Eldorado Gold Will Survive Turkey

| About: Eldorado Gold (EGO)

Summary

Credit Suisse recently downgraded EGO.

Their price target would still represent a 21.5% upside.

There are still plenty of reasons to be bullish on EGO.

Eldorado Gold (NYSE:EGO) has seen its stock price fall by 16.3% since July 7th. It was last trading at these levels before the Brexit vote. Interestingly the price of gold has jumped by 60$ per ounce in the same time period. In many ways this makes sense as shareholders take some profit after the recent rally. And it makes sense for investors to consider the effects of the attempted coup and thee subsequent purge in Turkey, as it is where the core of Eldorado´s operations are. However, it would be wise to keep a number of things into perspective.

For Starters, it would be a good idea to consider that Eldorado Gold invests in and operates almost exclusively in developing economies (exclusively on whether you consider Greece a developing economy). This means that it is subject to more political risk, but goes a long way to explain why it is able to have such low costs at the mines it operates. What recently happenned in Turkey is troubling, as Credit Suisse rightily recognized, but to consider Eldorado´s operations as in any way under threat may be an overreaction.

Additionally, even Credit Suisse set a price target that is bullish compared to the current price. If Eldorado Gold were to reach its Price Target it would mean a return of over 21%. More importantly, Credit Suisse is relatively conservative in its rating of EGO. According to the Financial Times, the median price target is $5.61 per share, which would imply almost 30% of return. The most bullish price target has a price target of $7.19, which would imply a return of %66.3.

Additionally, in the long term Eldorado will begin to rely less and less on its operations in Turkey. Stage two in the Olympias project should begin to produce gold starting next year, and it is just the tip of the iceberg. It has another three projects in Europe and one in South America. While they won´t come online for some time it allows Eldorado to grow in the future, giving it significant long term upside.

The last thing to consider is that Eldorado Gold will massively increase its liquidity when it sales its Chinese assets. This should allow it to look for acquisitions, or pay of some of its debt, or should the price of Gold crash it will give EGO wiggle room.

Conclusion

After the recent pullback, I believe it is a good moment to jump back into Eldorado Gold. It will increasingly become diversified, has a natural way to grow, and even after the recent downgrade by credit suisse its price target is considerably higher than its current share price.

Disclosure: I am/we are long EGO.

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.