Eldorado Gold Corporation (EGO) Q3 2021 Earnings Call Transcript

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Eldorado Gold Corporation (EGO 3.07%)
Q3 2021 Earnings Call
Oct 29, 2021, 11:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Eldorado Gold Corporation Q3 2021 Financial and Operational Results Conference Call. As a reminder, all participants are in listen only mode, and the conference is being recorded. [Operator Instructions] 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 of Investor Relations

Thank you, operator, and good morning, everyone. I'd 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 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 Jason Cho, Executive Vice President and Chief Strategy Officer. Our release yesterday details our 2021 third quarter financial and operating results. This 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. They've 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 Question and answer. At this time, we will invite analysts to queue for questions. I will now turn the call over to George.

George Raymond Burns -- President, Chief Executive Officer

Thanks, Lisa, and good day, everyone. Here's 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'll 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 the strong production at Kisladag, and we have increased our full year 2021 production guidance by approximately 6% to 460,000 ounces to 480,000 ounces, up from 430,000 ounces 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 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 nine months of the year. Specifically, I would like to congratulate 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 and amended investment agreement and obtain the approval for dry stack tailings permit earlier in the year. We're also seeing strong interest from Greek banks in EU COVID relief fund. This is very encouraging, as we accelerate the process of finalizing and funding and financing for the 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 for future technical and economic review. 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, a decision 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 cost 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, and 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 with 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 a set 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 SIMS self assessments at our operating sites with positive results. We are 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 Lac Simon Anishnabe nation to develop an adult education center in Val-d'Or to support skills and sustainable development of the community.

We are also continuing discussions to work toward a long-term collaborative and sustainable development agreement with the Lac Simon nation. In Q3, in Greece, we continued 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'll turn the call over to Phil to review our third quarter financial results.

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

Thank you, George. Good day, everyone. Starting with slide four. We had another strong quarter of operational results. Production at Kisladag was higher than planned, which led us to revise and increase our 2021 production guidance by 6%. Our costs remain in line with our 2021 annual guidance. Revenues were consistent with plan and expectations, supported by strong sales and an average realized gold price of $1,769 per ounce. Free cash flow was $29 million in the quarter, and we are forecasting continued free cash flow generation through to the remainder of the year. Eldorado reported net earnings attributable to shareholders from continuing operations in Q3, 2021 of $8.5 million or $0.05 per share compared to net earnings attributable to shareholders of $46 million or 26% per share in the third quarter of 2020. After adjusting for one time non-recurring items, including $31 million of financing costs related to the debt refinancing in Q3, among other things, adjusted net earnings attributable to shareholders for Q3, 2021 increased 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, an increase from $537 per ounce in Q3 2020. The increase was primarily due to lower grade ore mined and processed at Kisladag and Lamaque resulting in fewer ounces produced and sold compared to Q3 of 2020. These increases were partially offset by modest reduction in cash operating cost per ounce sold at Olympias, as a result of higher grades, combined with higher silver and base metal sales, which reduced cash operating costs as a byproduct credit. All in sustaining cost per ounce sold averaged $1,133 per ounce in Q3 2021, an increase from $918 per ounce in Q3 2020, primarily due to the increase in average cash operating cost per ounce sold and higher sustaining capex. Capital expenditures in Q3 2021 were $77 million compared to $52 million in Q3 2020 and $72 million last quarter. This reflects a planned increase in growth capital spending at Kisladag, with the new HPR sic HPGR project, and at Lamaque with the underground decline project. Tax expense decreased to $5.6 million in Q3 2020, sorry Q3 2021 from $40 million in Q3 2020, mainly driven by the investment tax credit received in Turkey in Q3 2021 related to Kisladag heap leach capital improvements, along with significantly lower FX and withholding taxes in the quarter. Depreciation expense totaled $50 million in Q3 2021 compared to $57 million in Q3 2020. The decrease in depreciation this quarter reflects lower sales volumes. We continue to expect full year 2021 depreciation expense to be in the range of $200 million to $215 million. Eldorado's Brazil segment has been presented as a discontinued operation in Q3 2021 following the sale of the Tocantinzinho project, which closed this week. Net loss from discontinued operations of $60 million in Q3 2021 reflects a reduction in fair value to the value of the upfront consideration only, less estimated costs of disposal. Deferred consideration of $60 million in cash is payable 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 statement of cash flows reclassified as a financing activity rather than as an operating activity. Following the refinancing of our debt in August of 2021, the policy change more accurately reflects the nature of these cash flows, resulting in more relevant information to the financial statement users. The consolidated statements of cash flows reflect the retrospective application of this change in accounting policy. Turning to slide five. We continue to focus on maintaining a solid financial position, which provides increased flexibility to unlock value for our Kassandra assets in Greece. At quarter end, we had unrestricted cash and cash equivalents of $439 million. On August 26, we completed an offering of $500 million senior notes with a coupon rate of 6.25% due September 1, 2029. Net proceeds from the senior notes were used in part to redeem the outstanding 9.5% senior secured second lien notes due 2024 and to repay the outstanding amounts under both the term loan facility and the revolving credit facility. On October 15, we executed a $250 million amended and restated senior secured credit facility that we are referring to as the Fourth ARCA. It provides an option to increase the available credit by $100 million through an accordion feature, and has a maturity date of October 15, 2025. Under the Fourth ARCA, the revolving credit facility bears interest at LIBOR plus a margin of 2.125% to 3.25% depending on a net leverage ratio pricing grid. Both the senior notes issued in August and the Fourth ARCA remove certain Eldorado subsidiaries in Greece as guarantors, which will allow us to pursue a broader range of funding alternatives for the development of the Kassandra assets. Our net leverage ratio is at 0.16 times as at September 30, 2021 compared to 0.89 times at the end of Q1 2020. This reflects a much improved credit profile for the company over the last year and a half. With that I will now turn it over to Joe to go through the operational highlights.

