Eldorado Gold: Undervalued With Production Upside

Summary

• Eldorado Gold is a mid-tier gold miner with a $1.9 billion market capitalization.
• Eldorado reported very strong Q2 2020 financial results, and Q3 should be even better with gold prices $200+ an ounce higher.
• Eldorado has significant production upside from its Skouries project, which is currently in care and maintenance, and other development assets.
• The miner is undervalued based on several financial metrics, including EV/EBITDA, EV/CF, P/E ratio, etc.
• I break down the investment case for Eldorado Gold.

Eldorado Gold: Undervalued With Production Upside

Eldorado Gold (NYSE:EGO) is a mid-tier gold miner with a $1.9 billion market cap, which has guided for 2020 gold production of 520,000-550,000 ounces at $850-$950 all-in sustaining costs. Eldorado has four producing mines, located in Canada, Turkey, and Greece, and several development projects in Romania and Brazil.

As of writing, Eldorado shares are looking very attractive as its stock trades at a discount compared to peers. This is a low-cost gold miner with long-life gold assets, and it is highly profitable, while the market is essentially placing zero value on one of its core development projects.

I've broken down the investment case for Eldorado Gold, including an analysis of its recent financial results and what to expect in H2 2020, upside from its Skouries project in Greece and other development projects, and its current valuation.

Eldorado's Q2 2020 Financial Results

(Information on Eldorado's improved financial results. Credit: Eldorado Gold)

Eldorado is highly profitable in the current gold environment as its production and low operating costs allow it to produce strong cash flow and earnings. Its Kisladag, Lamaque, Efemcukuru mines are all strong assets producing profits in Q2.

We saw this in Q2 2020 when the miner reported the following results:

• 137,782 ounces of gold production, a 19% increase from Q1 2020.
• All-in sustaining cost of $859/oz, down from $917/oz in Q2 2019.
• Revenue of $255.9 million, operating cash flow of $99.6 million and free cash flow of $63.4 million, EBITDA of $131.8 million, and net earnings of $45.6 million or $.27 per share.
• In particular, the company's Kisladag and Lamaque mines produced excellent results in Q2; Kisladag contributed 59,890ozAu at $631/oz AISC, while Lamaque added 33,095ozAu at $796/oz AISC.

It was a breakout quarter for Eldorado Gold due to improvements in its

Analyst’s 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.