- Revenues were higher than I expected this quarter with $204.66 million, up from $80.02 million the same quarter a year earlier, and up 6.6% sequentially.
- The production for the first quarter of 2020 was 115,949 Au Oz, up 39.7% year over year, and down 2.5% sequentially. The company sold a little over 116K ounces.
- It is time to look at EGO as a long-term investment again. However, it is crucial to trade short term about 30% of your holding.
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Image: Lamaque Gold Mine. Source: Mining.com
The Vancouver-based Eldorado Gold (NYSE:EGO) released its results for the first quarter of 2020 on April 30, 2020. Production for the quarter was 115,949 Au Oz, which was quite impressive. It was not a surprise because the company released the preliminary production results on April 9, 2020, and I have already commented on this part.
Eldorado Gold has changed drastically for the past year and a half. From Kisladag mine unexpected resurrection to the end of the struggle with Greece, the company moved from near bankruptcy to a sturdy gold miner with high production and future potential. A quick look at the two years chart shows the miraculous transformation.
The company has not solved all its ongoing issues, but we can see the light at the end of the tunnel. Kisladag is now producing at a level that was not experienced for many quarters, Lamaque looks strong, and Olympias is starting to deliver what was expected after a long and challenging ramp-up. The last problem is still the company's Greek assets and notably the Skouries mine. It is time to look at EGO as a long-term investment again.
George Burns, the CEO, said in the conference call:
The COVID-19 pandemic has diverted both our own and the Greek government's attention, leaving limited time to discuss advancement of our investment.
Eldorado Gold - 1Q'20 Balance Sheet And Gold Production: The Raw Numbers
|Total Revenues in $ Million||92.87||80.02||170.7||172.3||191.9||204.66|
|Net Income in $ Million||−218.2||−27.6||12.2||4.2||91.2||-4.88|
|EBITDA $ Million||4.13||5.52||70.97||73.91||158.7||80.15|
|EPS diluted in $/share||−1.38||−0.17||0.08||0.03||0.57||-0.03|
|Cash from Operating Activities in $ Million||−5.3||3.2||51.0||51.2||45.15||53.27|
|Capital Expenditure in $ Million||61.5||86.1||51.9||34.8||41.8||40.48|
|Free Cash Flow in $ Million||−66.9||−82.9||-0.8||16.4||3.4||12.79|
|Total Cash $ Million||293.0||227.5||123.6||138.2||181.0||366.47|
|Long-term Debt in $ Million||596.0||596.5||482.5||483.1||479.7||445.1|
|Shares outstanding (diluted) in Million||158.4||158.3||158.4||161.7||170.9||165.2|
|Eldorado Gold Production Au Oz||4Q'18||1Q'19||2Q'19||3Q'19||4Q'19||1Q'20|
|Production gold Au Oz||75,887||82,977||91,803||101,596||118,955||115,950|
|AISC||1 200||1 132||917||1 031||1 110||952|
|Gold Price||1 245||1 265||1 321||1 513||1 475||1 580|
Source: Company filings and Morningstar
Balance Sheet And Production Discussion
1 - Revenues for 1Q'20 were $204.66 million at the end of March. Revenues were higher than I expected this quarter with $204.66 million, up from $80.02 million the same quarter a year earlier, and up 6.6% sequentially. The company recorded a net loss to shareholders in the first quarter of $4.9 million or $0.03 loss per share.
However, the adjusted net earnings for the quarter were $12.5 million or $0.08 earnings per share. The increase in revenue is due to the higher average realized gold price in the first quarter of 2020 at $1,580 per ounce, compared to $1,265 per ounce in the comparative quarter in 2019.
The gold sold in the first quarter was 116,219 ounces at a gold price of $1,580 per oz. 2 - Net debt is now $228.66 million at the end of March. Total cash increased this quarter and stands now at $366.5 million, up from $181.0 million in the previous quarter.