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Thanks, Phil, and good day, everyone. I'd like to start by highlighting an important health and safety milestone for our operations. In September, we achieved a triple zero month with no reportable 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 continue to be strong, and as George mentioned, we have increased our 2021 production guidance range to between 460,000 ounces and 480,000 ounces of gold, up from between 430,000 ounces and 460,000 ounces of gold. 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 at the capital allocation more closely 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 guidance range for the year. Side seven 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 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 multi year 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. Work continues on the North heap leach pad construction. We continue to be on track. The Phase one completion and stacking to begin in mid 2022. Over to Efemcukuru. Third quarter gold production totaled 23,305 ounces at cash operating costs of $552 per ounce.

At Efemcukuru, we have a strong track record of extending mine life through exploration success. And in September, our exploration news release included drill results at Kokarpinar focused on both conversion drilling with inferred resources and testing of the previously undrilled Northwest play. 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 Ormaque infill drilling. The results confirmed high grade continuity within ore lenses of the maiden inferred resource and expanded several lenses laterally. Dongdapo is testing deeper levels identified new mineralized zones. These results showcase the high quality and strong growth potential at Ormaque. Preliminary mine planning studies are underway to assess the initial scope of the Ormaque resource within the Lamaque 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 in our future mine plans. Over to Greece. 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 reflect some initiatives that were implemented in relation to the transformation efforts at the Kassandra assets. As we discussed on the 2Q conference call, we are implementing a wide ranging sustained effort to optimize the Greece operations that touches on every part of the business. 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 complete, so we are not in a position to disclose any details. 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 Raymond Burns -- President, Chief Executive Officer

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.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Cosmos Chiu with CIBC.

Cosmos Chiu -- CIBC -- Analyst

Thanks for the call and good to see that you've increased your production guidance for the year. Maybe my first question is on cost pressures in the industry and inflation. George, as you mentioned, you haven't seen, you haven't really been impacted yet. However, clearly when I go to the grocery store, when I go, costs are higher. So in that case George, as you said, you're working through your budget for 2022 right now, and as Joe mentioned, the feasibility study for Skouries is being finalized. Anything you can share with us in terms of how you're looking at it? How are you factoring it? Maybe not so much what has happened so far, but as you foresee next year, are you forecasting any kind of cost pressure into your forecast, into your budget, into your Skouries technical report, anything that you can share with us?

