Shares of Eldorado Gold (EGO -3.29%), a junior miner with assets in Greece and Turkey, are plunging once again. This time shares of the gold miner dropped by as much as 13%, bringing its losses over the past three trading sessions to a whopping 40%! The culprit for today's drop appears to be a host of Wall Street downgrades following the company's update on its key Kisladag mine in Turkey on Monday.
For those who may not be following Eldorado Gold like a hawk, the company wound up losing more than a quarter of its value on Monday, Oct. 23, after providing a full-year production update for its Kisladag mine.
The company had warned back in late June that the solution grade of gold on the leach pad in this open-pit mine was below its internal calculations, and it wound up lowering its full-year gold production forecast. On Monday of this week, it confirmed, following months of laboratory testing, that gold yields will be below internal expectations. Its new forecast calls for 170,000 ounces of gold to 180,000 ounces of gold in 2017, which is well below its projections of 230,000 ounces of gold to 245,000 ounces of gold to begin the year.
The company's press release also noted that its 2018 production forecast is under review, and it lifted its cost-per-ounce expectations for the mine. All around, it was not the news shareholders wanted to hear.
The latest dilemma for Eldorado Gold is that this news isn't what Wall Street wanted to hear, either. Today, RBC Capital cut its rating on the company to "underperform" from "sector perform." Meanwhile, Canaccord Genuity lowered its price target on Eldorado by 31% to $2.54 ($3.25 Canadian) yesterday, and TD Securities cut its rating on the company to "hold" from "buy." Though Wall Street rating and price target changes rarely impact the investment thesis of a company, and their impact is usually very short-term, it's salt in the wound for Eldorado Gold's shareholders.
The bigger issue here for Eldorado Gold isn't Kisladag, even though a potentially greater than 25% cut in production (perhaps more than $50 million in annual sales) is nothing to sneeze at. The major concerns, and the reason Wall Street is slamming the door in the company's face, are its Greek mines, Olympias and Skouries.
investors widely expected the company's Skouries mine to bring Eldorado from the ranks of a junior miner to the same level as the big boys in the industry. Unfortunately, high mine development costs in the wake of weakening gold prices between 2013 and 2015, and more recent permitting issues, have ground development of Skouries to a crawl.
Currently, the Greek government won't issue Eldorado permits to develop Skouries due to environment concerns, with the company threatening to halt investment in Greece if arbitration between it and the government doesn't go anywhere. Without these vital sources of production growth (Skouries has 3.1 million ounces of gold, 1.5 billion pounds of copper, and an estimated 24-year mine lifespan), Eldorado could struggle to generate positive cash flow.
If there is a positive here, the disposition of non-core assets has allowed the company to buoy its balance sheet to a $206 million net cash position. This could come in handy during these bumps in the road, especially if the company loses money.
Nevertheless, Eldorado's investment thesis continues to dim. Only those investors with a stomach for risk and a very long investment time frame should be considering dipping their toes in the water at this point.