Eldorado Gold Corp: Permitting Concerns Remain an Overhang

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Eldorado Gold Corp. (NYSE:EGO), the Vancouver, Canada-based gold producer, trades at relatively low multiples, as its higher political risk profile currently trumps a low cost structure, strong balance sheet, and healthy growth pipeline. However, further confidence on the company’s growth projects’ timelines and permits could be key catalysts, which could begin to de-risk the story.

The company reported adjusted fourth-quarter 2013 earnings per share of  1 cent, missing consensus estimates of 5 cents by 4 cents. Higher-than-expected taxes and below-the-line expenses largely drove the miss. The company produced 169,000 ounces in fourth-quarter 2013 at cash operating costs of $526 per ounce and total cash costs of $577 per ounce. For 2013, EGO produced 721,000 ounces at cash operating costs of $494 per ounce and total cash costs of $551 per ounce.

Going forward, based on the midpoints of guidance, EGO is expecting gold production growth of ~6 percent, while total cash costs are expected to climb 13 percent. Although costs are expected to increase, it is important to note that even at the higher level, EGO remains one of the lowest-cost producers among its peers. Going forward, particularly in 2014, the main focus remains around permitting at Perama Hill, Kisladag, and Eastern Dragon.

The company continues to maintain strong liquidity of about $1 billion, including $624 million year-end cash plus $375 million undrawn credit facility. However, as EGO invests in growth projects in riskier jurisdictions, the company’s financial position is deteriorating (fiscal year 2013 total cash flow of -$228 million). The permitting problems in Greece (Perama Hill) and China (Eastern Dragon) continue to create uncertainty around the timeline for the company’s growth profile.

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