NEM - Eldorado Gold Q2: Some Weakness This Quarter

2023-07-31 14:49:24 ET

Summary

• The Eldorado Gold Corporation's revenue for the second quarter of 2023 was $229.855 million on gold sales of 110,134 Au Oz sold.
• Gold production was 109,435 Au Oz in 2Q23, down from 113,462 Oz produced in 2Q22.
• I recommend buying Eldorado Gold Corporation shares between $9.6 and $9.4 with potential lower support at $9.2 (200MA).

Introduction

The Vancouver-based Eldorado Gold Corporation ( EGO ) released its second quarter 2023 results on July 27, 2023.

Note: This article updates my May 1, 2023, article. I have followed EGO's quarterly results on Seeking Alpha since January 2015.

Eldorado Gold is a well-diversified gold miner with high-quality assets. The Skouries mine is expected to be completed in H2, 2025.

1 - 2Q23 Results Snapshot

Gold production was 109,435 Au Oz (sold 110,134 Au Oz ) in 2Q23, down from 113,462 Oz produced in 2Q22 and down 2.8% from 112,533 Oz delivered the preceding quarter.

The revenue for the second quarter of 2023 was $229.855 million on gold sales of 110,134 Au Oz sold.

Net Income attributable was $0.885 million in 2Q23, with cash operating costs of $791 per ounce sold, up from $789 in 2Q22.

CEO Georges Burns said in the conference call:

consolidated production across the portfolio came in slightly below our expectations for the quarter as a result of extraordinary rainfall at K??lada?, fire forest fires near Lamaque and lower grade and recoveries at Olympias to the mine sequencing as we advanced productivity improvements.

2 - Investm ent Thesis

The investment thesis is turning more bullish for Eldorado Gold Corporation, even if the second quarter results triggered some limited selloff that I was expecting due to a strong uptrend. The market always finds an excuse, but the fundamental reason is that the stock was overbought and needed some retracement.

The gold price is still strong despite some checkups after the FED increased interest rates by 25 points early this month but is still trading around $1,960 per ounce, up 13% YoY.

Furthermore, the Skouries' financing has been completed successfully, and I expect the company to produce in H2 2025 .

I wouldn't say I like the bought deal completed by EGO that I will present later in this article. Still, it is a necessary evil, and investors should consider any stock weaknesses a great opportunity to add, which I did.

Skouries construction works, underground development, and engineering are well advanced.

As a reminder, the Skouries mine is expected to produce 140K Au Oz and 67 M pounds of copper annually, with an estimated yearly free cash flow of $217 million for the first five years. The first production is anticipated in the second half of 2025.

Thus, I believe it is crucial to accumulate EGO long-term using any weaknesses. This accumulation should be combined with a short-term trading LIFO method to make this process beneficial and significantly less risky.

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. The method is based on technical analysis and fundamental knowledge. 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.

3 - Stock Performance

The stock has largely outperformed the VanEck Vectors Gold Miners ETF ( GDX ), B2Gold ( BTG ), and Newmont Corp. ( NEM ). EGO is now up 56% on a one-year basis.

Eldorado Gold - Balance Sheet And Gold Production: The Raw Numbers

Source: Company filing and Fun Trading files.

* Estimated by Fun Trading

Part I - Balance Sheet And Production Discussion

1 - Revenues from metals sales were $229.86 million in 2Q23

Detail per Metals:

Revenues were $229.86 million, up from $213.45 million the same quarter a year earlier and slightly up QoQ.

The company recorded a net income to shareholders in the second quarter of $0.885 million , or $0.01 per diluted share.

Gold sold this quarter was 110,134 ounces . The company sold its gold at $1,953 per ounce . The adjusted net earnings for the quarter were $16.1 million, or $0.09 per share.

2 - Eldorado Gold's Net Debt Increased to $89.44 Million in 2Q23.

Total cash this quarter stands at $456.58 million , up from $370.11 million in the previous year's quarter. Liquidity is now $569 million.

Total debt, including current, stands at $546.02 million .

Note: On April 5, 2023, EGO completed the €680,400 project financing facility for developing the Skouries project in Northern Greece. Also, the company indicated:

In the six months ended June 30, 2023, the Company completed two drawdowns on the Term Facility totalling €65,888 ( $71,333 ), including €45,287 ($49,030) commercial loans and €20,601 ( $22,303 ) from the RRF loans. Additionally, the Company completed drawdowns on the VAT revolving credit facility of €502 ( $536 ).

Also, on June 7, 2023, Eldorado Gold completed a bought deal of 10.4 million common shares per common share for gross proceeds of $101.076 million. The shares outstanding diluted increased to 189.68 million in 2Q23, up 2.6% QoQ.

Financing is an important issue for EGO, and CEO Georges Burns said in the conference call:

During the quarter, we also completed a bought deal offering for gross proceeds of CAD 135.2 million. These funds are expected to be used for the fund growth initiatives across our global portfolio including some not currently contemplated within our five-year plan.

3 - The Free Cash Flow Was A Loss Estimated At $24.1 Million For The Second Quarter of 2023

EGO shows a trailing 12-month free cash flow loss of $75.92 million , with a loss estimated at $24.1 million for the second quarter of 2023. EGO will show negative free cash flow in 2023 due to the Skouries CapEx.

Part II - Gold Production Details For 2Q23

1- Production

Gold production was 109,435 Au Oz (sold 110,134 Au Oz) in 2Q23, down 3.5% from 113,462 Oz produced in 2Q22 and down 2.8% from 112,533 Oz delivered the preceding quarter.

CEO Georges Burns said in the conference call:

consolidated production across the portfolio came in slightly below our expectations for the quarter as a result of extraordinary rainfall at K??lada? , fire forest fires near Lamaque , and lower grade and recoveries at Olympias to the mine sequencing as we advanced productivity improvements.

However, it was not a huge downside; gold sold in 2Q23 was up 2.3% YoY.

Note: 2023 Guidance is 475K-515K Oz at an AISC between $1,190-$1,290 per ounce.

2 - AISC is Now $1,296 Per Ounce

AISC increased in 2Q23 to $1,296 per ounce, which is a disappointment.

Technical Analysis And Commentary

EGO forms a descending triangle pattern, with resistance at $11.25 and support at $9.55.

The descending triangle is a bearish pattern that is characterized by a descending upper trendline and a flat lower trendline that acts as support . This pattern indicates that sellers are more aggressive than buyers as price continues to make lower highs. The pattern completes itself when price breaks out of the triangle in the direction of the overall trend.

The short-term trading strategy is to sell between $11.2 and $11.6 of your position with higher resistance at $12 and buy between $9.6 and $9.4 with potential lower support at $9.2 (200MA).

However, due to the quick drop experienced after the release of EGO earnings, I would consider the 50MA a good first-selling target at $10.25.

Watch the gold price and the Fed 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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