23. Financial risk management

23.1 Financial risk factors

Eldorado’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk. Eldorado’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.


(a)	Market risk


(i)	Foreign exchange risk

The Company operates principally in Turkey, Canada, Greece, Brazil and Romania, and is therefore exposed to foreign exchange risk arising from transactions denominated in foreign currencies. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

Eldorado’s cash and cash equivalents, accounts receivable, marketable securities, accounts payable and accrued liabilities and debt are denominated in several currencies, and are therefore subject to fluctuation against the U.S. dollar.

23. Financial risk management (continued)

The table below summarizes Eldorado’s exposure to the various currencies denominated in the foreign currency at December 31, 2018 and 2017, as listed below:



2018	Canadian dollar			Australian dollar			Euro			Turkish lira			Chinese renminbi		Serbian dinar			Romanian lei			British pound		Brazilian real
(Amounts in thousands)	$			$			€			TRY			¥		din			lei			£		R$

Cash and cash equivalents	19,030			433			6,861			2,664			72		8,848			1,904			923		4,539
Marketable securities	3,509			—			—			—			—		—			—			—		—
Accounts receivable and other	23,672			3			15,552			54,772			—		8,386			4,487			—		9,970
Accounts payable and accrued liabilities	(102,027		)	(7		)	(34,488		)	(44,516		)	—		(1,004		)	(2,286		)	—		(2,941		)
Other non-current liability	(10,064		)	—			(9,191		)	(15,877		)	—		—			—			—		—
Net balance	(65,880		)	429			(21,266		)	(2,957		)	72		16,230			4,105			923		11,568

Equivalent in U.S. dollars	$	(48,292	)	$	302		$	(24,334	)	$	(562	)	$	11	$	157		$	1,010		$	1,180	$	2,982



2017	Canadian dollar			Australian dollar			Euro			Turkish lira			Chinese renminbi		Serbian Dinar			Romanian lei			British pound		Brazilian real
(Amounts in thousands)	$			$			€			TRY			¥		din			lei			£		R$

Cash and cash equivalents	18,280			482			13,030			4,965			77		4,845			9,730			366		15,991
Marketable securities	6,286			—			—			—			—		—			—			—		—
Accounts receivable and other	13,706			4			24,508			60,111			—		43,157			7,542			—		12,547
Accounts payable and accrued liabilities	(30,900		)	(42		)	(45,751		)	(50,099		)	—		(9,000		)	(6,174		)	—		(5,559		)
Other non-current liability	(1,269		)	—			(6,516		)	(17,999		)	—		—			—			—		—
Net balance	6,103			444			(14,729		)	(3,022		)	77		39,002			11,098			366		22,979

Equivalent in U.S. dollars	$	4,865		$	347		$	(17,664	)	$	(802	)	$	12	$	394		$	2,874		$	495	$	6,946

Based on the balances as at December 31, 2018, a 1% increase/decrease in the U.S. dollar exchange rate against all of the other currencies on that date would have resulted in a decrease/increase of approximately $675 (2017 – $25) in earnings (loss) before taxes. There would be no effect on other comprehensive income.

Cash flows from operations are exposed to foreign exchange risk, as commodity sales are set in U.S. dollars and a certain amount of operating expenses are in the currency of the country in which mining operations take place.

(ii) Metal price and global market risk

The Company is subject to price risk for fluctuations in the market price of gold and the global concentrate market. Gold and other metals prices are affected by numerous factors beyond the Company’s control, including central bank sales, demand for concentrate, producer hedging activities, the relative exchange rate of the U.S. dollar with other major currencies, global and regional demand and political and economic conditions.

23. Financial risk management (continued)

Worldwide gold and other metals production levels also affect their prices, and the price of these metals is occasionally subject to rapid short-term changes due to speculative activities. From time to time, the Company may use commodity price contracts to manage its exposure to fluctuations in the price of gold and other metals, but has elected not to at this time.

Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices.

This includes equity price risk, whereby the Company’s investments in marketable securities are subject to market price fluctuation.


(iii)	Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Current financial assets and financial liabilities are generally not exposed to interest rate risk because of their short-term nature. The Company’s debt is in the form of notes with a fixed interest rate of 6.125%. However, any future borrowings under the ARCA are at variable rates of interest and would expose the Company to interest rate risk.


(b)	Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash, term deposits and accounts receivable. In accordance with the Company's Investment Policy, term deposits and short term investments are held with high credit quality financial institutions as determined by rating agencies. The carrying value of $356,823 is the maximum amount exposed to credit risk.

Payment for metal sales is normally in advance or within fifteen days of shipment depending on the buyer. While the historical level of customer defaults is negligible, which has reduced the credit risk associated with trade receivables at December 31, 2018, there is no guarantee that buyers, including under exclusive sales arrangements, will not default on its commitments, which may have an adverse impact on the Company's financial performance.


(c)	Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Company manages liquidity by maintaining adequate cash and cash equivalent balances and by using its line of credit as required. Management monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities. Contractual maturities relating to debt are included in note 16. All other financial liabilities are due within one year.

23.2 Capital risk management

Eldorado’s objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Company's mining projects. Capital consists of all of the components of equity which includes share capital from ordinary shares, contributed surplus, accumulated other comprehensive income, deficit and non-controlling interests.

Eldorado monitors capital on the basis of the debt to capital ratio and Net Debt to EBITDA. The debt to capital ratio is calculated as debt, including current and non-current debt, divided by capital plus debt. The Net Debt to EBITDA ratio is calculated as debt, including current and non-current debt, less cash, cash equivalents and term deposits, divided by earnings before interest costs, taxes, depreciation and amortization.

As at December 31, 2018, our debt to capital ratio was 15.2% (2017 – 13.8%) and our Net Debt to EBITDA ratio was 2.26:1 (2017 – 0.9:1).