Eldorado Gold has been one of the best performing mining stocks in the past 5 years, mainly because they have been bringing new mines into operation. They are a growth story, and the street loves growth.
Four Producing mines:
*
Kişladağ Mine, Turkey
*
Jinfeng Mine, China
*
Tanjianshan Mine, China
*
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White Mountain Mine, China
Kişladağ Mine – Turkey
The Kişladağ gold mine is the largest gold mine in Turkey. Eldorado advanced Kişladağ from an exploration discovery through development to construction and production. The mine went into productiion in 2006.
Kişladağ is a low grade, bulk tonnage open pit operation using heap leaching for gold recovery. The mine operates at a total ore throughput of 10 million tonnes per year. Eldorado is completing an expansion project that will increase production to 12 million tonnes per year commencing in 2011. Capex for the expansion is $40 million.
PRODUCTION (in ounces Au)
2006
2007
2008
2009
2010 Forecast
2011 Forecast 70,895
135,306
190,334
237,210
255,000 to 265,000
270,000 to 280,000
CASH OPERATING COST (per ounce Au)
2006
2007
2008
2009
2010 Forecast
2011 Forecast $206
$189
$254
$280
$300-$310
$300-$320
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Jinfeng Mine – China
Jinfeng is an open-pit and underground gold mine. Eldorado owns an 82% interest in Jinfeng with local joint-venture partner Guizhou Lannigou Gold Mine Limited holding the remaining 18%. The mine was acquired by Eldorado Gold through the acquisition of Sino Gold Mining Limited in Q4 2009. Jinfeng commenced construction in 2005 and achieved commercial gold production in Q3 2007.
PRODUCTION (in ounces Au)
2007
2008
2009 (December 4 – 31 only)
2010 Forecast
2011 Forecast 56,981
150,928
14,541
170,000 to 190,000
200,000 to 220,000
CASH OPERATING COST (per ounce Au)
2008
2009 (December 4 – 31 only)
2010 Forecast
2011 Forecast $400
$472
$450-$480
$370-$390
Tanjianshan Mine – China
The Tanjianshan mine consists of two separate deposits – Qinlongtan ("QLT") and Jinlonggou ("JLG"). The mine and mill were commissioned in Q4 2006 and commercial production was declared in Q1 2007.
90% (through Eldorado's 90% interest in Qinghai Dachaidan Mining Limited – "QDML"). The remaining interest is owned by the Qinghai Number One Geological Brigade (5%) and the Dachaidan Gold Mine (5%).
PRODUCTION (in ounces Au)
2007
2008
2009
2010 Forecast
2011 Forecast 138,162
118,468
105,610
95,000 to 105,000
95,000 to 105,000
CASH OPERATING COST (per ounce Au)
2007
2008
2009
2010 Forecast
2011 Forecast $288
$261
$349
$420-$435
$400-$420
White Mountain Mine – China
White Mountain is an underground mine located northeast of Beijing, China. Eldorado owns 95% of White Mountain and their joint venture partner Jilin Tonghua Institute of Geology and Minerals Exploration and Development holds the remaining 5%.
Eldorado acquired the White Mountain mine through its acquisition of Sino Gold in December 2009. The mine started commercial production in January 2009, but operations at the mine were suspended in August after a group of Chinese farmers forced Sino Gold to halt operations at the site. There was a dispute over water discharged from the mine.
Production resumed in January 2010, when the mine received all required approvals. The mine is now able to discharge treated water under an approved change to the environmental-impact assessment.
PRODUCTION (in ounces Au)
2009 (December 4-31 only)
2010 Forecast
2011 Forecast 6,148
55,000 to 65,000
65,000 to 75,000
CASH OPERATING COST (per ounce Au)
2009 (December 4-31 only)
2010 Forecast
2011 Forecast $364
$430-$460
$410-$440
Eldorado is also bringing 3 new mines into production over the next few years:
* Efemçukuru Project, Turkey
* Eastern Dragon Project, China
* Perama Hill Project, Greece
Efemçukuru Project – Turkey
The Efemçukuru project is a high grade gold deposit. Construction is ongoing with commissioning and production planned in 2011. Total capital expenditures at the site are estimated to be $152 million. Underground development will start mid 2010.
