- By Alberto Abaterusso
Credit Suisse downgraded Eldorado Gold Corp. (EGO) on July 31, the second time in about a month.
The firm lowered its rating on the Canadian mid-tier gold producer from neutral to underperform. As displayed in the chart below, this is the fourth downgrade Eldorado has received over the last trading month.
Source: Yahoo Finance
The price target estimates ranged between a low of $3 per share and a high of $5.63 per share.
The new target price of $2.40 marks a new low in the range.
According to Barron's, the reasons for Credit Suisse's second downgrade are associated with problems the company is having at its projects in Greece. Continued delays in receiving the necessary building permits from the Greek governent has forced the miner to postpone the commencement of operations at its Skouries mine until 2020. In addition, an operating issue with the filtering tailings practice at Olympias forced the miner to downgrade its guidance on gold production for the second time.
Eldorado Gold plans to refurbish production lost due to the sale of its Chinese assets through the Lamaque project, which the company is acquiring along with Integra Gold Corp. (ICG.V). However, the project is still at a Preliminary Economic Assessment (PEA) stage. This means further exploration activities are needed before the miner can determine the economic viability at Lamaque.
Credit Suisse also lowered its estimate on Eldorado Gold's EPS for full fiscal 2017. It estimates an average EPS of five cents per share, down two cents from fiscal 2016 EPS. The company expects gold production to range between 290,000 and 340,000 ounces at an all-in sustaining cost (AISC) of $900 per ounce and a cash cost of $500 per ounce.
Currently, Eldorado Gold has a recommendation rating of 2.3 out of 5.
Investment thesis (the Lamaque project): with so much cash available on hand after the divestment of the Chinese assets, Eldorado Gold Corp's market value will be driven back to one year's levels if the miner will decisively invest in the Lamaque project. Once the site has been turned into a productive asset, Eldorado Gold Corp. can add approximately 125,000 - 135,000 ounces of yearly gold production to an improved gold margin over a span of 10 years.
Eldorado Gold is trading around $2.12 per share, down 14 cents or minus 6.19% from the previous trading day, with a market capitalization of $1.51 billion, a price-book (P/B) ratio of 0.42 and an EV/Ebitda ratio of 13.22.
Disclosure: I have no positions in Eldorado Gold Corp.
This article first appeared on GuruFocus.