Eldorado Gold: A Bright Future With Skouries In The Wings

Eldorado Gold: A Bright Future With Skouries In The Wings

Juan Jose Napuri/iStock via Getty Images We’re nearing the end of the Q1 Earnings Season for the Gold Miners Index ( GDX ), and one of the first companies to release its results this year was Eldorado Gold ( EGO ). Overall, the company had a blow-out year beating its upwardly revised FY2021 guidance midpoint. It was also a solid year from a project standpoint, monetizing Tocantinzinho, completing upgrades at Lamaque/Kisladag, and completing the Skouries Feasibility Study. Given Eldorado’s enviable organic growth profile and improved operational results as of late, I would view sharp pullbacks as buying opportunities. Eldorado Gold – Gold Pour (Company Presentation) Eldorado Gold released its Q4 and FY2021 results last month, reporting quarterly production of ~122,600 ounces. This strong quarter helped push annual production well above initial guidance (450,000 ounces) and slightly above the revised guidance midpoint, with a ~1.3% beat vs. the 470,000-ounce outlook. The stand-out performer was the Lamaque Mine, which produced a record ~51,400 ounces in Q4, and enjoyed 6% production growth year-over-year. Let’s take a closer look below: Eldorado Gold – Quarterly Gold Production (Company Filings, Author’s Chart) From a headline standpoint, this may have been a weaker quarter and year for Eldorado Gold, with gold production down 11% year-over-year in Q4 and 10% on a full-year basis. This is based on the production of ~476,000 ounces in FY2021, down from ~529,000 ounces in FY2020. However, this was to be expected due to the decline in grades at Kisladag (0.75 grams per tonne gold vs. 1.00 grams per tonne gold), the company’s largest contributor by a wide margin. This decrease in grades led to production declining 23% to ~174,400 ounces from ~226,500 ounces in 2021. Lamaque Mine – Quarterly Production (Company Filings, Author’s Chart) However, when it comes to managing expectations, Eldorado did an outstanding job in FY2021, easily beating its initial guidance. Meanwhile, at Eldorado’s #2 mine, Lamaque, the company continues to fire on all cylinders. This was evidenced by a record quarter in Q4 with ~51,400 ounces of gold produced and a 6% increase in gold production year-over-year to ~153,200 ounces despite coming up against higher grades in the year-ago period.

Elsewhere, from a project standpoint, Eldorado exited 2021 in a much better position, making progress at several projects, and divesting those that are non-core to improve its balance sheet. These positive developments include the following: completion of Triangle-Sigma Decline at Lamaque

construction and wet commissioning of HPGR Circuit at Kisladag

completion of a Feasibility Study at the Skouries Mine in Greece

acquisition of QMX Gold to increase its land package in the Abitibi

sale of Tocantinzinho to G Mining

Digging into these developments a little closer, it’s clear that Eldorado Gold has a very bright future. Beginning with the Triangle-Sigma decline, the new decline will improve operating costs, reduce greenhouse gas emissions, and help with lower-cost and more effective exploration by allowing for underground drill platforms. This is a big deal given the high grades being delineated at the Ormaque deposit, which lies between the Triangle Deposit and the Sigma Mill. Lamaque Mine Infrastructure (Company Presentation) As for the completion of the High-Pressure Grinding Rolls Circuit at Kisladag, this is expected to boost the life of mine recovery rates by 400 basis points, with ramp-up ongoing. At Skouries, the company has confirmed that this project has some of the best economics of any undeveloped gold project globally, with the potential to produce ~300,000 gold-equivalent ounces [GEOs] per annum at negative all-in sustaining costs. I have estimated costs to come in at ~$100/oz to account for inflationary pressures. Still, even at this figure, it is quite clear from the chart below that Skouries would be a massive outlier and help drag down Eldorado’s consolidated cost profile ($1,070/oz). Undeveloped Gold Projects – Average Production / Projected All-in Sustaining Costs (Company Filings, Author’s Chart) Finally, the sale of Tocantinzinho improved the balance sheet with a $20 million upfront payment, and Eldorado will have deferred consideration of $60 million in cash if the project heads into commercial production. Eldorado also holds a ~20% ownership in G Mining following the deal. With a very competent team that is leading G Mining Ventures (four successful mine builds in South America), this was a smart move by Eldorado, allowing it to focus on its current portfolio and Skouries while participating in the upside of Tocantinzo with a team that’s laser-focused on solely that project and has a great track record. QMX Gold Land (Company News Release) […]

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