- By Alberto Abaterusso
Eldorado Gold Corp. (EGO) reported its financial and operating results for the second quarter of fiscal 2017 on July 27.
For the quarter, the Canadian mid-tier gold producer posted adjusted EPS of one cent, in line with analysts' expectations but a 50% decline from the comparable quarter of 2016. Earnings estimates ranged between a loss of one cent and a profit of three cents per share.
Revenue came in at $72.2 million, a 32.6% decrease year over year due to the sale of the company's Chinese assets and substantially lower than expectations. The estimated revenue target was $109.85 million, which ranged between a low of $88 million and a high of $135 million.
During the quarter, the miner sold 57,206 ounces of gold for an average price of $1,262 per ounce. This was higher than the average quarterly price of gold on the London Bullion Market - $1,256.963 per ounce - meaning that in spite of a higher realized gold price, the company is still paying the consequences for lower production following the divestment of its Chinese assets.
The latter transaction contributed to bringing the company's total liquidity to $1 billion in cash and securities, including a $250 million line of credit. Eldorado has already partially used these funds to pay for the acquisition of Integra Gold Corp. (ICG.V). The sale of its Chinese mines, however, has raised some concern among investors as to how long it will take for the company's production to increase following this divestment.
Eldorado will need to reorganize its operations in order to do so. As the phase II project at Olympias in Greece reaches commercial production levels soon, the miner is expecting total production to increase by the end of the year.
Other projects will start to deliver in the medium to long term. Skouries is expected to begin production in 2020. The Lamaque project, a recent addition to the company's pipeline with the acquisition of Integra Gold, is at a Preliminary Economic Assessment stage.
For the time being, Eldorado Gold has improved its overall cost structure with the divestment of its assets in China, but its annual production will not exceed 315,000 to 325,000 ounces of gold. During the quarter, the miner produced - including pre-commercial production from Olympias Phase II - 63,692 ounces of gold at an average quarterly all-in sustaining cost of $846 per ounce.
Second-quarter production was also impacted by a sharp drop in the volume of gold produced at Kisladag - one of the company's two assets in Turkey - because of a time delay in the expected gold recovery rates using the heap leaching mining process.
Compared to a range of $485 to $535 per ounce guided for full fiscal 2017, the average cash operating cost was $484 per ounce of gold during the second quarter.
Eldorado Gold is trading around $2.26 per share with a market capitalization of $1.61 billion, a price-book (P/B) ratio of 0.45 and an EV/Ebitda ratio of 11.26.
As of today, the recommendation rating is 2.3 out of 5 with a target price of $4.17 per share.
Disclosure: I have no positions in Eldorado Gold Corp.
This article first appeared on GuruFocus.