George Raymond Burns -- President, Chief Executive Officer

Yes. Cosmos, thanks for the question. So yes, and the detailed level, for sure, there are some cost pressures that we're recognizing, so cost of steel is up. And when you look at our business, we got grinding media, we have wear materials on all of our equipment that we have to replace periodically. And so if you looked at that particular item, there is definitely some cost pressure, and we'll anticipate that as we will look at budgets and our longer term plans. And when you talk about Skouries, one of the nice things about the project is the main part body of the plant is constructed. So 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. The exception would be the filter for dry stack tailings. We need to purchase the filters. We need to purchase the building materials, and there is definitely going to be some cost pressure just due to the cost of steel. So that's specific example. Energy costs are up globally around the planet, and we're seeing some pressure on our fuel costs. But in the end, when we look at our overall cost structure, so if you looked at mining and processing quarter over quarter this year, our spend is not up, which tells us we're finding other areas of improvement that are counteracting so far the impact from inflationary things like steel and fuel. So bottom line for us that's a fact. And if you look at Q3, I think we've seen some comments about yes, production is up, but we haven't changed our guidance or our outlook on the year on our unit cost. A couple of things I'd mention there. One, when you look at Lamaque, Lamaque is going to have a stronger fourth quarter and it has to do with grade. We're moving more tonnes through the plant, as expected, and out of the underground. But from a grade perspective, we're going to have a stronger fourth quarter. And so year to date, they're not, their year to date performance is below what we expect their annual performance to end up on a unit cost basis. And then when you talk about Kisladag, the reason why we've been able to increase our guidance on Kisladag largely has to do with, we're moving more tonnes with the existing plant. We've been debottlenecking that plant and delivering increased ore through the plant and that set us up for a better year. And so you see that in our guidance. But fact the matter is, we still have to mine the ore, crush the ore, and so on that particular site, it's not free ounces, we have a new work to get them.

It's going to create similar margins at a higher volume and deliver additional cash to the corporation. So the way I would answer it, yes, we are seeing some cost pressure, but we can't really talk to the fact that's impacted our year to date performance. And as we work through our budgets in the fourth quarter and land on final decisions on budget, we will bake in any of these cost pressures. But we remain pretty confident. We put out five year guidance at the beginning of the year, we're still feeling good about next year's guidance. We had a solid year and we're going to work really hard to be able to sustain higher throughput through Kisladag, and I think that could have a meaningful impact on our five year guidance over time. So all I can tell you is, we're doing everything we can to mitigate the inflationary reality that's hitting the planet, and so far so good for us.

Cosmos Chiu -- CIBC -- Analyst

Great. Maybe diving deeper into the operations at Kisladag. The HPGR is almost completed commissioning in November 2021, but as you mentioned in the MD&A the impact on production sounds like there is going to be some down days in Q1 2022. Can you walk me through that? Is it the impact are we talking about days or weeks? And why is the impact in Q1? And then as Joe mentioned, 4% increase in recovery. Is that 4% increase going to come over time? How long is that going to take in terms of improving on that recovery?

