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S&P downgrades Eldorado Gold on increased financial risk

S&P Global Ratings on March 29 downgraded Eldorado Gold Corp.'s long-term corporate credit rating to B from B+, while keeping the outlook stable.

At the same time, S&P lowered its issue-level rating on the gold-producer's senior unsecured notes to B from B+.

The downgrade stems from the rating agency's expectations of weaker earnings and cash flow based on the company's 2017 results and outlook for 2018.

The company narrowed its attributable fourth-quarter and full-year losses, but its gold production for both periods declined. This year, the company expects to produce between 290,000 ounces and 330,000 ounces of gold at cash costs of US$580 to US$630 per ounce.

Eldorado's results were affected by lower gross profit from gold mining operations, higher exploration and general and administrative costs, as well as write-downs of assets.

The company's earnings and cash flow are more sensitive to higher-than-expected costs or lower output expectations, as well as a potential funding shortfall in 2020 related to its significant CapEx program and debt maturities.

Its growth projects, primarily Lamaque in Quebec and Kisladag in Turkey, will lead to large free cash flow deficits over the next few years.

Eldorado's weakening liquidity position and the potential for future operating issues have increased its financial risk.

Meanwhile, the stable outlook reflects a view that Eldorado will generate adjusted debt-to-EBITDA of about 4x in 2018 and 2019, will have sufficient cash to fund the related estimated free cash flow deficits in these years.

It could face another downgrade over the next 12 months on an adjusted debt-to-EBITDA ratio of about 5x, or higher-than-expected free cash flow deficits in 2018 and 2019.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found in the sources section.