On July 28 Eldorado Gold Corp. (EGO, Financial) reported its financial and operational results for the second quarter of 2016. It had adjusted net earnings of $11.7 million (1 cent per share) compared to adjusted net earnings of $17.0 million (2 cents per share) in 2015, matching analysts’ consensus on EPS.
Eldorado reported revenues of $162.7 million in Q2 2016, a 14% decrease compared to Q2 2015.
During the second quarter of 2016, about 128,090 ounces of gold were sold at an average realized gold price of $1,270 per ounce.
Eldorado Gold produced 124,110 ounces in Q2 2016 (in-line with internal plans), at all-in sustaining cash costs of $933 per ounce and at cash operating costs of $607 per ounce.
A total of 570,000 ounces of gold at all-in sustaining cash costs of $930 per ounce and cash costs of $595 per ounce is expected to be produced for the full year 2016.
During the quarter the company announced the sale of its Chinese assets for a total of $900 million in cash, specifically the Jinfeng, White Mountain and Tanjianshan mines, as well as the Eastern Dragon project. The close is expected in the third and fourth quarter. The sale of this high cost asset not only will improve the company’s risk profile, but more importantly will provide long term growth for Eldorado with plenty of cash to be invested in Greece, at Skouries and Olympia.
On May 9 Eldorado, through its Greek subsidiary Hellas Gold, received approval of the Technical Study enabling the miner to recommence construction activities at the Skouries Project site where development work is ramping up. In March Eldorado received the building permit from the Greek environment ministry for the Olympias mine; development continues on schedule and initial production is expected in the first quarter of 2017.
Source: Eldorado's website
Furthermore the sale of the Chinese asset will result in an even stronger balance sheet and additional flexibility with the renewal of the revolving credit facility that has been extended until June 13, 2020. It will increase the principle amount to $350 million.
As of Q2 2016, the total liquidity amounts to $422.8 million, including $202.8 million in cash, cash equivalents and term deposits and $220.0 million in unused lines of credit.
Source: MD&A for the three and six-month periods ended June 30
As of Q2 2016, the total long-term debt amounted to $600 million, of which about $30 million is the current portion due within one year and the rest is due in the medium term:
Source: MD&A for the three and six-month periods ended June 30
Stock price forecast:Ă‚ Analysts offering 12-month price forecasts for Eldorado Gold Corp. have a mean target of $5.65 with a high estimate of $7 and a low estimate of $4.09.
Source: Yahoo Finance
Recently Credit Suisse cut the target price from $7.00 to $5.25.
What’s the consensus target price? The consensus price target of a period is the average of individual price target estimates submitted by covering sell-side analysts. Normally it is a 12-month period. Assuming this is the price at which the stock will trade in 12 months time, if we discount it at an appropriate rate, we should obtain the present value of Eldorado stock.
If we discount the average price target of $5.25 by 8.40%, we will get the present value of Eldorado of $4.84.
$5.25/ (1+.084) ^1 = $4.84.
8.40% is the cost of capital of the entire industry “metals & mining”, see here.
Benjamin Graham recommends a safety margin of 50% for the defensive investor and a safety margin of 20% or more for the aggressive investor. This means that if we apply a safety margin between 20% and 50% to the present value, we will obtain a value between $2.42 and $3.87 per share.
On July 29 Eldorado Gold closed at $4.09 with a volume of 8,762,237 shares traded on the NYSE. The share price fell by 16% since the attempted military coup in July in Turkey, where Eldorado has two operating gold mines (Kisladag with 49,924 ounces of gold produced in Q2 2016 at cash operating costs of $479 per ounce, and Efemcukuru with 23,406 ounces of gold produced in Q2 2016 at cash operating costs of $509 per ounce), and will likely plunge further and trade below $3.87. The State of Emergency in Turkey is expected to last about three months.
Out of 14 analysts, six recommend to hold Eldorado and seven recommend a buy.
As soon as the State of Emergency in Turkey ends, Eldorado will start to move up again as gold trades higher.
Disclosure: I have no positions in Eldorado Gold Corp.
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