Reasons for Holding Eldorado Gold Corp

Gold price outlook

After having hit a 7-year high on Monday, gold prices were down about 1.8% to $1,650.30 per ounce on the London bullion market and $1,641.60 per ounce on the Comex futures market on Tuesday.

Despite Tuesday's selling pressure, gold remains the commodity for 2020, in my opinion. Prices are likely to move higher because gold works as a hedge against increased volatility and uncertainty in the market. Fears about the impact that the new coronavirus outbreak may have on the global economy have lately contributed to this uncertainty.


Furthermore, should the impact of the virus be harsher than expected today, central banks will likely cut interest rates to support the economy, promoting a low-yielding environment that is positive for gold as the precious metal will appeal more than bonds and other fixed-income securities.

Eldorado Gold Corporation

To take advantage of the gold bull market, you might want to consider opportunities buying shares of mid-tier and small producers of gold, as their stocks are connected to the price of the rare earth metal.

Eldorado Gold Corporation (NYSE:EGO) is a good player in this space, as it tends to outperform the industry when the underlying commodity price rises. In the past year, when gold rose by approximately 21%, the Canadian gold mining company gained 156%, thrashing the VanEck Vectors Gold Miners exchange-traded funds (GDX), which instead increased by 36% over the same period.

Wall Street sell-side analysts have issued Eldorado Gold a hold recommendation rating.

Eldorado Gold produces the precious metal from its mineral deposits that are located in Canada, Turkey and Greece. In 2019, the miner posted the highest production result in three years with 395,331 ounces of gold mined (up 13.2% from 349,147 ounces in 2018), enduring an all-in sustain cost (AISC) of $1,033 per ounce versus $994 per ounce paid the year before.

Thanks to consistent cash flow generated from strong performance of operations across the entire portfolio, along with the balance sheet refinancing, Eldorado now has stronger financial conditions to sustain continuing improvement of its Kisladag mine in Turkey, among other activities.

The company is also employing financial resources for explorations in the Balkans and Greece. It expects to soon obtain all the necessary clearances for the realization of the world-class mineral project located at Skouries.

Looking forward to the entire year of 2020, Eldorado Gold guides for gold production in the range of 520,000 to 550,000 ounces, which will represent a 31.5-39.1% growth from 2019 output, and forecasts to endure an AISC of $850 to $950 per ounce of gold sold.

The current share price is not cheap, as it is trading substantially above the 200-, 100- and 50-day simple moving average lines and is only a few steps from the upper limit of the 52-week range of $3.05 to $11.29.

The stock has a market capitalization of about $1.8 billion. The price-book ratio of 0.55 is lower than the industry median of 1.5, while the enterprise value-Ebitda ratio of 7.12 also stands below the industry median of 8.94.

Lastly, the 14-day Relative Strength Indicator of 82 signals probable pull-back from current share prices, which have entered overbought levels. The current share price ($10.92 as of Feb. 25) may need to retreat some in order for the investment to be profitable.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.