Eldorado Gold: Olympias Disappoints Again
Summary
- Eldorado Gold reports first quarter results, missing analyst estimates on both earnings and revenue.
- Olympias records very high costs despite the increase in production levels.
- Other mines are performing well, and Eldorado Gold shares will likely experience another upside move in case gold manages to stay above $1700 per ounce.
Eldorado Gold (NYSE:EGO) has recently published its first quarter results, and it’s high time to see how the company performed amid the coronavirus pandemic. Back in April, the company provided its first quarter production numbers (I discussed them here) so the real intrigue was the cost performance and the guidance for 2020.
Eldorado Gold reported revenues of $205 million and a loss of $5.5 million, or $0.03 per share. The company generated $53.3 million of operating cash flows, and I expect that healthy cash flow performance will continue due to solid production (more on this later) and high gold prices.
The company finished the quarter with $309 million of cash, $54.8 million of term deposits and $2.9 million of marketable securities following its decision to draw $150 million from the credit facility as a precaution measure at these uncertain times.
In my above-mentioned article about Eldorado’s first quarter production results, I estimated that the new production guidance for 2020 will be close to 490,000–520,000 ounces of gold. At that time, I believed that Lamaque’s stoppage due to virus containment measures in Canada would lead to a decrease of full-year production. However, the company has maintained its previous production guidance of 520,000–550,000 ounces which is positive news.
In the first quarter, Eldorado Gold produced 116,000 ounces at all-in sustaining costs (AISC) of $952 per ounce. For the full year, the company expects AISC of $850-$950 per ounce. Unfortunately, problems with costs continue at the Greek mine Olympias despite the recent increase in gold production, which should have theoretically had a positive impact on costs. In the first quarter, Olympias produced 15,182 ounces of gold at an AISC of $1646. So far, this mine has been an unmitigated disaster for Eldorado Gold, and it remains to be seen whether the company will be able to improve the situation.
During the earnings call, Eldorado Gold also commented on progress with another Greek mine, Skouries, which is currently on care and maintenance due to Greece’s failure to issue the necessary permits: “The COVID-19 pandemic has diverted both our own and the Greek government’s attention, leaving limited time to discuss advancement of our investment. However, we look forward to continuing negotiations and remain committed to developing our assets in Greece […]”. Given both the previous troubles and the current virus situation, I do not expect any material news on the Skouries front anytime soon.
Eldorado Gold shares have made a great rebound since mid-March lows but stay below the highs reached in February when the stock rallied after the release of the updated life of mine plan for Kisladag. Since then, the gold price environment has improved materially while the long-term bullish thesis for gold strengthened due to announcements of de-facto unlimited quantitative easing from the world’s central banks.
In this light, I believe that Eldorado Gold shares have good chances to re-test the February highs in the upcoming weeks. The whole situation with Greek mines remains a major trouble but the company’s other assets are performing well and generating cash flow. In addition, the coronavirus-related disruption at Lamaque did less damage than originally expected which allowed the company to maintain full-year production guidance. Company-wide costs look healthy, and increased production from Kisladag comes at a very opportune time when gold is rallying. In my opinion, the whole gold mining sector is set for another leg up in case gold manages to stay above $1700 per ounce, and I expect that Eldorado Gold shares will benefit from this move. I remain bullish on Eldorado Gold.
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Comments (10)
Total joke.