* Project currently under construction, with production forecasted to start in 2011
* Proven and probable mineral reserves increased to 1.5 million ounces in Q4 2009
* Site preparation activities began in Q2 2008
* Feasibility study completed in 2007 based on a mine throughput of 406,000 tonnes per year producing an average of 112,400 ounces of gold per year
* Environmental Positive Certificate received in Q3 2006
PRODUCTION (in ounces Au)
2011 Forecast 90,000 to 100,000
CASH OPERATING COST (per ounce Au)
2011 Forecast $190-$210
CAPEX $152 million
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Eastern Dragon Project – China
In Q2 2009, US$65 million were approved for the development of Eastern Dragon as an open pit and underground mine. The first commercial gold production is anticipated in early 2011.
PRODUCTION (in ounces Au)
2011 Forecast 70,000 to 80,000
CASH OPERATING COST (per ounce Au)
2011 Forecast $140-$160
DEVELOPMENT CAPEX US$65 million
Perama Hill Project – Greece
The Perama Hill gold project is a late-stage development project in Greece. Eldorado acquired the Perama Hill project in Q3 2008 with the acquisition of Frontier Pacific Mining Corporation. The company plans to begin construction in 2011 at a total cost of $159 million.
Average gold production at Perama Hill is forecasted to be 110,000 ounces per year at a cash operating cost of $278 per ounce.
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Financials and Production
Q2 2010 Highlights
* Reported record earnings of $0.11 per share($0.07 per share Q2 2009)
* Produced 167,940 oz of gold at an average cash operating cost of $357/oz (total cash cost of $410/oz)
* Sold 172,826 oz of gold at a realized average price of $1,195/oz
* Generated $92.3 million of cash or $0.17 per share from operating activities before changes in non-cash working capital
* Paid an initial dividend on June 18, 2010(C$0.05/share)
* Completed the acquisition of Brazauro Resources. Transaction was valued at approximately C$122.4 million
Cash and cash equivilents – $307 million
Debt – $110 million
As you can see from the chart below, production has been increasing at a very fast pace. And that growth will continue for several more years. They are still bringing new mines online.
2010 - Production of 575,000 – 625,000 oz of gold from 4 mines at a cash operating cost of $375 – $395/oz.
2011 – Production of 790,000 – 860,000 oz of gold from 6 mines at a cash operating cost of $310 – $325/oz
What makes EGO such a darling is their low cash cost. Lower cash cost = greater margins. EGO has some of the best margins in the business……
Conclusion
So as you can see, Eldorado is a growing gold producer. With 4 current mines producing and 3 coming online over the next few years. They definitely have a full plate right now, and at least aren't just waiting around doing nothing like some producers are. In fact EGO is still trying to expand. They just signed an agreement to purchase Brazauro Resources Corporation for C$122 million. The principal asset of Brazauro, the Tocantinzinho Project in Tapaj's, Brazil, is a late stage exploration project with a current Measured and Indicated Resource of 1.9 million ounces of gold.
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Eldorado has a strong balance sheet, and doesn't hedge production. It is producing excellent cash flow and earnings right now, and those should only increase if they can successfully bring these new mines into production.
Something to keep in mind however, 4 of their current and future mines are in China, and two are in Turkey. That is a heavy concentration in regions that might be considered "unproven" to some at least. For now though there are no problems, and hopefully things will continue to run smoothly in those regions. Still though, I would like to see them more diversified in terms of where their mines are located. And looking at their latest acquisition(located in Brazil), it looks like Eldorado is trying to do just this.
All of Eldorado's mines are low cost which gives the company excellent margins. If they can bring online those three new mines without any problems, and the regions they mine in remain stable, then this company should continue to be a favorite among gold investors.
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--
almamor
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