The Skouries mine in Greece. Placed in care & maintenance in January.
Eldorado Gold Corporation (NYSE:EGO)
This article follows my preceding article on Eldorado Gold published on Nov. 2, 2015 about the Third-quarter results.
Eldorado Gold is producing gold mainly from two mines in Turkey (96,795 Oz in Q3'15) and three mine in China (91,641 Oz in Q3'15). The company has three projects in Greece: Skouries, Olympias and Stratoni ("zinc").
Balance sheet snapshot:
|2015||Q4 2015||Q3 2015||Q1 2015|
|Production in Oz||723,532||169,732||183,226||181,160||189,414|
|Gold Revenue in $ Million||832~ estimated||192~ estimated||211.52||204.2||224.0|
|Total cash cost $/oz||552||567||552||569||578|
|AISC in $/Oz||841||911||835||900||729|
|Net Earnings to shareholders $ Million||-||-||(96.1)||17.0||(8.2)|
|Shares Outstanding million||716.587||716.587||716.587||716.587||716.583|
in $ million
|1,200 to 1,600||1,200 to 1,600||-||214.1||-|
|Average realized gold price||1,168||1,105||1,132||1,201||1,232|
|Total Debt $ Million||588.85||588.85||588.85||588.3||587.8|
|Cash generated from operation $ Million||-||-||43.4||61.9||58.9|
|Cash and Cash equivalent $ Million||290~||290~||389.8||449.8||494.3|
|Dividend per share||0.04C$||0.01C$||0.01C$||0.01C$||0.01C$|
TB1 - Production of Gold per mine:
|Total cash cost|
Eldorado gold produced also 11,734 Tonnes/4Q'15 and 40,232 Tonnes/2015 of Lead/Zinc concentrate.
AISC for gold is expected to be $911/ Oz for 4Q'15 and $841/ Oz for 2015, which is a good value.
The company indicated 2016 guidance.
|Guidance in K Oz||Cash Cost in $||Sust. CapEx in $ million||Capex in $ million|
|Kisladag||225 to 240||550-600||50||0|
|Efemcukuru||90 to 100||550-600||20||0|
|Jinfeng||95 to 105||700-750||15||0|
|Tanjianshian||70 to 80||675-725||5||0|
|White mountain||75 to 85||625-675||15||0|
|Eastern Dragon||10 to 20||125-175||0||35|
|Olympias||Care & maintenance||waiting permit||0||155|
|Skouries||Care & maintenance||-||0||15|
|Vila Nova (Iron)||Care & maintenance||-||-||-|
|TOTAL||565 to 630||585-620||105||235|
Production guidance for 2016 is estimated well below the 2015 production of 723,532 Oz.
On a final note: The Greek assets.
On January13, 2016, I commented on the situation.
EGO decided to suspend the Skourie project, because of the obvious inaction of the new government, and unprecedented delays in receiving building permits. This decision pushed the company to lay off about 600 people -- mostly contractors -- at the Skouries site, and place it on care & maintenance. Olympias may be next, if the company doesn't receive the permit necessitated to advance the project by the end of the 1Q'16?
Basically, EGO decided to suspend the Skourie project, because of the obvious inaction of the new government, and unprecedented delays in receiving building permits.
This decision pushed the company to lay off about 600 people -- mostly contractors -- at the Skouries site, and placed it on care & maintenance.
Furthermore, another 500 people may be laid off at the Olympias, if the company doesn't receive the permits required by March 2016.
Mr. Paul Wright, indicated that the company remains committed to its Greek assets, but the fundamental issue is that EGO needs to see a commitment from the leftist government, and a more friendly and responsible attitude toward this sector.
It goes well beyond the issue of the building permit indicated above, and receiving them now, will not trigger an automatic restart of the projects. The company is no longer willing to operate in these conditions, where progress has been slowed to a halt. Basically, the leftist government must look at this investment as it is and not as an insignificant political toy.
Eldorado Gold has already invested about $300 million in Skouries and it is another setback for the company.
The new development is that Eldorado decided to impair its Greek's assets for an amount of $1.2-$1.6 billion, which is very significant and shows that the company is not expecting a quick and positive ending of this unfortunate status quo. M. Paul Wright said:
Looking at Eldorado's long-term plan, the Company remains committed to its portfolio of Greek assets and the realizable benefits to all of the stakeholders involved...
However, it is hard to be very optimistic at the moment. The stock did respond negatively at the news and a lower production of gold for 2016.
EGO is fighting the perfect storm, as we speak. On the one hand, gold price is now depressed, despite showing some signs of a support between $1,050 and $1,100/ Oz, the past few weeks; and on the other hand, the future gold production is obviously affected by the Greek problem that seems to worsen.
I will not advise anyone to invest in Eldorado Gold. I will not do that because the future is too uncertain and risky. But as a trader, this is precisely here that I find a good opportunity assuming a good timing.
If the stock continues to drop in the $1.75-$1.90 area, after the next earning results, I believe EGO could be used as a trading tool, and I see a good opportunity for a rebound in a few months.
The Greek problem is more likely to be resolved, down the road, and I think, it is quite obvious when we listen to both parties' commentary.
The Greek government is playing a dangerous game here, but knows fairly well that it is of a paramount importance for the Country to find a solution of this political impasse, and let EGO work its way to profit despite a fierce opposition. It will be negotiations and finally a definitive agreement will be signed.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Trading opportunity soon?