Eldorado Gold - A Complete Review Of Q4 2016 Results

| About: Eldorado Gold (EGO)

Summary

Eldorado Gold released its Fourth-quarter results on February 23, 2017. Loss attributable to shareholders of the company was $32.5 million or $0.05 per share.

The Company declared that it will pay a dividend of CDN$0.02 per Common Share on March 16, 2017.

I recommend a cautious accumulation around $3 or lower.

Image: Skouries mine.

Eldorado Gold Corporation (NYSE:EGO)

This article follows my preceding article on Eldorado Gold published on August 2, 2016 about the second-quarter results.

Eldorado Gold is producing gold mainly from two mines in Turkey (79,892 Oz in Q1'16) and sold recently three mines in China (58,323 Oz in Q1'16). The company has three projects in Greece: Skouries, Olympias and Stratoni ("zinc").

To access the 4Q'16 conference call transcript. [click here].

Q4'16 Balance sheet snapshot (10 consecutive quarters):

Q4'16 Q3'16 Q2'16 Q1'16

Q4'15

Q3'15

Q2'15

Q1'15 Q4'14 Q3 2014

Production including discounted assets

in Oz

103,144

117,782

124,110 140,989 169,732 183,226 181,160 189,414 199,572 192,578

Gold Revenues

Revenues

in $ Million

127.2

140.6

156.0

170.0

162.7

171.5

160.0

164.1

189.4

206.2

204.2

224.0

244.5

263.5

Total cash cost

$/oz

531 566 607 603 567 552 569 521 505 488

AISC

in $/Oz

880 890 933 886 914 835 900 729 761 735

Net Earnings to shareholders

$ Million

(32.5) 20.7 11.7 0.7 (1,238.0) (96.1) 17.0 (8.2) 30.6 19.8

Shares Outstanding

million

716.59 716.59 716.59 716.59 716.59 716.59 716.59 716.58 716.217 716.284
Adj. EPS 0.01 0.05 0.01 0.00 0.01 (0.01) 0.02 (0.01) 0.04 0.05
EPS (0.05) 0.03 (0.46) 0.00 (1.73) (0.13) (0.28) (0.01) - 0.03
Average realized gold price $/Oz 1,211 1,335 1,270 1,198 1,105 1,132 1,201 1,232 1,199 1,274

Total Debt

$ Million

591.59 601.4 620.5 589.9 589.4 588.9 588.3 587.8 587.2 587.2

Asset held for sale

Net asset held for sale

0

822.66

649.44

- - - - - - -

Cash generated from operation

$ Million

44.5 64.6 2.5 25.1 28.9 43.4 61.9 58.9 103.3 78.7

Cash and Cash equivalent

$ Million

888 412 203 231 293 390 450 494 498.5 501.3
Dividend per share 0.02C$ 0 0 0 Suspend. 0.01C$ 0.01C$ 0.01C$ 0.01C$ 0.01C$

TB1 - Production of Gold per mine per Quarter (7):

Country Mine 4Q'16 Oz 3Q'16 Oz

2Q'16 Oz

1Q'16 Oz

4Q'15 Oz

3Q'15 Oz

2Q'15 Oz

1Q'15 Oz

4Q'14

Oz

Turkey Kişladağ 59,291 49,270 49,924 52,376 64,574 69,672 67,778 79,256 -
Efemcukuru 23,213 24,229 23,406 27,516 24,434 27,123 27,705 21,220 -
China Tanjianshan 10,912 10,401 13,900 14,053 16,808 29,055 25,074 26,626 -
Jinfeng Mine 0 19,907 22,353 25,935 36,707 38,028 38,234 36,686 -
White mountain 9,428 13,975 14,527 18,335 22,231 16,359 18,683 20,883 -
Greece Olympias 0 0 0 2,774 4,978 2,989 3,686 4,743 -
TOTAL 103,144 117,782 124,110 140,989 169,732 183,226 181,160 189,414 199,572

Note: the numbers above include Jinfeng through to the sale date of the 6th of September and are not representing the entire quarter. The mine is now sold.

2017 Guidance

  • Expected gold production of 365,000-400,000 ounces, in addition to substantial by-product credits from Olympias Phase II production.
  • 2017 all-in sustaining cash costs expected to remain low at $845-875 per ounce; and cash operating costs expected to decline significantly, averaging $485-535 per ounce.
  • Expected capital expenditures of $425 million; considerably lower than the September 2016 guidance. Reductions were primarily at Skouries due to flexibility in the capital deployment timeline, along with anticipated cost savings, and at Tocantinzinho in response to the current gold price environment and permitting delays.

The 2017 production will be down 21.3% compared to 2016, due to the Chinese assets sale. This shows poor planning for the Chinese assets sale. The sale has been precipitated, in my opinion, and I still do not know what was the hurry? Was it a problem with the Chinese assets?

The company is showing $351 million loss on sale of these assets.

Perhaps M. Wright wanted to sell the Chinese assets before his exit and let his successor George Burns to have sufficient time to decide the best long term strategy?

The situation is creating a negative production gap in 2017, while increasing "cash in the bank".

However, investors in the gold mining business are investing mainly for gold production "not cash in the bank". Again, cash is great but it is meaningless for a gold miner though, especially, when the cash represents a significant drop in gold production. However, EGO will start 2017 with a liquidity of $1.138 Billion in cash which is quite impressive and a total debt of $592 million.

Capital Expenditures for 2017 has been lowered to $425 million.

Commentary:

Eldorado Gold released its Fourth-quarter results on February 23, 2017. Loss attributable to shareholders of the company was $32.5 million or $0.05 per share, compared with a profit of $20.7 million or $0.03 per share in the third quarter of 2016. M. Paul Wright, CEO, said in the conference call:

The team delivered on the sales of our Chinese assets, a long and dare I say arduous process. With these sales, we ended the year with total liquidity of approximately $1.1 billion, which includes $888 million in cash, cash equivalents and term deposit, and $250 million in undrawn lines of credit.

It was re-assuring to learn that the Olympia Phase II was nearly completed with full production expected by the third-quarter 2017 at 40K-50K Oz at a cash cost of $250-$450 per ounce. Furthermore, the company is indicating that the relation with the new Greek Ministry of Energy and Environment has improved, which is important for Skouries, but the company still sees challenges.

Kişladağ mine in Turkey is doing quite well. The reserve is still 5.3 M Oz (278k T) with LOM of 17 years. Efemcukuru is also expected to deliver a good 2017 production compared to 2016. This is important because EGO main production will be in Turkey next year.

Serbia, Romania and Brazil projects are advancing as schedule. On the side note, the EGO exploration budget for 2017 has increased to $35 million and includes plans for over 80,000 meters of drilling.

Conclusion:

Technically, the chart is hard to decipher right now. The 4Q'16 results were clearly a disappointment for the street and the stock dropped nearly 11% on Friday. However, I have a hard time to see why this earning results are so bad and justified a total sell off?

EGO has a cash of $888 million and no net debt. A good project pipeline. Production for 2017 is projected to average 95K Oz per quarter, which is low but not catastrophic?

My interpretation is that EGO may eventually re-test $3-$2.75 and if it happens next week, we will have an ascending broadening wedge pattern. A bit like the example below:

The stock will eventually follow the lower line with a slow recovery in $3.75-$4 range, in my opinion.

However, the price of gold is paramount here and the next few weeks or months will be volatile because of the FED, the dollar strength and the Trump effect.

I recommend a cautious accumulation around $3 or lower.

Important note: Do not forget to follow me on EGO and other gold miners. Thank you for your support.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EGO over 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.

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