Eldorado Gold's Q1: Ambitious, Despite The Complex Situation

Summary

• Eldorado Gold produced 115,950 toz gold in Q1 2020.
• The AISC declined to $952/toz gold.
• An operating cash flow of $53.3 million, net loss of $4.9 million, and adjusted net income of $12.5 million was recorded.
• The 2020 production and cost guidance was reiterated.
• The expansion of the Lamaque mine that could increase its annual production by approximately 60,000 toz gold was permitted.

Eldorado Gold (NYSE:EGO) is another mid-tier gold miner that released its Q1 2020 financial results. Although it had to face some disruptions caused by the coronavirus, the negative impacts on Q1 were relatively small, they will be more visible in Q2.

In Q1, Eldorado produced 115,950 toz gold. The most gold was produced at Kisladag (50,176 toz), followed by Lamaque (27,353 toz), Efemcukuru (23,239 toz), and Olympias (15,182 toz). The Q1 production is slightly lower than the Q4 production, which is caused especially by the fact that the Lamaque mine was suspended for 7 days in late March. It is possible to estimate that this suspension reduced the Q1 production by approximately 2,300 toz gold. The mine was suspended until April 15, which means that in Q2, the Lamaque mine production should be lower approximately by 4,600 toz, compared to normal.

Eldorado's total cash costs increased by 4% compared to Q4, to $678/toz. However, the AISC declined notably. In Q4, it stood at $1,110/toz, but in Q1, it declined by more than 14%, to $952/toz. This is very good news, as it shows that Eldorado's 2020 objective to reach AISC of $850-950/toz is achievable.

Source: own processing, using data of Eldorado Gold

Eldorado's revenues grew to $204.7 million, reaching the highest level in more than 2 years. Compared to Q4 2019, the revenues increased by 6.7% and compared to Q1 2019 even by 156%. Although the copper and silver by-product credits decreased, Eldorado's revenues improved due to the higher realized gold prices that increased from $1,475/toz in Q4 to $1,580/toz in Q1. The operating cash flow declined quarter-over-quarter, but it remains in line with the previous three quarters, above the $50 million level. A net loss of $4.9 million was recorded, however, a big part of it is attributable to a loss on the non-cash revaluation of the derivative related to redemption options in the debt and to the loss on the foreign exchange due to translation of deferred tax balances. The adjusted net income equals $12.5 million. The EPS equals -$0.03 and adjusted EPS equals $0.08.

Source: own processing, using data of Seeking Alpha and Eldorado Gold

During Q1, Eldorado's cash position improved significantly, from $181 million as of the end of Q4, to $363.6 million as of the end of Q1. The increase is attributable to the fact that the company has drawn $150 million off its credit facility. As stated in the news release, there is no immediate need for the money, Eldorado decided to create a money buffer due to the uncertainty related to the coronavirus crisis. As a direct consequence of the debt draw-down, the volume of total debt increased by 30%, to $657.7 million. On the other hand, the good news is that the volume of cash, cash equivalents, and short-term investments held by Eldorado increased more than the total debt. In other words, net debt declined. As of the end of March, it stood at $294.1 million. For Eldorado Gold, Q1 2020 was the third consecutive quarter of declining net debt.

Source: own processing, using data of Seeking Alpha and Eldorado Gold

There are several other important news related to Q1 or to the remainder of this year. What is important, Eldorado has confirmed its 2020 production and cost guidance. The plan remains to produce 520,000-550,000 toz gold, at an AISC of $850-950/toz. However, it is possible to conclude that this plan is quite ambitious, given that the Q1 production equaled only 115,950 toz gold, moreover, the coronavirus will probably impact Q2 more than Q1. Also, the news release states:

The sites are operating at approximately 75% of normal levels as staff considered to be high-risk have been asked to stay at home. We do not expect this to affect production in the near term but we are reviewing the potential longer term impact as certain discretionary activities such as waste stripping, underground development and drilling are temporarily reduced.

An important milestone is related to the Lamaque mine. In March, Eldorado obtained the permit to expand the throughput rates of the Lamaque mine from 1,800 tpd to 2,650 tpd. It means a 47% increase. According to the 2020 production guidance, Lamaque should process 615,000 tonnes ore grading 7 g/t gold and produce 125,000-135,000 toz gold. At a 47% higher throughput, the production should increase approximately to 184,000-198,000 toz gold per year. The question is how quickly will be Eldorado able to reach the newly permitted capacity.

Eldorado Gold experienced a wild ride in Q1. In late February, its share price rocketed, supported by good Q4 2019 results and especially by significantly expanded Kisladag mine life. The share price crossed the $11 level, only to crash to the low of $4.6, on March 16. Subsequently, a strong recovery that elevated Eldorado's shares back to the $10 level started. Right now, the share price stands at $9.47, just above the 10-day moving average. The RSI is just below the overbought levels. Although the Q1 results are not bad, especially the significantly reduced AISC is very positive news, there is a serious risk that Eldorado's bull run will be halted by a gold price correction. The gold price is at $1,686/toz right now, more than $50 below its recent highs, and it experienced a decline in 4 out of the last 5 days. If its correction continues, Eldorado's shares will most probably start a correction too.

What I like about Eldorado's Q1:

• The AISC declined significantly, to $952/toz.
• Eldorado reiterated its production and cost guidance (however, this may be a too optimistic decision).
• The net debt keeps on declining.
• Eldorado obtained permits to expand the Lamaque mine from 1,800 tpd to 2,650 tpd, which should increase the annual gold production by approximately 60,000 toz.

What I don't like about Eldorado's Q1:

• Net loss was recorded (although not a big one).
• No news regarding the current status of the Skouries project was provided.

Analyst’s 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.

Comments

[notoja]

Looks like ELD will be one of those dogs with higher production, higher POG, and even higher spending ( nobody really knows for what) to make sure it stays in the red. It looks like management continue to be the only people benefiting from this company.........

[Peter Arendas]

Actually, the cash flows are more important than net income, as net income can be artificially reduced by various accounting procedures, in order to limit the tax liabilities.

[nerd3591]

A score card:

May 1 2020.

Gold price London pm fix $1686
Share price $ 9.29
Cash and cash equivalents $363M
Long term debt $418M

May 1 2017

Gold price London pm fix $1255
Share price $15.25
Cash and cash equivalents $864M
Long term debt $592M

Please explain where the “Ambition” is in all of this!!!

[Peter Arendas]

"Ambition" is something related to the future, not to the past development.
What I consider to be ambitious: Eldorado reiterated the cost and production guidance despite the current situation. They will expand the Lamaque production (which should lead also to lower costs). The Skouries mine development is still on the table (although no news was provided this quarter).