Is Eldorado Gold Corp. Worthy of Your Consideration?

Despite recent write-downs and a massive fourth-quarter loss, Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO) is still worthy of some consideration.

| More on:

Gold’s recent rally has breathed life into gold-mining stocks. Over the last two months, the precious yellow metal has shot up by 9% because of growing market volatility and fears over the outlook for the global economy.

Despite this recent surge, it hasn’t all been good news from the gold-mining industry. Gold miner Eldorado Gold Corp. (TSX:ELD)(NYSE:EGO) reported a massive fourth-quarter-2015 loss and suspended its dividend in response. This reflects the tough operating environment for gold miners and has left many investors and analysts questioning whether or not Eldorado is a worthwhile investment.

Now what?

Eldorado’s fourth-quarter results were far from impressive. It was weighed down by weak gold prices and problems with its projects in Greece; it reported a monster US$1.24 billion loss driven by write-downs largely from its projects in Greece.

These projects are struggling to gain permitting and licensing approvals from the Greek government, forcing Eldorado to halt is operations in Greece. Despite the intense lobbying efforts of Eldorado, there are no signs that the attitude of the Greek government will change.

You see, the spectacular economic implosion of Greece in 2012 that almost caused it to leave the European Union coupled with severe economic austerity measures have made the country politically unstable. This instability helped the leftist Syriza Party come into power in 2014, and they have demonstrated considerable opposition to a range of mining projects.

This has substantially increased the risks associated with Eldorado’s projects in Greece, the most important of which is the Skouries project in northern Greece. These projects were a key part of Eldorado’s growth plans and, with no clear path forward, it appears they will be delayed for some time, despite a favourable ruling from the Greek Supreme Court on Eldorado’s Skouries project.

So what?

Eldorado’s fortunes are ultimately tied to the price of gold and, despite the recent rally, its outlook remains bleak. A strong U.S. dollar and the ongoing strength of the U.S. economy continues to weigh heavily on its price. To put it simply, the dollar and gold share an inverse relationship, which means that a strong dollar is negative for gold.

Then there are the recent hawkish comments from the Fed, which is considering further rate hikes this year. Not only would these support a higher U.S. dollar, but it would increase the opportunity-cost of holding a non-yielding asset such as gold.

Nonetheless, it is worth noting that Eldorado has particularly low all-in sustaining costs per ounce of gold mined. For 2015, these averaged US$842 per ounce–some of the lowest costs among its peers. This highlights that even if gold falls back below US$1,100 per ounce, or where it was at the start of 2016, it will remain profitable. Its balance sheet is also in good shape with US$288 million in cash and a mere US$6 million in debt.

Importantly, Eldorado has already swallowed the bitter pill associated with its Greek operations by clearing the decks through a series of massive write-downs.

While I am certainly not a fan of gold miners, with Eldorado’s stock down by almost 35% over the last year, it would appear that there is an opportunity for investors to dip their toes in the water.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

nugget gold
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for its 1.06% Dividend Yield?

A top gold stock with a modest yield is a buy for its lengthy dividend-growth streak.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »