operator

Thank you. We will pause for a moment as callers join the queue. The first question comes from Cosmos Chiu with CIBC. Please, go ahead.

Cosmos Chiu, Analyst

Hi, thanks, George, Phil, Joe, and the team. Thanks for the call, and it's encouraging to see that you've raised your production guidance for the year. My first question is regarding cost pressures in the industry and inflation. George, you mentioned that you haven't been affected yet. However, I've noticed that costs are higher when I go to the grocery store. Given that you're currently working through your budget for 2022, and as Joe noted, the feasibility study for Skouries is nearing completion, is there anything you can share regarding your outlook? How are you considering not just past developments but also your expectations for next year? Are you anticipating any cost pressures in your forecasts, budget, or Skouries technical report?

George Burns, President and CEO

Cosmos, thanks for the question. Yes, on a detailed level, for sure. There are some cost pressures that we're recognizing. The cost of steel is up. When you look at our business, we have grinding media and wear materials on all of our equipment that we have to replace periodically. If you looked at that particular item, there's definitely some cost pressure, and we'll anticipate that as we look at budgets in our longer-term plans. When you talk about Skouries, one of the nice things about the project is the main part of the plant is constructed. We have lots of wiring and a building to put up. Much of the remaining construction materials from a steel perspective are on the ground except for the filter for dry stack tailings. We need to purchase the filters, and there are definitely going to be some cost pressures just due to the cost of steel. The energy costs are up globally, and we're seeing some pressure on our fuel cost. But in the end, when we look at our overall cost structure, if you looked at mining and processing, quarter-over-quarter this year, our spend is not up, which tells us we are refining other areas of improvement that are counteracting the impact from inflationary factors like steel and fuel. So bottom line for us, that's a fact. If you look at Q3, we have comments indicating that production is up, but we haven’t changed our guidance or outlook for the year on our unit costs. A couple of things I mentioned there: when you look at Lamaque, Lamaque is going to have a stronger fourth quarter due to the grade. We're moving more tons through the plant as expected and out of the underground. From a grade perspective, we're going to have a stronger fourth quarter. Year-to-date performance is below what we expect their annual performance to end up on a unit cost basis. When you talk about Kisladag, the reason we've been able to increase our guidance on Kisladag largely has to do with moving more tons. With the existing plant, we've been debottlenecking that plant and delivering increased ore through the plant, setting us up for a better year. You see that in our guidance, but it’s important to note that we still have to mine the ore, crush the ore. It's not free ounces; we have work to do to create similar margins at a higher volume and deliver additional cash to the corporation. So, yes, we're seeing some cost pressure, but I don't believe it has impacted our year-to-date performance. As we work through our budgets in the fourth quarter and finalize decisions on budget, we will include any of these cost pressures, but we remain confident. We put out five-year guidance at the beginning of the year, and we're still feeling good about next year's guidance. We got a solid year and we're working hard to sustain higher throughput through Kisladag, which could have a meaningful impact on our five-year guidance over time. We’re doing everything we can to mitigate the inflationary reality hitting the planet, and so far, so good for us.

Cosmos Chiu, Analyst

Great. Thanks, George. I'll dive deeper into the operations at Kisladag. The HPGR is almost completed, commissioning in November 2021. But as mentioned in the MD&A, the impact on production sounds like there are going to be some down days in Q1 2022. Can you walk me through that? Are we talking about days or weeks, and why is the impact in Q1? Also, Joe mentioned a 4% increase in recovery; is that going to come over time? How long will it take in terms of improving that recovery?

George Burns, President and CEO

Maybe I'll speak high level to the impact of HPGR, and Joe can provide some commissioning detail to bring clarity here. When you look at the new Kisladag, our lead cycle from historic, the first decade and a half of operations, we had a roughly 90-day lead cycle with a recovery of about 60%. Looking forward with the new Kisladag and the HPGR, we're getting around 56% recovery, but we have that goal over a one-year period; it’s a much slower lead cycle in the bottom part of this deposit. This year, our production is doing better than planned largely driven by tonnage, but recoveries are as expected; this is good news for us. In terms of the detailed timing for commissioning, we were expecting to be in commissioning in Q3, but that slipped a little to Q4. First, that's not too bad considering COVID's impact globally. We've delivered a number of projects across our portfolio and, predominantly Kisladag, on budget and on schedule. The HPGR is on budget, with a slight slip in schedule due to delivery, but that’s not bad news. The impact on production over 2021 and 2022 is integrated into our plan. So there will be a slight shift quarter-over-quarter; it’s a one-year lead cycle. The downtime required to connect and commission the HPGR will occur mostly in Q1, but overall, we had a great year so far at Kisladag and we’re set up to deliver per our 2022 commitments. So high level, this is all positive, and maybe Joe can provide a little color around the commissioning detail.

