Eldorado Gold: Tocantinzhino Has Been Approved For Project Construction
May 30, 2018 Fun Trading - Seeking Alpha
Today, the company provided an update on Permitting for Capital Projects.
Eldorado Gold received the "green light" from the Brazilian Ministry of Mines and the Environmental Agency of the State of Para to go ahead with the project construction.
The company received confirmation from the Turkish Ministry of Environment and Urbanization that the proposed construction of the mill at the Kisladag site is permissible under the existing EIA.
Greece: We are still waiting for the permits. Eldorado Gold should announce some significant progress next month.
I recommend accumulating EGO on any weakness with a target of $2.25.
Skouries mine in Greece. Courtesy Eldorado Gold.
Investment Thesis
Eldorado Gold (EGO) is a mid-tier Canadian gold miner with several international operations. I believe the stock is trading at a significant discount to the fair value and I recommend accumulating EGO on any weakness with a target of $2.25 as soon as the Greece impasse is resolved, which will not take long now.
Last year, the company sought in vain to regain its footing after divesting its Chinese assets for nearly $1 billion and recently acquiring Integra Gold (with its flagship project called Lamaque in Quebec).
Unfortunately, the company has faced intense winds with a never-ending dispute with the new government of Greece and some additional technical issues in its major producing mine in Turkey called Kisladag. The latter is a low-grade, bulk-tonnage, open pit operation that has used heap leach for gold recovery and has been open since 2006.
Those interferences resulted in a catastrophic impact on the stock price in October 2017. EGO could not recover and languished just above $1 up until the 4Q'17 results when the stock tumbled another 12% to $0.80.
Since then, the stock has languished just below $1 for well over 30 days which forced the company to take steps to stay listed in the NYSE.
Eldorado Gold doesn't need a reverse split to stay listed on the NYSE. The company indicated that a proposition to implement a reverse split 1:5 will be submitted to a vote on June 21, 2018, because the company did not meet the $1 NYSE requirement. In its first quarter 2018 results, Eldorado Gold announced:
New York Stock Exchange ("NYSE") regulations stipulate that listed issuers must maintain a minimum average closing share price of US$1.00 per share calculated over a period of 30 consecutive trading days. On April 18, 2018, Eldorado received notice from the NYSE that it no longer met this requirement.
Eldorado anticipates that it will request shareholder approval at its 2018 Annual and Special Meeting, to be held on June 21, 2018, to effect a share consolidation with a ratio of 5-for-1 in order to regain compliance with the NYSE's continued listing requirements. The proposed share consolidation will be subject to receipt of shareholder approval and all necessary regulatory approvals, including from the NYSE and the Toronto Stock Exchange.
As everyone knows a reverse split is considered harmful to the stock price even if it doesn't affect the value of EGO in theory.
In the graph below, the 30-day moving average is now 0.995 as of May 29, 2018. EGO needs either one trading day at or above $1.15 tomorrow or three more trading days at $1.04 to show a 30-day average above $1 which is sufficient to regain NYSE compliance and eliminates the need of a reverse split.
The situation is now clear. Eldorado Gold doesn't need a reverse split to stay listed on the NYSE. Consequently, I expect the company to drop the request for shareholders' approval of a reverse split 1:5, as soon as early next month.
Today, the company provided an update on Permitting for Capital Projects.
1 - Tocantinzhino project in Brazil
The mining concession, which permits mining and commercial production at the Tocantinzinho project, was issued on May 18, 2018 by the federal branch of the Brazilian Ministry of Mines. This permit, in addition to the Environmental Construction Licenses, issued by the Environmental Agency of the State of Para, completes the permits required for project construction. The project plan is currently undergoing an optimization phase to improve capital costs and the economics of the project. Eldorado's Board of Directors will assess next steps for the project after completion of this work.
Eldorado Gold received the "green light" from the Brazilian Ministry of Mines and the Environmental Agency of the State of Para to go ahead with the project construction. If we look at the 1Q'18 presentation, the company is not mentioning Tocantinzhino at all, which signifies that the project will be likely sold in a short period of time to raise cash for Kisladag.
A recent article in the Globe and Mail is confirming this eventuality.
Eldorado Gold Corp. may sell its Brazilian gold operations as it seeks to raise capital over the next 18 months, says a precious-metals fund manager.
While the struggling Vancouver-based intermediate gold producer has no urgent cash crunch, its longer-term capital expenditure needs far exceed cash holdings. In a conference call with analysts following its year-end results last month, chief executive officer George Burns said Eldorado will explore all financing options, including “divestiture at the right price of some of our assets that aren’t top priority.”
The article also indicates that according to an analyst who declined to be named, the price could be between $40 to $50 million.
I seriously doubt that Eldorado Gold will accept such a low price for TZ. I believe the TZ project will probably fetch well over $130 million, in my opinion.
Eldorado Gold acquired the project from Brazauro Resources in 2010 for about ~$92 million, and it took almost eight years and a lot of CapEx to reach the project construction milestone officially.
2 - Kisladag, Turkey
Eldorado's wholly owned subsidiary, Tüprag Metal Madencilik Sanayive Ticaret A.S., has received confirmation from the Turkish Ministry of Environment and Urbanization ("MoE"), that the proposed construction of the mill at the Kisladag site is permissible under the existing Kisladag Environmental Impact Assessment ("EIA"), approved by the MoE in 2014.
The news was expected, but it is essential that the MoE confirmed that the proposed construction of the mill is permissible within the existing EIA approved in 2014.
3 - Lamaque, Canada
As disclosed in the Company's First Quarter results release dated April 26, 2018, the mining lease for the Triangle deposit was received in early 2018. This key permit enables production from the Triangle deposit, currently expected in early 2019.
The project is still on schedule which is reassuring.
4 - Kassandra Mines (Skouries, Olympias, and Stratoni), Greece
Eldorado continues to discuss the need to approve outstanding permits for the development of its Kassandra assets with the government of Greece. The Company remains committed to developing its Kassandra assets, including Skouries, in accordance with its contractual and other legal obligations, which Greek court rulings have consistently supported. Eldorado's compliance with its legal obligations was confirmed by the recent positive arbitration decision (disclosed on April 4, 2018), which found the Company not in breach of the provisions of its Transfer Contract with the Greek State.
The transition of the Skouries site to care and maintenance is expected to be complete by the end of Q2 2018. Ongoing care and maintenance costs are estimated to be $3-5 million per year for 2019 and beyond.
Eldorado Gold has been quite muted regarding this issue because I believe the company and the MoE are in the final stage of reaching an agreement.
On May 22, 2018, we learned from the Greek Observer that:
The government expects to reach an agreement with Eldorado Gold in the coming weeks, in the spirit of the recent arbitration decision, Environment and Energy Minister George Stathakis told representatives of workers at the Kassandra mines on Monday...
At the meeting, the minister and labor unions discussed the developments, and Stathakis said that talks with the parent company “are being held in a constructive climate.”
In a press release following the meeting, the Ministry said among other things that “the Greek state, and the Ministry of Energy in particular, is obliged to guarantee that pure gold, silver and copper will be produced, under the exact provisions on behalf of the public interest, and under the restrictions imposed by the European environmental legislation.”
Therefore, I believe the permits will be issued sometime next month or even sooner.