George Raymond Burns -- President, Chief Executive Officer

So maybe I'll speak high level to the impact of the HPGR and Joe can talk a little bit about the commissioning detail that might bring some clarity here. So where I start is that when you look at the new Kisladag, our leach cycle from historic, the first say decade and a half of operations, we had roughly a 90 day leach cycle, and we got roughly 60% recovery. Looking forward with the new Kisladag, we're getting with the HPGR around 56% recovery, but we get that gold over a one year period. So it's a much slower leach cycle in the bottom part of this deposit. And that's what all the drilling and network we did over the last couple of years led us to these conclusions and a robust mine plan. So this year our production is doing better than planned, largely driven by tonnage, but the recoveries are as expected. So this is good news for us. So in terms of the detail, when you think about all right, we were at the beginning of the year expecting to be in commissioning in the third quarter and that's slipped a little bit to the fourth quarter. First thing, I'd say is that's not too bad when you look at the impact COVIDs had on the planet. We've delivered a number of projects across our portfolio and dominantly at Kisladag on budget and on schedule. And so the HPGR is on budget. There was a slight slip in schedule due to delivery, but to me that's not bad news. And the impact on production over 2021 and 2022, there is no impact. I mean we put that into our plan. So there is a slight shift quarter over quarter, but it's a one year leach cycle. So yes, I mean the impact will begin late Q4 and into next year in terms of the downtime required to connect the HPGR and commission it. But overall, there is no negative impact here, and we had a great year at Kisladag so far. We're going to finish strong. We're beating our guidance, and we're set up to deliver what we promised for 2022. So high level, this is all positive. And maybe Joe can give a little color around the commissioning detail.

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Thanks, George. So any impacts were, due to commissioning were when we took the circuit offline to tie in or switch over to the HPGR, which started in early October and ended in later October, and that's when we weren't placing tonnes. And it's the timing of when those tonnes we didn't place shows up is, where we'll see impact in production. That as George said, that's just a matter of the schedule moving not a change. So it goes a little later. As far as overall recoveries, we are, we're in wet commissioning on the HPGR now, and we're running a series of metallurgical tests as we go. We set up a portion on the South heap leach pad on clean plastic to test various size fractions, various potential agglomeration tests, other things to kind of dial in over the next couple of months as we bring the HPGR online. We want to do kind of a lot of call it metallurgical framing, so that we see which recipes work the best and then we transfer all of that knowledge when we go on to the North heap leach pad midyear next year. So this time period of placement now gives us the information of how we want to start that new pad. And I don't think, George, George didn't meant any way, we, we're also separating the solutions from the pads. So any of the kind of solution issues we talked about in the past of solution contamination or complex solutions, we start clean on the North leach pad, with the best metallurgical data that we can gather over the next six months in early placement, and it will be doing all of that in column proxies as well as pad, as we go. So yes, look, we're pretty optimistic Cosmos that we'll dial that recovery in over the first six months, and as George said, we dial-up the production from mine through the whole circuit highly likely that we'll see more tonnes placed in 2022 than 2021.

Cosmos Chiu -- CIBC -- Analyst

And 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 talk about recovery at Kisladag, part of the impact on recovery is the current leach pads are getting pretty high. Could you remind us, you know, how high are the current leach pads right now, and to be honest, it's been a while since I've been to Kisladag. It's been a while since I've been to anywhere, to be honest. Can you remind us at some point in time, you're going to start stacking at the North leach mid 2022. Is there at some point where all the stacking will be at the North leach pad or well, how is that going to work.

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

[Technical Issues] North leach pad middle of next year. There may be instances where we still use the South. As you recall Cosmos, we put in inner lift liners on the South leach pad. So we are, I don't have the numbers right in front of, but basically second lift off of the inner lift liner that was replaced or that was placed because we were so high. So we have the opportunity after we, after we start placing there to go and not only clean up the inventory above [Technical Issues] but also below. So we can pierce that liner, we can do lots of things to take any residual inventory from the South leach pad over time. So did I answer your question, because I don't know, but I think it lifts above the inner lift at present across the whole pad.

Cosmos Chiu -- CIBC -- Analyst

Okay, sounds good. And maybe One last question for Phil. With refinancing of the data, and also, it sounds like that you're gonna have a different alternative that will be open to you as a result of ah, some of the Greek assets now, about connected to the new debt. um, you know Phil, I guest the question number one, could you give us, I don't know if you can, can you give us an example of like an alternative, that would have been impossible in the past, and number two, you know as we heard, the the study or the new technical records coming out in the Q4, in terms the timing for finding a partner looking financial partner, while some, you know financing options. We are still looking at Q1 2022, to get more clarity to get final agreement, or not the case?

