Here's Why Eldorado Gold Stock Popped 16.1% in February

The market turned bullish about a gold stock that's lost more than 70% in three years.

Neha Chamaria
Neha Chamaria
Mar 11, 2019 at 11:07AM
Energy, Materials, and Utilities

What happened

There seems to be no stopping Eldorado Gold (NYSE:EGO) shares this year. After a stupendous run-up in January, the gold mining stock piled on another 16.1% in the month of February, according to data provided by S&P Global Market Intelligence. While the euphoria from January spilled over last month, strong numbers for fiscal 2018 and a hugely encouraging guidance for 2019 further fueled investor optimism.

So what

On Jan. 31, Eldorado sprung a huge surprise when it announced plans to restart operations at its flagship mine, Kisladag, in Turkey, by adopting a mining process called heap leaching that would save the company nearly $520 million that it would've otherwise spent on another mining method. Operations at Kisladag were suspended in early 2018 after gold recovery rates fell short of expectations.

Kisladag wasn't the only update that sent Eldorado stock soaring, though. Management also provided its outlook for the next three years, projecting gold production to jump more than 50% by 2020, thanks to Kisladag and the commencement of production at another mine, Lamaque, which Eldorado acquired in 2017.

A closeup view of gold nuggets.

Image source: Getty Images.

These announcements nearly overturned the market's perception about Eldorado overnight, so much so that investors chose to overlook the $361.9 million in net loss that the miner reported for fiscal 2018. Impairments related to Kisladag and the Greece-based Olympias mine were to blame for the loss. For a change, investors seemed to focus on the positive takeaways from Eldorado's 2018 earnings report, released on Feb. 22, including 17% growth in revenue and a twofold jump in cash from operations. The prospect of rising revenue and cash flows as Kisladag comes online has clearly gotten investors excited.

Check out the latest earnings call transcript for Eldorado Gold.

Now what

There's no denying that Kisladag's restart would be a major development for Eldorado. However, the prospects look good only through 2020 for now, as the miner expects production from the mine to drop sharply in 2021. Eldorado aims to update its guidance on Kisladag by the end of this year. Until then, it remains to be seen whether the mine can help Eldorado turn profitable.