Eldorado: Golden potential from Brazil to China
No debt, low production costs and high growth make this a top play in gold mining.
With the gold market in the doldrums over the past year, even the highest-quality mining operations have seen their share prices plummet; a mid-tier gold miner, Eldorado Gold Corp. (EGO) is arguably one of the best miners in the business.
Eldorado operates one mine in Brazil, three in China, two in Greece and two in Turkey. It also happens to be the only Western gold miner with a secure foothold in China, the world’s largest gold producing country.
One of Eldorado's most attractive attributes is its extremely low cost of production, which averaged $489 per ounce of gold last year on production of about 660,000 ounces last year. Compared to an industry average of about $600 per ounce, Eldorado is one of the most efficient gold miners in operation.
In addition, Eldorado currently has no net debt on its books and has grown revenue by an average 56% over the past three years, while earnings have grown by 8% versus an average loss for the rest of the industry over that period. The miner also enjoys a net margin of 25.4%, more than twice the industry average.
Despite its stronger than average fundamentals, Eldorado hasn't been getting much respect from the market and its shares are off by nearly 25% so far this year.
Higher-than-expected cash cost of production last year is one contributing factor to that decline, with $489/oz coming in slighter higher than anticipated.
Lower-than-expected 2013 guidance also had an impact; management has forecast production of between 705,000 to 760,000 ounces this year at a cost of about $487/oz.
But even at management's lower-than-expected figures, Eldorado will still outgrow its competitors at a below-average cost if it meets its goals for this year.
The company also has a history of beating both its own and analysts' estimates on an extremely consistent basis, so its current guidance is more about managing market expectations in a weak market environment than any developing weakness in its business.
While it's a strong operator now, the company's terrific growth potential is an even better reason to buy the stock.
Based on Eldorado's proven and probable reserves at both its operating mines and its properties under development, it is on track to produce around 1.5 million ounces of gold by 2016, helped along by its Eastern Dragon property in China, which should begin production in the next few months.
By that time management expects to reach its peak production target, it aims to have its production costs down to between $300 and $350/oz, which will provide a nice boost to both operating and net profit margins even if the spot price of gold were to continue pulling back from here.
But if gold prices improve over the course of 2013 as I expect, Eldorado should really take off over the next two years. Eldorado Gold Corp, the newest addition to our Metals & Mining Portfolio, rates a buy under $12.
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Yeah forgot to mention the China connection...As a Canadian Company and a respected miner..
I believe they are positioned well...
And have built good "working relationships" most places they have ventured..
Last I knew they are "the only Foreign Goldminer" in China...That says something if nothing at all.
Benjamin....I agree with pretty much all you have written...
Eldorado has been our "Flagship" Miner for several years now, and have done us well..
Particularily coming into and through this damn Recession.
No one should be confused about the "low share price" at this time...
Think I have sold it in the 20s...??
So your "target price" of $12 is a conservative estimate...IMO.
We have DCA'ed down in the recent drop in Gold prices per ounce..
EGO will find it's way back to a top...And their assets that are being developed are 2nd. to none in the Mid-Tier miner Group....Production cost per try oz. are well within parameters(used to be lower).
And a buyout or merger target are not out of the question..?
We have owned several PM's miners and have always came back to the "end of the Rainbow"
or the fabled city of Eldorado.
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Bill Stiritz owns more than 5% of the company, and has experienced an estimated $145 million in paper losses on his investment.
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