stockmaster989 wrote: According to Canaccord Genuity:
https://docdro.id/jV7ilug January 6, 2017
Eldorado Gold Corporation
RATING: HOLD↓ from BUY
PRICE TARGET: C$5.25↓ from C$6.00
Lowering Recommendation
Kisladag expansion off again, again The Eldorado Board has elected to cancel the Kisladag expansion, again and also deferred TZ construction indefinitely. The decisions were largely predicated on a more muted internal view of the medium-term gold price and the preference for cash preservation despite the $1.1B cash war chest. While the capital to complete the Kisladag expansion was not overly significant at $63M, the ongoing sustaining capital would have effectively doubled in the expansion case. While the overall impact to NAV was not draconian ($143M), at prevailing gold prices we believe investor confidence in Eldorado management’s guidance process has been further eroded. Given the company’s numerous revisions to the project pipeline (Certej and now TZ cancelation), Kisladag expansion cancelled twice, permitting unknowns in Greece impacting Perama Hill and Sapes development, and a continued lack of clarity on the Phase 3 expansion at Kisladag, we believe minimal value can be attributed to all these opportunities.
In our opinion the project cancellations further cement the view that Certej, TZ, and the Kisladag expansions are not viable projects and consequently, we believe it is prudent to completely remove these development opportunities from our valuation base. The project deferrals have made ELD’s 2020 plan of +830koz gold production no longer achievable organically and have increased the prospect of M&A in our opinion. We also note that the gold sector’s track record on value accretion through acquisitions is not exemplary. The good news is that the free cash flow profile for ELD is far less negative over the next two years and the growth profile (now 18% to 2020) is still robust.
Still, the near-term value proposition of ELD has declined and given the limited near-term catalysts and continued political uncertainty in Greece/Turkey, we are revising our recommendation to HOLD from Buy. Investment Highlights
ELD reported Q4/16 operating results and 2017 guidance. 2016 production surprisingly came in 2% below updated guidance announced at the end of October. 2017 production has also been adjusted lower by 4%; a result of lower guidance at Kisladag. Cash cost guidance has also been increased to $485-535/oz vs $450-500/oz previously. Forecast capital spending in 2017 has 22% decline ($115M) as compared to guidance provided in early September.
Kisladag reserves are expected to be recalculated lower (1mozs) at YE16 to reflect the revised mine plan. The negative impact is expected to be offset partly from improved grades (5% to 10%) and recoveries (modest impact) and, moreover, from +20% lower waste stripping requirements supported by the potential to steepen the pit walls.
Valuation
We have revised our target price to C$5.25 from C$6.00 reflecting the removal of the Kisladag expansion (C$0.26/sh), Certej (C$0.24/sh).and TZ (C$0.50/sh) from our base case valuation profile. Our target remains predicated on 0.8x our 5%/operating NAVPS estimate of C$5.70 (previously C$6.67) plus net debt and other corporate adjustments.