Eldorado Gold Delivering Solid Performance

Aug.12.14 | About: Eldorado Gold (EGO)


Eldorado Gold recently reported strong second quarter results in line with analysts' expectations.

During the second quarter Eldorado received a positive Environmental Impact Assessment decision from the Turkish Government for their Kisladag mine expansion project which will increase production.

Eldorado continues to generate cash flow and has solid liquidity for development and expansion.

Eldorado Gold (NYSE: EGO) recently reported solid second quarter results with earnings of $0.05 per share, equaling analysts' expectations. Gold production for the quarter came in at 200,551 ounces which was a 9% increase, year over year. Second quarter revenue was flat, coming in at $265.5 million compared to $266.9 million in the corresponding period last year, and net income declined from $43.3 million to $37.6 million on slightly higher costs and the lower price of gold. More importantly, Eldorado raised their outlook for 2014. Paul Wright, CEO of Eldorado Gold stated, "Reflecting the strong results year-to-date and our outlook for the balance of 2014, we are confidently revising our guidance for the year to production of 790,000 ounces of gold with average cash costs for commercial production of $495 per ounce and all-in sustaining cash costs of $850 per ounce." Previous guidance was for production of 730,000 - 800,000 ounces at average cash costs of $550 to $590 per ounce and average all-in sustaining cash costs of $915 to $985 per ounce.

With Eldorado already amongst the lowest cost producers in the world, the news that all-in sustaining costs are expected to come in substantially lower than guided is great news for investors. With second quarter all-in sustaining costs at $829 an ounce, Eldorado beat both low cost heavyweights Barrick Gold (NYSE: ABX) who reported second quarter AISC of $865 an ounce and Goldcorp (NYSE: GG) who reported AISC of $852 an ounce. Coupled with production now being estimated at the top end of the previously guided range, it seems likely that Eldorado will beat analysts' expectations for the year.

Further to the solid results Eldorado reported for the second quarter, another positive development was the receipt of a positive Environmental Impact Assessment decision from the Ministry of Environment and Urbanization of Turkey for their Kisladag mine expansion project. The mine expansion will allow Eldorado to expand the amount of crushed ore they place on the leach pad at Kisladag from 12.5 million tons per year to a maximum of 35 million tons per year. Eldorado has stated their current optimal target is 20 million tons per year which will carry an additional capital cost of approximately $90.0 million. Completion of the project is forecasted for mid-2016 and the expansion will increase production to an average of 325,000 ounces per year at Kisladag in the first five years after expansion, which will be a modest increase over the 306,000 ounces produced in 2013.

Another growth catalyst for Eldorado is their development projects. Eldorado has two development projects that are set to come online in 2016 that will boost total production substantially. The first is the Skouries project in Greece that will be an open pit and underground gold-copper mine. It is projected to produce 140,000 ounces of gold per year and 30,000 tons of copper per year over the 27 year life of the mine. The second project is the Perama Hill open pit gold-silver project in Greece that is estimated to produce just over 104,000 ounces of gold and 85,000 ounces of silver a year over the 8 year mine life.

Eldorado generated $92.2 million in cash flows from operating activities during the second quarter. Cash generated from operations combined with their $584.5 million in cash, cash equivalents and term deposits, and $375.0 million in lines of credit as of the end of the second quarter mean Eldorado is in a good financial position going forward. Eldorado has reported a profit in four out of the last five quarters and their low costs enable them to remain profitable even during times of sustained lower gold prices. Eldorado has cut exploration expenses in response to lower gold prices and has reduced their estimate on spending on project developments for 2014 from $345 million to $265 million.

Eldorado Gold is reporting solid results even during lower gold prices. At current prices, Eldorado has no problem generating positive cash flow and funding projects. If gold prices move higher, investors will really start to see Eldorado generating strong cash flows and profits. In the meantime, Eldorado is preparing itself for growth by developing projects that will position themselves to remain one of the lowest cost producers while at the same time expanding production.

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