This week, Eldorado Gold (EGO, Financial) received two upgrades, one at Credit Suisse (DOIL, Financial) following the investor day on Sept. 12 and the other at Bank of America (BAC, Financial) on Sept. 14.
Source: Yahoo Finance
Anita Soni, an analyst at Credit Suisse, upgraded the rating on the company from Neutral to Outperform, while raising the price target from $5.00 to $5.50.
The analysts said that the underperformance of EGO on the stock market during the past two months was due to the mid-July attempted military coup in Turkey, where the miner has two operating gold mines (Kisladag with 49,924 ounces of gold produced in the second quarter at cash operating costs of $479 per ounce, and Efemcukuru with 23,406 ounces of gold produced in the second quarter at cash operating costs of $509 per ounce).
As you can see from the picture below, EGO underperformed more than its peers on the NYSE:
Source: Google Finance
Despite the recent underperformance, the analyst based the upgrading in the following growth drivers that contribute to improve clarity on the long term outlook of the miner:
- Gold production raise from 400,000 ounces in 2017 to 830,000 ounces in 2020, including the Kisladag expansion to 20 tonnes per year;
- Olympias Phase II, which is expected to commence production in the first quarter of 2017;
- Skouries Phase I is expected to begin production from open pit and underground operations in 2019;
- Tocantinzinho, which is scheduled to start operating in late 2019.
- Sufficient cash on hand and available credit to maintain $100 million in cash and fund its growth plans until 2020 at $1,300 per ounce.
Michael Jalonen, an analyst at Bank of America Merrill Lynch, upgraded the rating on the company from Underperform to Buy, with a price target of $5.
The analyst bases the upgrading on:
- Higher production levels and lower operating costs than estimates.
- On a gold output that will double the expected 2017 levels by 2020. The company is set to produce more than 900,000 ounces of gold by 2020.
- On a balance sheet that will become stronger with the proceeds, approximately $900 million that the miner will receive from the divestment of the Chinese assets, providing EGO with the sufficient liquidity to advance the projects.
Recently, I wrote another article on EGO about its updated outlook for its operations and financial situation, informing investors that the 185,000 ounces less gold per year the miner will produce after the sale of the Chinese assets, should not be a concern for investors since the gold production in China was at much higher cash operating costs (an average of $694 per ounce for 2016) than the production the miner expects that will come from Olympia in the future.
Eldorado will produce less gold in 2017 and 2018, but the reduction in the operating costs will increase the gold margin and therefore CFO.
Eight out of fourteen analysts recommend buying EGO and the recommendation rating is 2.4. The rating ranges between 1 (Strong Buy) and 5 (Sell). The average target price is $5.76. The lowest is $4.46 and the highest is $7.00.
On Sept.14, Eldorado closed at $3.73 per share, up 10 cents (or +2.75%) from the previous trading day, with a volume of 9,809,734 shares traded on the New York Stock Echange.
The price/book (mrq) is 0.76 and the enterprise value/EBITDA is 11.59.
Disclosure: I have no positions in Eldorado Gold Corporation.
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