Joseph Dick, Executive Vice President and COO

Thanks, George. Any impacts due to commissioning occur when we take the circuit offline to tie in or switch over to the HPGR, which started in early October and will end in late October. That’s when we won't be placing tons. The timing of when we don’t place those tons will be the impact on our production. As George said, that’s just a matter of schedule moving, not a change. It goes a little later to Q1. We're currently in wet commissioning on the HPGR and running a series of metallurgical tests. We set up a portion of the south heap leach pad on clean plastic to test various size fractions and agglomeration tests so that we can dial everything in over the next couple of months while we bring the HPGR online. This timing will give us the information we need to start on the new pad mid-year next year. We're optimistic, Cosmos, that we'll dial in that recovery over the first six months. As George said, increasing production from mine through the circuit will likely result in more tons placed in 2022 than in 2021.

Cosmos Chiu, Analyst

Great, thanks Joe. It’s good that you brought up the North leach pad. It sounds like it is on track, which is good as well. I would imagine as we discussed recovery at Kisladag, part of the impact on recovery is that the current leach pads are getting pretty high. Could you remind us how high the current leach pads are right now? And to be honest, it's been a while since I've been to Kisladag. Can you remind us if at some point all the stocking will be at the North leach pad, or how's that going to look?

Joseph Dick, Executive Vice President and COO

The North leach pad is expected to be in better condition next year, but there may still be occasions where we use the south pad. As you remember, we installed inner lift miners on the south leach pad, so I don't have the exact figures with me, but essentially, the second lift off the inner lift liner was added due to the high levels. Once we stop using that area, we can not only clean up the inventory but also address what’s below. We can breach that liner and use various methods to eliminate any leftover inventory from the south leach pad over time. I'm not sure if I addressed your question fully, but I believe the levels have risen above the inner lift across the entire pad.

Cosmos Chiu, Analyst

Okay. Sounds good. And then maybe one last question for Phil. With the refinancing of the debt, it sounds like you're going to have different alternatives available to you as a result of some of the Greek assets now not connected to the new debt. Phil, I guess two questions. Number one, could you provide an example of an alternative that wouldn’t have been possible in the past? And number two, regarding the Skouries feasibility study, or the new technical reports coming out in Q4, are we still looking at Q1 2022 for clarity on finding a partner or looking at financing options? Is that still the case?

Philip Yee, Executive Vice President and CFO

Hi Cosmos. Good question. The key here with the refinancing, timing-wise, was strategically aimed at de-risking our strategy regarding the Greek assets. We will continue to explore various alternatives available to us. We've talked in the past about financing as carriers and the potential for joint venture partners that could be beneficial moving forward, considering this is a multi-decade project. An example of this might be our discussions with the EBRD. There are other alternatives as well, including the European Union COVID relief funding approved for Greece. Certain financial institutions in Europe and Greece have expressed interest, so we are looking at all avenues. We aim to consider all options and select the best fit for the Kassandra assets going forward and what is most beneficial for Eldorado and our shareholders.

George Burns, President and CEO

From my perspective, we have solidified our balance sheet and established our debt and revolver with our new bank syndicate, providing us with much greater flexibility. The final significant deliverable we are fully in control of is the feasibility study, which is on track to be completed in November. This will allow us to explore various alternatives and make a decision. We are still targeting a solution in the first quarter, but it is a negotiation, and we are focused on making the best financing decision for the corporation. We are moving forward and are on track with our objectives.

Jason Show, Executive Vice President and Chief Strategy Officer

And Cosmos, it's Jason. To mention here, you asked about what the amendments or refinancing allow us to do effectively that we couldn't do before. The amendments to the covenants and to the credit agreement permit us to carve out Greece, sell equity to potential partners, and to consider credit-related alternatives from potential lenders. Project financing would be one of those, and notably, the ability to sell equity to potential partners without requiring consent from our bondholders or senior lenders was effectively achieved through the refinancing.

Cosmos Chiu, Analyst

Great. Those are all the questions I have. Thanks, George and team. Have a good weekend, happy Halloween. Not sure if you're going to go trick or treating, George, but I'm sure you'll be dressed as usual as a Gold CEO, better looking than me. I'll be dressed as a Gold Analyst. Once again, thanks a lot.

George Burns, President and CEO

Thanks, Cosmos.

Operator, Operator

The next question comes from Kerry Smith with Haywood Securities. Please go ahead.

Kerry Smith, Analyst

Thanks, Operator. Perhaps you could put a little bit more color around Stratoni just in terms of the holding costs now. I mean, you got, I guess, 3,400 employees there and you're going to try and retrain some and rehire them into some of your other operations, but I presume at some point there will be redundancies there. So, I'm just trying to understand what the holding cost might be for that asset on an all-in basis per quarter or three years on a go-forward basis while you pursue this exploration strategy.

