Eldorado Gold Corp. (EGO, Financial) continues down trending on the New York Stock Exchange.
The gold stock lost 3.3% over the last two trading days to $1.33 per share despite the recent upgrade from Macquarie.
According to a research note dispatched by the analyst on Wednesday, shares of Eldorado had been upgraded to outperform from a previous rating of "neutral." This is the second upgrade Eldorado got over the last 6 months and is pre-dated by the JPMorgan’s downgrade (overweight to neutral) on Nov. 13.
During the same period, Eldorado received three downgrades from Bank of America (buy to neutral) on Oct. 31, 2017, Macquarie (outperform to neutral) on Sept. 12 and from Credit Suisse (outperform to underperform) on July 31.
Source: Yahoo Finance
Four negative ratings out of a total of six is an indication that the gold stock is also losing momentum among analysts.
Macquarie evidently sees some catalysts that might trigger the stock to start rising again. But in general, Eldorado is perceived as a miner with some problems, which adds risk to the company's future expansion. These problems range from continuing disputes with the Greek authorities undermining the success of the Hellenic projects, to issues related to the Kisladag mine in Turkey. At Kisladag, declining recovery rates have forced Eldorado to revise gold production estimates downwards.
These factors, plus a 61% cut in the yearly production of gold following the sale of the Chinese assets, are weighing on the current valuation of Eldorado.
On Tuesday, Eldorado released preliminary operational results for 2017. The report included the pre-commercial production of gold from the Greek asset Olympias and a bulk sample from Lamaque, the Canadian miner that produced 292,980 ounces of gold in 2017. This was in line with the company’s revised guidance of 280,000 ounces to 310,000 ounces of gold. Lamaque is a gold project that Eldorado Gold Corp is advancing in Quebec.
The chart below shows Eldorado’s yearly production of gold from 2013 to 2017. As you can see, production is drastically declining.
Source of data: company's SEC filings
The company’s operational results were in line with the guidance and with regard to the cash operating cost of $509 per ounce that Eldorado sustained in 2017. The results were also in line with the all-in sustaining cost the miner predicts at $900 per ounce of metal sold.
Eldorado also reported to have a total amount of $480 million in cash on hand and securities as of Dec. 31, plus a line of undrawn credit of $250 million. These issues bring the company’s total liquidity to a total of $730 million.
George Burns, Eldorado Gold Corporation’s President and CEO, highlighted some catalysts:
"2018 is already proving to be a busy year, full of catalysts, with development underway at Lamaque and new or updated technical studies for Lamaque, Skouries and Kisladag. Our overarching goal for 2018 and beyond is to move Eldorado back into a growth phase and create value for all our stakeholders."
Source: Eldorado Gold Corp's News Release
According to the Yahoo Finance’s chart, the stock lost 60.2% for the 52 weeks through Jan. 18 and underperformed the VanEck Vectors Gold Miners ETF (GDX) by 63.4%. Eldorado Gold is one of the gold stocks that experienced major loss on the market.
Source: Yahoo Finance
Some indicators on Eldorado:
- A market capitalization of $1.08 billion.
- A price-book (P/B) ratio of 0.29 times versus an industry median of 2.01 times.
- An EV-to-EBITDA ratio of 10.95 times versus an industry median of 10.14 times.
- An EBITDA margin of 25.4% versus an industry median of 22.8% at an average bullion price of approximately $1,274 per troy ounce on the London market over the period from the fourth quarter of 2016 to the third quarter of 2017.
There isn’t any doubt that the gold stock is trading cheaply at the moment. The share price is 194% below the 52-week high of $3.91 per share. While the 52-week low is $1.10 per share.
Furthermore, the stock is trading plainly below the 200-SMA line, well below the 100-SMA line and almost emulating the 50-SMA line, according to the chart powered by GuruFocus:
Eldorado has a recommendation rating of 3.1 out of a total of 5. This means that for the community of analysts this gold stock is not a buy at the moment.
Increasing holdings of Eldorado Gold Corp is risky today because trying to forecast whether this gold stock will start to soar again on the market is very difficult. The RSI (14) is nearby the midst of a 35 to 75 range, which means that the stock has yet reached oversold levels like it was between the last week of October and the first week of November. In addition, the RSI line is down trending and this may indicate further depreciations of Eldorado.
However, if you acquire this gold stock today with all the risks associated, the reward can be amazing if some of the catalysts start to heavily play in favor.
The average target price is $1.95 per share, which represents a sizeable 47% upside from the current market value per share.
With so much liquidity available, the catalyst for Eldorado, in my opinion, compares to the acquisition of a junior explorer with a prominent gold project that can be turned into production and re-fatten operations and gold reserves quickly. The sale of the Chinese mines has also reduced Eldorado’s gold and probable reserves drastically to 19.263 million ounces as of 2016 from 25 million ounces as of 2015.
(Disclosure: I have no position in Eldorado Gold Corporation or in the VanEck Vectors Gold Miners ETF).
