Since Oct. 23 ,when Eldorado Gold Corp. (EGO, Financial) revised its full-year gold prodution guidance down due to lower recovery rates at the Kisladag mine in Turkey, the Canadian miner's stock tumbled 47% on the New York Stock Exchange.
Eldorado is currently trading around $1.15 per share, hitting rock bottom at its lowest price ever:
Of course, Eldorado would also represent an unbelievable buying opportunity that investors should not miss since the relative strenght index (RSI) of 23.86 – as illustrated in the chart below – suggests the stock is oversold and a reversal in the trend could be just a matter of time:
Eldorado is trading far below the 50- and 200-day simple moving average line.
For a turnaround to occur, the company needs some catalysts. There are not many, however, or at least analysts do not currently see them.
Eldorado received its second downgrade rating in about 13 days from JPMorgan. In a research note dispatched on Nov. 13, the firm lowered its rating to neutral from a previous rating of overweight.
JPMorgan’s downgrade follows an Oct. 30 rating from Bank of America Merrill Lynch, which downgraded Eldorado Gold to neutral from buy.
As shown in the chart below, the Canadian gold stock has received five downgrades out of a total of six ratings over the past 4.5 months. This means a negative consensus on Eldorado Gold is rising as the number of the analysts who are downgrading the stock is increasing. This also has an impact on the market value of Eldorado, whose recommendation rating currently stands at hold, or a value of three out of a total of five.
The recommendation rating ranges between one, which means the stock is a strong buy, to five, which means that the stock is a sell.
Source: Yahoo Finance
In conjunction with the downgrades, the analysts also reduced the value they believe the stock could reach in the next 12 months, dragging the average target price down to $1.98 per share.
Source: Yahoo Finance
This average target price, which Yahoo Finance notes is a mean of 12 analysts’ estimates, represents a hefty 72.2% upside in the current market value.
If what the average analyst expects will materialize sometime along the next 52 trading weeks is a sizeable upside, they who may decide to invest in Eldorado Gold Corp. will for sure enjoy. But we need some catalysts here, so we can presumably assume the next “enjoy the ride” is beyond the door.
If upside occurs in the next 52 weeks, investors will definitely benefit. But in order for that to happen, catalysts need to boost the stock.
Currently, the only catalysts I see are:
- A restoration of the Kisladag mine's annual production to the previous level of 230,000 ounces to 245,000 ounces of gold. Due to lower recovery rates, production expectations declined 27% to between 170,000 ounces and 180,000 ounces for full fiscal 2017. The miner is investigating alternatives to enhance recoveries back to the previous level, but the odds are low.
- The second catalyst is the Olympias mine in Greece, where the level of produced gold is expected to be reached. The company hopes to add 72,000 ounces of gold and 55,000 of gold equivalent to its total annual produciton from the mine.
- When the Greek government issues the necessary permits the miner needs for operations at its Skouries mine, it will benefit production. Currently, commercial production will not be achieved until 2020, but good news in regard to the development of the asset will boost Eldorado's market value.
- In addition, Eldorado has a lot of cash on hand and securities that could be used to take over – for example – either a junior mining and exploration company or a gold project that can considerably add to its total production of gold in the short term. In its third-quarter report, the miner noted its has "$546.1 million in cash, cash equivalents and term deposits, and $250 million in undrawn lines of credit at quarter end.”
Eldorado Gold is trading around $1.15 per share with a market capitalization of $916.11 million, a price-book (P/B) ratio of 0.26 and an EV/EBITDA ratio of 9.90. The stock's 52-week high price is $3.91.
Disclosure: I have no positions in Eldorado Gold Corp.
