2023-11-29 18:43:22 ET
Summary
- Eldorado Gold Corporation has seen significant stock growth, outperforming the gold miners index and physical gold.
- The company's Q3 performance was solid, with strong production and favorable costs.
- Eldorado Gold Corporation has a strong balance sheet and is positioned for future growth, particularly with the reactivation of its Greek assets.
Eldorado Gold Corporation : Massive Growth Potential
Eldorado Gold Corporation ( EGO ) has emerged as a standout performer in the gold mining sector, with its stock skyrocketing by 52% year-to-date and an 80% increase over the past year. This dwarfs the gold miners index's ( GDX ) modest 5% gain, and outperformed physical gold ( GLD ).
Despite producing a solid 485,000 ounces of gold this year - a figure consistent with its market cap of $2 billion - the real excitement lies in the stock's growth potential and its favorable valuation.
Eldorado's Q3 Performance
In its third quarter , Eldorado Gold delivered a robust performance, though it didn't significantly exceed market expectations.
The company produced 121,030 ounces of gold, with all-in-sustaining costs ("AISC") at $1,177 per ounce. This operational efficiency translated into net earnings of $35 million, equivalent to $0.10 per share, and an operating cash flow of $97.5 million. It's important to note that the free cash flow was negative $19.3 million, a reflection of increased expenditure on various development projects.
Eldorado also revised its 2023 guidance , adjusting its full-year projections.
The company now anticipates gold production to be slightly lower, in the range of 475,000 to 495,000 ounces, a modest decrease from the previously estimated range of 475,000 to 515,000 ounces.
However, there's a silver lining, with the AISC expected to be somewhat lower, particularly at the higher end of the forecast. The revised AISC range is now set at $1,190 to $1,240 per ounce sold, improved from the earlier range of $1,190 to $1,290.
Balance Sheet Strength
More importantly, Eldorado is in a strong position with $476 million in cash and a $250 million senior credit facility, which remains undrawn and is earmarked for project financing at Skouries.
The company’s debt, just under $600 million as per its Q3 2023 financial report, is well-buffered by its cash reserves. I don’t think financing risk is a big concern, as the company enters 2024 in strong shape and well-funded to continue advancing Skouries, which is its most important objective.
Eldorado Gold’s Growth
Eldorado is a fine gold producer, but its real potential lies in its future growth.
I think 2024 will be a pivotal year for Eldorado, with key operations like Olympias, Lamaque, and Kisladag expected to be optimized. The addition of the new North Heap Leach Pad at Kisladag is particularly noteworthy, as this mine is a low-cost, open pit operation that has consistently produced gold at low operating costs.
However, the reactivation of its Greek assets, especially Skouries, is expected to significantly boost production, adding approximately ~140,000 ounces of gold annually by the end of 2025 (plus significant copper production).
Looking ahead to 2027, the company's production is projected to soar to 705,000 ounces of gold annually, up from 485,000oz this year, with a steady year-on-year increase leading up until then.
Should the company execute on its growth, this implies a 4-year production growth of 45% , one of the highest projected production growth rates in the industry - and it will likely lead to a re-rating in the stock, pushing Eldorado closer to senior gold miner status. Finally, I think it’s likely the company will draw M&A interest from other mid-tier, and senior gold miners, assuming it achieves its growth objectives.
Key Growth Projects
Skouries is progressing well, with feasibility studies projecting it to be a top-tier asset producing 140,000 ounces of gold and 67 million pounds of copper annually at negative all-in-sustaining costs. This could result in over $200 million in free cash flow annually for the first five years, a remarkable return on the project’s ~$800 million upfront capex cost.
In addition to Skouries, Eldorado’s pipeline includes Perama Hill, a low-cost gold-silver project in Greece. Not yet factored into Eldorado’s growth forecasts, Perama Hill could further enhance the company’s production beyond 800,000 ounces by 2027.
Eldorado’s Valuation
Eldorado’s current valuation is also compelling, and investors do not have to worry about paying a premium for the company’s growth upside.
The stock trades at an EV/EBITDA multiple of 5x, according to company’s consensus estimates, which is lower than several peers - Equinox Gold ( EQX ), SSR Mining (SSRM), and Alamos Gold ( AGI ).
It’s also higher than a few other peers - New Gold ( NGD ), Centerra (CG:CA) and B2Gold ( BTG ). Still, those companies have specific issues that are holding down their valuations (New Gold and Centerra have had operational issues, while B2Gold’s valuation may be depressed due to its high jurisdiction risk).
This EV/EBITDA multiple, provided by the company, is also in line with Seeking Alpha estimates, which give the stock an EV/EBITDA of around 6x.
Investors should also note that Skouries' net present value comes in at $1.6 billion using spot gold and copper prices, based on the company's feasibility study results. This sum represents roughly 61% of Eldorado's market capitalization.
Eldorado Gold: The Bottom Line
Eldorado Gold presents as a promising growth stock, trading at an attractive valuation considering its current earnings and future potential, bolstered by a strong financial standing. While the stock may not revisit its 2011 peak of $100 anytime soon, I think it holds multi-bagger potential.
Eldorado also gives investors future exposure to copper via the Skouries mine, and this is appealing because copper is projected to fall into a deficit that could last until 2030 or longer - which likely means higher prices, and profits to Eldorado.
For further details see:
Eldorado Gold: Massive Growth Potential