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

Good questions. I think the key here with the refinancing, timing wise, it's, it was part of the strategy really geared toward de-risking our strategy toward the Greek assets. And I think overall, I mean, there is, we continue to look at all different alternatives that are available to us. We've talked in the past for financing Skouries. We've talked in the past about potential JV partners. It's more of a strategic view on that, having a partner alongside Eldorado that would be potentially beneficial moving forward, because it is a multi decade project. And we've talked in the past, potentially, for example that, an example of that would be the EBRD, which we've talked with for quite a while. There are other alternatives as well. I mean, we're, I think other alternatives that have come to light, there is, Greece has been approved for European Union COVID Relief Funding for example. Some of the financial institutions in Europe and Greece are also interested as well. So we're looking at all different avenues. We want to make sure that we've considered all them, and then we'll make the, we'll make a choice as to which fits the strategy for the Kassandra assets going forward and which is the best solution for Eldorado and the shareholders.

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

I might supplement that Cosmos for my perspective. You've got on the one hand, as Phil said, we've solidified our balance sheet, we set up our debt and our revolver and relationship with the new bank syndicate in a way that we have lots more flexibility. And really the last deliverable that we're completely under control, in control of is getting that feasibility study out. That's on track to come out and be completed in November. And that really sets the stage for us to pursue all these various alternatives and land on something. So we're still aggressively targeting a solution in Q1. But it's a negotiation, and we're trying to make the best decision for the corporation in terms of that financing and so full speed ahead, we're on-track with our objectives.

Jason Cho -- Executive Vice President and Chief Strategy Officer

And Cosmos, it's Jason. The other thing to mention here, and I, you're asking a question about what do the amendments or the refinancing allow us to do effectively that we couldn't do before. The amendments to the covenants and to the credit agreement effectively allows us to carve out Greece and sell equity to potential partners and to consider credit related alternatives to potential lenders. So project financing would be one. And again, the ability to sell equity to potential partners, right, without having to seek a consent from either bondholders or the senior lenders of the company. That was all effectively done with the refinancing.

Cosmos Chiu -- CIBC -- Analyst

Great. Those are 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 addressed as usual as a gold CEO, so better looking than me. I'll be addressed as a gold analyst. So once again, thanks a lot.

Operator

The next question comes from Kerry Smith with Haywood Securities.

Kerry Smith -- Haywood Securities -- Analyst

So perhaps you could put a little bit more color around Stratoni, just in terms of the holding costs now, I mean you had I, you've got I guess 300, 400 employees there and you're going to train 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 costs might be for that asset on an all-in basis per quarter or per year on a go forward basis, while you're pursuing this exploration strategy?

George Raymond Burns -- President, Chief Executive Officer

Phil, you want to start off with that? Sure, sure. Go ahead.

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

So certainly Kerry, if we look at care and maintenance, those numbers are in the $3.5 million to $4.5 million annual range, where we're still preliminary on finalizing. And then so that's after we've reached full care and maintenance, and we'll look to optimize those certainly beyond that. Then the transitional costs from A to B or from full operation to transition or to care and maintenance still working on it. But we'll generally end up in the $10 million range with some production offsets that we will see between now and then. So those numbers are still very preliminary. But that's the order of magnitude that we're moving to is $3.5 million to $4.5 million care and maintenance with the transition cost.

Kerry Smith -- Haywood Securities -- Analyst

Okay. And then that $10 million cost, Joe, would include all cost like retraining and severance, redundancy, whatever the numbers are that such they are fully loaded cost?

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

We are in that range.

Kerry Smith -- Haywood Securities -- Analyst

Right. Right. Okay. Okay. Perfect. And then, while I got you, Joe, maybe just one second question on 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 is delivering? Is it delivering the products that you expected from that piece of equipment or is it still need to be, need some tinkering and tuning to get to where you'd like to be?

