Gold for immdediate delivery witnessed a significant jump today. The precious metal increased by 1.08% on the London Bullion Market, up $12.2 per troy ounce to $1,146.80 per troy ounce from yesterday's closing price of $1,134.60.
Source: Kitco.com
A weaker U.S. dollar and declines in U.S. bond yields are also pushing up the price of the financial contracts through which gold is traded.
The precious metal is also uptrending on the Comex. Gold futures are currently trading at $1,151.35 per ounce, up $10.45 or 0.92% from the previous close.
This is the fifth jump over the last six trading days and the 12th jump out of a total of 24 over the last month. The average price per ounce was $1,151.99 and ranged between a high of $1,194.80 and a low of $1,123.90.
Despite this recovery in price, gold is still trading far below its highest price between July and August 2016 when the precious metal was trading above $1,350 per ounce on the bullion market. Since then, gold is down more than $200 per troy ounce.
Following the downtrend in the underlying precious metal, the gold stock industry fell by 34%, as shown by the VanEck Vectors Gold Miners (GDX, Financial), one of the most followed indexes that represents the gold mining industry as a whole.
One of the gold mining stocks that tumbled the most on the stock market is Eldorado Gold Corp. (EGO, Financial).
The Canadian miner, with assets in Turkey and gold development projects in Greece, the Balkan Peninsula and Brazil, fell by more than 35%. Its downtrend started mid-July in conjunction with the attempted military coup in Turkey.
In the Anatolian Peninsula, the miner runs two gold deposits. Kisladag, where 49,270 ounces of gold were produced in the third quarter, is down 29.1% on a year over year basis at cash operating costs of $425 per ounce. The other is Efemcukuru, where 24,229 ouncess of gold were produced. It is down 10.7% on a year over year basis at cash operating costs of $554 per ounce.
Lower production and higher operating costs were the results of lower grade ore processed with the heap leaching mining technique used to extract the metal from the mineral.
As of today, Eldorado Gold is trading at 0.66 times its book value and at 8.56 times its Ebitda, making this gold mining stock a good candidate if gold rallies again.
With approximately $900 million expected from the proceeds of the sale of its Chinese assets, the miner has plenty of cash to do two things: develop gold projects and strengthen the balance sheet.
The miner can develop its gold projects, particularly in Greece where it is developing the Olympias and Skouries mines. At Olympias, a mine characterized by one of the highest average reserve grades in the industry (7.87 g/t), Eldorado expects to begin producing the metal in the first quarter 2017. The production will average approximately 72,000 ounces of gold, which will only partially offset the reduction of the ounces of gold produced because of the sale of the Chinese assets.
However, ore processing at Olympias will be undertaken by the miner at far lower operating costs per ounce than it did at the mines in China. At Olympias, Eldorado expects to sustain cash costs ranging between $180 and $350 for the first five years. In contrast, an average of $694 per ounce was sustained in China. Lower operating costs will produce benefits to the income and cash flow statements of the gold producer.
As of today, analysts forecast an average upside of 50% in the company’s EPS from fiscal 2016 to fiscal 2017:
Source: Yahoo finance
The miner could also strengthen the company’s balance sheet. As of the third quarter, the company had $409.10 million in cash on hand and securities that can readily be converted into cash. The miner can also count on the additional flexibility of a revolving credit facility that has been extended to June 13, 2020. As of the most recent quarter, debt amounted to $601.04 million of 6.125% senior notes due December 2020.
Eldorado is trading at $3.22 per share, up two cents or 0.78% from the previous trading day. The analysts' average target price is $4.81 per share.
The 52-week range is between $1.87 per share and $5.16 per share.
The stock is more volatile than the stock market with a beta equal to 1.71.
Eldorado Gold Corp. has a market capitalization of $2.3 billion and has 715.35 million shares outstanding. The number of shares available for trading is 712.15 million. The price-earnings (P/E) ratio is -1.39 and the EPS is $-2.33.
During the third quarter, Joel Greenblatt (Trades, Portfolio) and Charles Brandes (Trades, Portfolio) established positions in Eldorado Gold Corp., buying a volume of 926,863 shares and 30 thousand shares.
Mario Gabelli (Trades, Portfolio) increased his position in Eldorado by 11.81%.
Among the top institutional holders, Van Eck Associates Corp. and FMR LLC stand out. Van Eck holds 50,232,187 shares, which is approximately 7.01% of the company’s shares outstanding. The holding is valued at $197,412,494. FMR holds 44,302,695 shares, which is approximately 6.18% of the company’s shares outstanding. The holding is valued at $174,109,591.
Disclosure: I have no positions in any securities mentioned in this article.
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