Should You Buy Eldorado Gold’s Rally?


Eldorado Gold [stock_market_widget type="inline" template="generic" color="default" assets="ELD" markup="(TSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has got off to a tremendous start in 2019, rising nearly 50% in less than three months thanks to its decision of resuming mining activities at the Kisladag gold mine in Turkey. That good news was followed by the company’s fourth-quarter results for 2018, where it delivered smaller-than-expected loss and called for a progressive increase in the production over the next couple of years.

With gold prices gaining strength in the past three months, Eldorado Gold’s promise of increasing production has boosted investor confidence. Let’s take a closer look at what the company could deliver this year and going forward.

The Operational Profile Will Get Better

Eldorado Gold’s 2018 production was higher than its original estimate. The company delivered annual gold production of 349,147 ounces last year, easily exceeding its original guidance range of 290,000-330,000 ounces. Additionally, the 2018 production represents a 19% increase over the preceding year’s output.

2018 production represents a 19% increase over the preceding year’s output.

Last year’s improved production profile was driven by 35,350 ounces of pre-commercial production from Lamaque. The company plans to begin commercial production of gold at the Lamaque mine toward the end of the first quarter of 2019, and the mine is eventually expected to deliver more than 100,000 ounces of gold production for the entire year. That figure also includes the pre-commercial production at the mine.

Driven by the inclusion of commercial production at the Lamaque mine in Quebec, Eldorado’s gold output for the year is anticipated between 390,000 ounces and 420,000 ounces. The mid-point of that range indicates that the company’s gold output will rise nearly 16% in 2019.

But what’s even more impressive is that Eldorado is confident of boosting its annual production beyond 500,000 ounces in 2020. This increase in the production next year will be a result of the ramp-up of operations at the Kisladag mine, where Eldorado has decided to resume mining and heap leaching activities after dropping the idea of constructing a mill project.

This activity will boost Eldorado’s production to a range of 520,000-550,000 ounces of gold in 2020, though investors need to note that the growth will tail off in 2021 when production drops to 350,000-380,000 ounces.

More importantly, the increase in production over the next two years will be achieved at a lower cost profile. Eldorado clocked all-in sustaining costs of $994 an ounce in 2018, but it expects the metric to average between $867 and $967 per ounce from 2019 to 2021. The mid-point of this guidance range is around 8% lower than last year’s AISC.

What Should Investors Do?

Eldorado Gold is pulling the right strings to take advantage of the recent recovery in gold prices. The yellow metal is currently trading at more than $1,300 an ounce, which is well above the average realized price of $1,269 per ounce Eldorado witnessed last year.

As the company’s AISC per ounce is expected to decline, it should witness an improvement in gold margins this year and going forward. So, it isn’t surprising to see why the market expects the company to swing to an adjusted profit of C$0.12 per share this year as compared to a loss in 2018. What’s more, the bottom line is expected to more than quadruple in 2020 thanks to a further increase in production.

In the end, it can be safely concluded that Eldorado Gold has hit a purple patch and investors can expect more upside going forward.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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