The company took a particular proactive measure due to the COVID-19 pandemic. In the press release the company said:
Partial draw-down of credit facility as proactive measure: On March 30, 2020, the Company drew $150 million under its revolving credit facility as a proactive measure in light of the uncertainty surrounding the COVID-19 pandemic. The Company has no immediate need for the funds, however proceeds will be used for general corporate purposes, as required.
The organic free cash flow is cash from operating activities minus CapEx.
EGO shows a profit of $31.8 million in yearly Free Cash Flow with $12.8 million for the first quarter of 2020.
It is excellent progress, and the chart above is showing a significant reversal in the past three quarters.
Gold production details for the 1Q'20
On April 9, 2020, the company announced the first-quarter gold production, and I have indicated below part of my precedent article about gold production which is remaining the same. Production for the first quarter of 2020 was 115,949 Au Oz, up 39.7% year over year, and down 2.5% sequentially. It is an excellent production level with a fourth full commercial quarter at Lamaque and impressive results at Kisladag and Olympias. Lamaque and Efemcukuru were down.
Note: Lamaque has been declared commercial at the end of the first quarter of 2019. Below is the production per mine compared from quarter to quarter.
Also, Lamaque was a bit disappointing as well. Production is going down gradually since 2Q'19 as we can see in the graph below:
The company released a recent update of the Proven and Probable gold reserves.
The Company's Proven and Probable gold Reserves totaled 16.4 million ounces as of September 30, 2019, compared to 16.9 million ounces as of September 30, 2018.
What is particularly interesting is that the company indicated a five-year operating outlook, which is very impressive. However, with the COVID-19, a few investors were wondering if the company could maintain guidance for 2020. George Burns said in the conference call:
At this time, we are maintaining guidance for 2020 of 520,000 ounces to 550,000 ounces of gold at an all-in sustaining cost of $850 to $950 per ounce sold. We will continue to evaluate capital allocation, operational performance, and monitor the impacts of COVID-19 on our business.
However, Eldorado's mines are operating now at 75% normal staffing levels, which is not a problem for production in the short term but could create some long-term impacts such on waste stripping, underground development, and drilling that are temporarily reduced.
A critical driver for the next five years is, of course, the Kisladag mine in Turkey, with a production of 175K Oz extended to 2024 (mid-point).
Source: EGO Presentation
Conclusion And Technical Analysis
Eldorado Gold has climbed its way back to a compelling long-term gold miner. Lamaque and Kisladag are the trusted driving forces that are supporting the future of the company. Philip Yee has been an exceptional CFO and helped much during the recovery. However, CEO Georges Burns is still here, unfortunately.
Greece is now a backstage project and will probably happen in a few months and at a slow pace. It is not so important anymore.
I believe it is how we should look at the development of Skouries and other sites. High capital expenditures needed and an almost certainty that no other gold operators will be willing to partner with Eldorado Gold on any project in Greece due to an unreliable political system.
I regret that the company has not been able to sell Tocantinzinho and its properties in Romania. The cash is better, and with gold over $1,700 per ounce, it is quite strange that nothing has been done on this front yet?
Thus, I see EGO as a more reliable proxy for gold, and as long as gold is strong and momentum is going, it will support a fair valuation. Will the next step be a return to the dividend?
Technical Analysis (Short Term)
EGO experienced a steep drop starting early March to as low as about $4.75, which is defining now lower long-term support or a "buy flag." Since mid-March EGO is trading within an ascending channel pattern with resistance now at $10.85 and support at $9.10. It is quite early now, but the next pattern that could emerge, which is not indicated in the graph above, could be a descending triangle with resistance at $9.70 and support around $8.00.
In this case, I would take about half your winning position off the table, at between $9.50 and $10.25. Then, wait for another retracement at around $8.00, and start accumulating.
EGO is now a good proxy for gold, and it is essential to look at the gold price before deciding on any move. However, if the economy is slowly restarting, the gold price may start weakening.
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This article was written by
I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while.
I live mostly in Sweden with my loving wife.
I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years.
“Logic will get you from A to B. Imagination will take you everywhere.” Einstein.
Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading.
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.
I trade short term EGO now but I may use the next drop to build again a long term position.
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