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Alberto Abaterusso
Alberto Abaterusso
Articles (1436) 

Eldorado Gold Is a Buy

The miner is anticipating strong production growth

August 22, 2018 | About:

Gold traded at $1,190.95 per troy ounce on the London Bullion Market on Tuesday, marking the second hike this week. The current market valuation, however, is still below the cumulative average of $1,296.22 per troy ounce for the year.

The precious metal is showing some signs of life, though the path to $1,250 to $1,300 per ounce is still long. There is some good news, however. Analysts predict the price will be driven up by stabilization of the U.S. dollar and strong demand for physical gold among Indian consumers.

Investors wanting to take advantage of rising commodity prices can do so by investing in  publicly traded gold producers. The gold mining industry currently offers several opportunities, one of which is Eldorado Gold Corp. (NYSE:EGO).

Eldorado Gold and its subsidiaries in the Americas and Europe are engaged in the production of precious and base metals, the exploration of mineral resources and the development of mineral assets.

The Canadian producer is currently extracting gold from the Kisladag and Efemcukuru mines in Turkey and the Olympias mine in Greece. Eldorado Gold is also operating the Stratoni mineral deposit in Greece for the production of silver, lead and zinc.

The miner is projecting a gold production of 330,000 to 340,000 ounces for 2018. In addition, several catalysts position Eldorado Gold for significant growth in annual output within three years. The company is confident the annual production of gold will be approximately 600,000 ounces before 2022.

The catalysts consist of strong performance at Efemcukuru and Olympias, the completion of a mill facility at Kisladag and the successful completion of core development projects. These projects are the wholly-owned Lamaque gold project in Canada and the Skouries gold-copper project in Greece. Eldorado Gold has a 95% stake in the Skouries project.

The company is also engaged in other mineral projects in Brazil, Serbia and Romania.

Eldorado has approximately $435 million in liquidity available on hand, which, along with cash flow from operations, can be used to advance the development projects. According to the second-quarter report, the company has a $250 million line of undrawn credit. 

Today, an investor can acquire all these catalysts for $1 per share. The price is still compelling when compared with the 200-, 100- and 50-day simple moving average lines. The values of the SMA lines have been influenced by the 48% drop in the market value of Eldorado Gold for the 52 weeks through Aug. 21.

The current share price is just 20 cents off the 52-week low of 80 cents and 144% below the 52-week high of $2.44. Eldorado Gold has a market capitalization of $800.83 million.

The price-book ratio is 0.22, below the industry median of 1.74. The enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio is 22.19 versus an industry median of 9.3. The last ratio signals that the miner must improve the profitability of its operations.

The recommendation rating is 3 out of 5 and the average target price is $1.98 per share.

During the second quarter, Pioneer Investments (Trades, Portfolio) increased its holding by 12.04% to 1,297,242 shares.

Jim Simons (TradesPortfolio)' Renaissance Technologies bought 3,348,400 shares.

Ray Dalio (TradesPortfolio)'s Bridgewater Associates reduced its holding by 0.52% to 295,098 shares and Donald Smith (TradesPortfolio) reduced his holding by 0.12% to 9,987,740 shares.

Disclosure: I have no positions in any securities 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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