Toronto, April 29, 2019 -- Moody's Investors Service, ("Moody's") downgraded
Eldorado Gold Corporation's (Eldorado) Corporate Family rating (CFR) to
B3 from B2, Probability of Default Rating to B3-PD from B2-PD,
senior unsecured note ratings to B3 from B2 and its Speculative Grade
Liquidity Rating ("SGL") to SGL-3 from SGL-2. The
outlook has been changed to stable from negative.
"Eldorado's rating has been downgraded because of high costs and
high leverage, coupled with uncertain execution around its changing
strategy" said Jamie Koutsoukis, Moody's Vice-President.
"While their decision to move back to heap-leaching at Kisladag
and cancel their $500 million mill plan may be appropriate,
they now need to execute" she added.
Downgrades:
..Issuer: Eldorado Gold Corporation
.... Corporate Family Rating, Downgraded
to B3 from B2
.... Probability of Default Rating,
Downgraded to B3-PD from B2-PD
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B3 (LGD4) from B2 (LGD4)
Outlook Actions:
..Issuer: Eldorado Gold Corporation
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
Eldorado Gold Corporation (B3 CFR) is constrained by its 1) high costs
($998/ gold-equivalent ozs (GEO) in 2018 (Revenue-EBITDA)/GEO)
resulting in weak profitability (EBIT margin of -1.9%
in 2018) and high leverage (6.9x in 2018), 2) changing strategy
at Kisladag coupled with execution risk in its ability to deliver increased
production, 3) relatively high geopolitical risks related to their
assets in Greece, 4) small scale (362 thousand GEOs in 2018),
that though expected to be higher in 2019 and 2020, will decline
back to 2018 levels because of the short mine life currently at Kisladag,
and 5) refinancing risk for the company's December 2020 notes.
In January, 2019, Eldorado announced their decision to continue
heap-leaching at Kisladag, and suspended its mill project,
however with the continued strategy shift at the mine and metallurgical
testwork still going on, there is risk in the company's ability
to deliver expected production. Eldorado benefits from adequate
liquidity.
Eldorado has adequate liquidity (SGL-3), with a cash balance
of $286 million at December 2018, and an undrawn $250
million revolving credit facility which matures in June 2020. The
large cash balance will allow Eldorado to fund Moody's estimated free
cash flow consumption of about $40 million in 2019, as the
company still has development capital spending related to the Lamaque
mine. Eldorado's credit facility financial covenants include a
maximum net debt to EBITDA of 3.5x and a minimum EBITDA to interest
of 3x, and Moody's expects the company will maintain covenant headroom.
The company does not have any material debt maturities until 2020 when
its credit facility (June 2020) and $600 million unsecured notes
(Dec 2020) become due.
The stable outlook reflects our expectation that Eldorado has sufficient
liquidity to continue executing on its new heap leach strategy at Kisladag
and potentially improve both leverage and lower operating costs.
The rating could be upgraded if Eldorado is able to generate sustained
positive free cash flow, and demonstrate stability in its credit
metrics and production profile. An upgrade would also require that
adjusted leverage be sustained below 3x (6.9x at Q4/18) and operating
cash costs (revenue less EBITDA divided by GEOs) are sustained below $900/oz
($998/GEO in 2018).
Downward rating movement could occur should Eldorado's liquidity position
weaken, Eldorado is unable to increase production at Kisladag and
improve recoveries, whereby the mine is cash flow generative,
or if uncertainty increases over the ability of Eldorado to address its
upcoming debt maturities.
The principal methodology used in these ratings was Mining published in
September 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Vancouver, Canada, Eldorado Gold Corporation
owns and operates two gold mines in Turkey, the Lamaque mine in
Canada, and a gold mine and lead/zinc/silver mine in Greece.
Revenues were $459 million in 2018.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653