Gold is rising.
Following Wednesday’s decision of the Federal Reserve to cut the interest rate by a quarter percentage point to 2.25%, bullion rose 1% to close at $1,441.75 per ounce on Friday, recording a year-to-date high of $1,424.28 during intraday trading on the London Market.
Friday’s closing price was also 7.5% above the cumulative average of $1,324.55 so far this year.
Expectations of a further cut in the federal funds rate combined with ongoing political uncertainty will continue to drive the price of gold up in the coming months.
Thus, it is wise to hold positions in publicly traded gold mining companies as these stocks usually outperform the gold price due to their high volatility to changes in the price of the precious metal.
Eldorado Gold Corp. (EGO, Financial) is well-positioned to benefit from an up-trend in gold.
The Canadian miner is going to feed the gold market with higher gold volumes over the third and final quarter of 2019, having confirmed its expectations for full-year production of 390,000 to 420,000 ounces.
Since Eldorado produced 174,780 ounces of gold in the first six months, it will likely mine between 107,600 and 122,610 ounces of gold in each of the last two quarters for strong 17.2-33.6% growth from second-quarter production of 91,803 ounces.
Higher sales volumes will drive up revenue and earnings.
In the second quarter, the company reported a 13.4% year-over-year increase in total revenues to $173.7 million as a result of higher sales volumes and average realized gold price of $1,321 per ounces, up 2.6%.
Thanks also to lower costs, Eldorado shifted to net earnings of $12.2 million from a net loss of $24.4 million in the prior-year quarter.
As fixed costs will be spread over a larger amount of ounces of gold sold, the all-in sustaining cost is expected to be lower than the $917 an ounce that it recorded in the second quarter. It may be close to the first limit of full-year AISC guidance range of $900 to $1,000 per ounce sold.
In conclusion, higher revenues and lower costs will bolster earnings, supporting a rising stock price.
The newly operating Lamaque gold mine in Canada should support gold production in the third and final quarter. Eldorado’s total gold production will receive an additional boost should the Olympias asset in Greece improve tonnage deliveries at the mill.
Further, the Kisladag mine in Turkey feeding the heap leach pad with new ore again starting April 1, 2019, will give another contribution to total production.
Wall Street recommends to hold the position in Eldorado Gold Corp., estimating an average price target of $10.19, which reflects 27.7% upside from Friday’s closing price of $7.98.
The share price gained 55% over the last 52 weeks through Aug. 2 and is now substantially over the 200-, 100- and 50-day simple moving average lines, indicating the stock is not cheap. The share price at close on Friday is close to the upper limit of the 52-week range of $2.52 -to $8.35.
Eldorado Gold Corp. produces the metal from its 100% interest in Kisladag and Efemcukuru gold mines in Turkey, the Lamaque gold mine in Canada and from its 95% interest in the Olympias gold mine.
The miner also possesses 95% interest in the Stratoni silver-lead-zinc mine and the Skouries gold-copper project in Greece.
Eldorado is advancing mineral and exploration projects in Brazil, Canada, Serbia, Romania and Greece.
Disclosure: I have no positions in any securities mentioned.
