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Alberto Abaterusso
Alberto Abaterusso
Articles (1911) 

Eldorado Gold Rises

Eldorado Gold beat consensus on sales. Olympias is set to outperform in second quarter

April 30, 2018 | About:

Despite a 1.4% climb last week on the heels of first quarter 2018 results, Eldorado Gold Corp. (NYSE:EGO) at $96 cents per share is still cheap.


The stock in Eldorado Gold is trading below the 200, 100 and 50 SMA lines. Furthermore, the share price is only $16 cents off the 52-weeks low of $80 cents per share. While the 52-weeks high is $3.76.

From the current market valuations, which are undoubtedly low, consensus on Eldorado Gold Corp’s price target foresees a stock appreciation of more than 100%. The Canadian gold stock is expected to hit that level within the following 52-weeks of trading.

What will be the main driver over the coming quarters?

Gold revenues, approximately 87.5% of total revenues, were $115.4 million in the first quarter. That could have been much higher if Olympias Phase II in Greece wouldn’t have experienced a lower tonnage of mineral processed and higher operating costs per ounce due to throughput capacity issues at the plant. The company also sold less than expected ounces of gold at Olympias because of timing issues with the shipment of the concentrate.

Olympias produced 9,965 ounces versus a quarterly output and sales volume that I expected at around 18,000 ounces.

Furthermore, the reduced tonnage of material processed impacted the production of payable silver, zinc and lead. The so-called production of gold equivalent affected total revenues during the quarter that came in at $131.9 million. As stated on the company’s website, production of commercial gold from Olympias Eldorado Gold produces a volume of equivalent gold that should average 14,000 ounces per quarter.

The miner beat consensus on revenue anyway by $36.34 million with a quarterly figure of $131.9 million. That was nearly 18% higher on a year-over-year basis. The beat should have been more important if the miner wouldn’t have had those issues at Olympias.

However, Eldorado Gold Corp is set to do better than first-quarter 2018 in terms of production and, if the metal is still supportive, of revenues as well. Let’s see why.

The successful installation and commissioning during the quarter of the second filter press for Olympias throughput, will permit the mill to achieve its desired 1,250 tonnes per day. Design output capacity will push costs down as the plant production volume increases. From those developments at Olympias, the company 2018 top line will benefit in terms of both gold revenues and total revenues. That is, the commodity permitting, of course.

The miner should also produce a higher income. For first quarter, it was the following: Eldorado Gold dropped a bottom line of 1 cent, which was flat year-over-year. The Canadian miner met consensus on earnings.

The chart below illustrates the trend in Eldorado Gold's first quarter gold production and sales volume over the last five fiscals. The trend is negative because in 2017 the Canadian miner completed the sale of its gold assets in China. Also, it is because at Kisladag, one of its two mines in Turkey, gold production has been revised downwards due to lower gold recovery rates as recalibrated during lab tests:

In the first quarter of 2018, Kisladag produced 62.1% of the company’s total production, Efemcukuru (Turkey) 26.4%, Olympias 11.5% and Lamaque (Canada) 3.2%.

In 2018, Eldorado Gold Corp says that it “expects to produce 290,000-330,000 ounces of gold, including pre-commercial ounces from Lamaque.” The cash operating cost is predicted at about $605 per ounce of metal. That is a mean of a range of $580 to 630 per ounce.

The operating cash flow increased by nearly $10 million to $37.9 million in the first quarter of 2018, from the comparable of 2017.

CEO George Burns feels confident the company will be able to re-establish a 600,000-ounce level annual low-cost production before the end of 2021.

He added: “We remain focused on driving forward our industry-leading growth projects under a disciplined capital allocation framework to create long-term value for all stakeholders."

(Disclosure: I have no positions in any stock mentioned in this article.)

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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