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

We actually got wet commissioning started on Monday and things went pretty well kind of the customary software glitches and things to get going, and we got a couple of runs going, as of Tuesday, Wednesday. Early on size fraction looks good. And then we had some unfortunate news last night, one of our key commissioning people from Weir, had a family member killed in a car accident, he had to pull out. So we're kind of regrouping and waiting for Weir to get another commissioning person on site, but early indications, our size fraction pretty good. We haven't even really gotten to the point where we are seeing how to manage recirculating load that kind of thing, but happy with the initial past fracture at least at this point. But it's probably too early to give you any kind of indication of how long it will take us to dial that in at reasonable throughput rates. But I would expect another week or so, we'll have pretty reasonable numbers on initial run report.

Kerry Smith -- Haywood Securities -- Analyst

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

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Basically through the end of November, we'll ramp up, and then we'll continue ramping up from that point. But it's pretty early on to start getting any analytical data as yet. But I think by the end of the month, we will have that and we will be at some level for turnover to operations around that time, Kerry. But I think what we want to make certain in this wet commissioning period that we get reasonable operating parameters set and those early metallurgical guideposts established, so we don't run too fast to handover, we hand over with metallurgical guidance and operating parameters.

Operator

The next question comes from Tanya Jakusconek with Scotiabank.

Tanya Jakusconek -- Scotiabank -- Analyst

Two questions. The first one, I just want to come back to something that you had in the MD&A, the changes to the concentrate sales terms that you did in October. Can you talk about what those changes are and sort of what impacts on the Efemcukuru and Olympias costs are you sort of projecting percentage wise?

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

It's Phil. I think what's being alluded there is really the way some of the concentrate sales are being structured. In the past, the payability on the concentrate was separate from refining and transport costs, and now those costs are blended in as part of the effective rate. So you're basically seeing the revenue side slightly lower because of incorporating costs and that you see the costs, in the past, the costs have been reported separately and now they're blended. So I think that's the change that's been referred to.

Tanya Jakusconek -- Scotiabank -- Analyst

Nothing structurally, it's just how you're allocating it.

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

Exactly. It's part of the negotiation of the new contracts. There is no real impact on the bottom line. It just revenues will be slightly lower because it's incorporating costs and cost would be lower because they are no longer reflected as part of the effective cost.

Tanya Jakusconek -- Scotiabank -- Analyst

Perfect. And then, I just wanted to check with you on your reserve and resources, I know the program up to September is sort of what you're doing in terms of calculating your reserve and resources, and you will be releasing those, I think it's usually early December. Can you talk about number one, the pricing, we have, are seeing inflationary pressures. number one, are you changing any price forecasting for your pits and/or other for reserve and resource assumptions? And number two, what are you looking at like what mines can we expect additions and where are we struggling?

George Raymond Burns -- President, Chief Executive Officer

You want to take that, Joe.

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Right. I can take it, George. Tany, where we're sitting right now is, we are looking through final numbers for MRMR release, and you're right, we'll have the numbers calculated or ready for presentation or release in November, early December. The ups and downs are relatively modest. We are expecting some improvements in Lamaque and Ormaque, but our drilling cut offs go back all the way to end of March for this release. So the ups and downs are relatively modest across the board. So we'll give you more information at the time of the release. But nothing major in either, in either direction. But good news generally.

Tanya Jakusconek -- Scotiabank -- Analyst

Okay. So it sounds as though the reserve and resource basis generally not going to change too much. Just want to,

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Yes.

Tanya Jakusconek -- Scotiabank -- Analyst

Correct. Yes. And can I just confirm that there are no, you're not really changing how your parameters in terms of how you're calculating your reserves and resources. No change to cut off grades and or other?

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Not significantly, no. No major cost changes due to price changes, and no major changes on commodity prices from our long term views.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Lisa Wilkinson -- Vice President of Investor Relations

George Raymond Burns -- President, Chief Executive Officer

Philip Chow Yee -- Executive Vice President and Chief Financial Officer

Joseph Dennis Dick -- Executive Vice President and Chief Operating Officer

Jason Cho -- Executive Vice President and Chief Strategy Officer

Cosmos Chiu -- CIBC -- Analyst

Kerry Smith -- Haywood Securities -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

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