Joseph Dick, Executive Vice President and COO

I can take that.

George Burns, President and CEO

Go ahead.

Joseph Dick, Executive Vice President and COO

Certainly, Kerry, where we look to care and maintenance, those numbers are in the $3.5 million to $4.5 million annual range. We're still preliminary on finalizing. That's after we've reached full care and maintenance, and we'll look to optimize it certainly beyond that. The transitional cost from full operation to care and maintenance is still a work in progress, but we are generally in the $10 million range, factoring in production offsets between now and then. Those numbers are still very preliminary, but that's the order of magnitude we're moving through.

Kerry Smith, Analyst

Okay. That $10 million cost, Joe, would include all expenses such as retraining, severance, redundancy, and any other applicable costs?

Joseph Dick, Executive Vice President and COO

We’re in that range.

Kerry Smith, Analyst

Right. Okay. Perfect. And then, while I got you, Joe, maybe just one second question on the HPGR. I mean, I know you're just starting to run it, but can you make any commentary at all about the size fractions that it is delivering? Is it delivering the products that you expected from that piece of equipment, or does it still need some tinkering and tuning to get to where you'd like it to be?

Joseph Dick, Executive Vice President and COO

We actually got commissioning started on Monday, and things went pretty well, except for the customary software glitches and things like that. We’ve made a couple of runs as of Tuesday and Wednesday. Early on, the size fraction looks good, but it's too early to give you any indication of how long it will take us to dial that in at reasonable throughput rates. I would expect another week or so before we have reasonable numbers for the initial run report.

Kerry Smith, Analyst

Are you thinking the wet commissioning will only take another week or two then? It's not going to be that long?

Joseph Dick, Executive Vice President and COO

Basically, through the end of November, we will ramp up and then continue from that point. It’s early to get analytical data yet, but we should have those by the end of the month. We aim to set reasonable operating parameters along with early metallurgical guideposts established. This allows us to transition smoothly into operations.

Kerry Smith, Analyst

Right. Okay. That's helpful. Thank you very much, Joe, George, and Jason. I appreciate it.

Operator, Operator

The next question comes from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek, Analyst

Great. Good morning, everyone. Thank you for taking my questions. I have two questions. The first one is regarding the changes to the concentrate sales terms that you made in October. Could you talk about what those changes are and what impacts on Efemcukuru and Olympias costs you are projecting percentage-wise?

Philip Yee, Executive Vice President and CFO

Hi Tanya, it's Phil. I think what’s being alluded to is really the way some concentrate sales are structured. In the past, the payability on the concentrate was separate from refining and transport costs. Now those costs are blended into the effective rate, leading to slightly lower revenue since it's now incorporating costs, but costs are also lower as they’re no longer reported separately. No real impact on the bottom line; it’s just a change in how revenues and costs are reflected.

Tanya Jakusconek, Analyst

Nothing structural, it's just how you're allocating them.

Philip Yee, Executive Vice President and CFO

Exactly. It's part of the negotiation for the new contracts. There’s no real impact on the bottom line. Revenue will be slightly lower as it incorporates costs, and costs will be lower as they are no longer reflected separately.

Tanya Jakusconek, Analyst

Okay. Thank you. I wanted to check with you on your reserves and resources. I know the program after September is what you're doing regarding calculating your reserves and resources, and you will be releasing those. I think it's usually early December. Can you talk about number one, the pricing? We are seeing inflationary pressures. Are you changing any price forecasting for your assets or other reserve and resource assumptions? Number two, what are you looking at? Which mines can we expect additions and where are we struggling? Thank you.

George Burns, President and CEO

You want to take that, Joe?

Joseph Dick, Executive Vice President and COO

I can take that, George. We are currently looking through final numbers for reserves and resources. You're correct; we'll have the numbers ready for presentation in early November or early December. The ups and downs are relatively modest. We expect some improvements in grades but our drilling cutoffs go back to March for this release. So, the changes across the board will be moderate. We’ll provide more details at the time of the release, but nothing major is expected.

Tanya Jakusconek, Analyst

Okay. So, it sounds like the reserve and resource base is generally not going to change too much. Just want to confirm: you're not changing how you calculate your reserves and resources. No changes to cutoff grades or other?

Joseph Dick, Executive Vice President and COO

Not significantly, no. No major cost changes due to price changes, nor major changes in commodity prices from our long-term views.

Tanya Jakusconek, Analyst

That's great. Thank you so much.

George Burns, President and CEO

Thanks, Tanya.

Operator, Operator

That is all the time we have for today. 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.