ELD:CC - Eldorado Gold: 2022 Gold Production Slightly On The Weak Side

Summary

• EGO delivered another decent gold production this quarter. Gold production came in at 128,453 Oz, up 4.8% from 122,582 ounces produced in 4Q21 and up 8.1% had the preceding quarter.
• The company has secured €680 million in financing, which is non-recourse to Eldorado with a compound interest of about 5%.
• Depending on the Fed's January action, I recommend accumulating on any weakness between $8.5 and $7.8 with possible lower support at $7.45.

Part I - Introduction

The Vancouver-based Eldorado Gold ( EGO ) announced the fourth quarter and full-year 2022 preliminary gold production on January 16, 2023.

Also, Eldorado Gold published its January presentation, which you can access by clicking here.

Note: This article is an update of my article published on November 22, 2022. I have followed EGO on Seeking Alpha since January 2015.

1 - 4Q22 Production Snapshot and 2022 guidance

EGO delivered another decent gold production this quarter. Gold production came in at 128,453 Oz, up 4.8% from 122,582 ounces produced in 4Q21 and up 8.1% had the preceding quarter.

Eldorado Gold production for 2022 came in at 453,916 Au ounces, down from 475,849 Au ounces in 2021.

The full-year preliminary production was below the bottom end of the guidance range. Gold production peaked in 2020 and is slightly declining (more details further down).

Lamaque production increased significantly; Kisladag performed well, while Olympias and Efemcukuru registered a slightly lower production sequentially, as shown below.

However, one crucial component we need to analyze is the Skouries feasibility study after the financing has been secured.

The company has secured €680 million in funding, which is non-recourse to Eldorado with a compound interest of about 5%. The first drawdown is expected this quarter. The financing represents 80% of the total funding requirement expected.

Possible issue: Due to inflationary pressures and despite management confidence, I believe the Capital cost of $845 million will go up and potentially above $950 million.

The Skouries mine will produce gold and copper with 140K Au Oz and 67 M pounds of copper annually, with an estimated free cash flow per year of $217 million for the first five years. The first production is anticipated in the second half of 2025.

2 - Investment Thesis

The investment thesis continues to be a daunting challenge. We have all sailed through those troubled waters with this unpredictable company and its not-so-perfect management dealing with substantial technical and geopolitical issues. However, we are slowly getting out of this massive black hole that threatened to sink the ship a few years back and led to a damaging reverse split.

One positive is that the gold price is now trending up again and trades above $1,900 per ounce.

The market turned bullish in early January after learning that inflation was going down, pushing the market to believe the Fed could slow down the rate of interest increase. I am increasingly bullish on gold and feel that gold will be above $1,975 per ounce in H2 2023.

Thus, it is an excellent time to take advantage of the low stock price and start a gradually long-term accumulation on any weakness. It must be incremented by short-term trading using the LIFO method to turn this process beneficial. The solution is to trade EGO short-term LIFO using at least 50% of your entire position while keeping a core long-term for a much higher target.

This two-level strategy has succeeded in my marketplace, "The Gold And Oil Corner," and I believe it is the safer way to play EGO. However, only US investors can use LIFO. Please read my note at the end of this article.

3 - Stock Performance

The stock has closely followed the VanEck Vectors Gold Miners ETF ( GDX ) and Newmont Corp. ( NEM ) and is now down 5.4% on a one-year basis.

Part II - Gold Production Details For 4Q22 and full-year 2022

On January 16, 2023, the company announced the initial gold production for the third quarter of 2022.

The fourth quarter of 2022 production came in at 128,453 Oz, up 4.8% from 122,582 ounces produced in 4Q21 and 8.1% delivered the preceding quarter.

1 - Olympias Mine

The company said: "Fourth quarter gold production at Olympias was a relatively flat quarter over quarter. Overall, 2022 production from Olympias was lower than planned due to lower-than-expected tonnes processed and availability of ore stopes. The Company continues to implement operating initiatives designed to improve productivity."

Production came in at 15,435 ounces compared to 16,122 ounces produced in 3Q22 and 15,461 ounces in 4Q21.

2 - Lamaque Mine

At Lamaque, fourth-quarter production increased 20% over the third quarter, mainly driven by higher grades and increasing throughput performance at the mill. The mine delivered record annual production, a 14% increase over 2021.

Production came in at 51,349 ounces, up from 42,454 ounces in 3Q22 and flat compared to last year.

3 - Kisladag Mine

Fourth-quarter gold production at Kisladag increased by 7% over the third quarter and steadily improved through 2022.

The higher gold production quarter-over-quarter was driven by an increase in tonnes placed on the pad during the third quarter.

In the fourth quarter, eight larger, higher-capacity conveyors were installed, which has improved material handling capacity and on-belt agglomeration. Despite an approximate 35% increase in production in the second half, compared to the first half of 2022, full-year production results were lower than planned, mainly attributable to lower tonnes stacked as a result of weather and COVID-absenteeism challenges in early 2022 and ongoing agglomeration optimization that continues to progress nicely.

Production came in at 40,307 ounces, up from 33,136 ounces in 4Q21 and 37,741 ounces produced in 3Q22.

4 - Efemcukuru Mine

At Efemcukuru, gold production, throughput, and average gold grade were in line with the plan for the quarter and the full year

Note from the company:

The Company’s profits from mining operations in Turkiye are taxed at the enacted rate, and the resulting current income tax expense can be further increased or reduced by other items. In the fourth quarter, the Company expects the Turkish current income tax expense on mining profits, at an enacted rate of 22%, to be further increased up to $0.5 million.

The expected increase is primarily related to the weakening of the Lira in the quarter and the resulting generation of taxable unrealized foreign exchange gains, partly offset by reductions related to Lira deposits and the investment tax credit relating to Kisladag.

Technical Analysis And Commentary

EGO forms an ascending channel pattern with resistance at $9.25 and support at $8.45.

Ascending channels are considered bullish, but these patterns often form within longer-term downtrends as continuation patterns, which may be the case here.

I suggest selling about 50% between $9.20 and $9.35 (trading LIFO), with possible higher resistance at $9.95-$10.50. Conversely, I recommend accumulating on any weakness between $8.5 and $7.8 with possible lower support at $7.45, depending on the Fed's January action.

Watch gold like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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