Value trap vs value opportunity
That is very thin fine line; and you really have to follow your gut.
I've jumped ship on companies that went underwater, pressured cashflow, and shady management. That appeared extremely low valued relative to past performance, asset value and future potential(cash flow). That is what Eldorado looks like right now.
I was a shareholder of Yellow pages many many years ago who doesn't enjoy a monthly juicy dividend?
I was a shareholder of Pacific Rubiales(now called Frontera energy), that trade could have gone horribly wrong, but I made a boatload backing up the truck going all in at 2.40 and selling at 6$ a few weeks later.
So what are those red flags?
#1 SHADY MANAGEMENT, when you see the CEO outright lying and you're thinking: wtf is that bullshit(e.g. "delay in executions", "aquisition adaptation period", "small issues" you're in for a ride, a down-ride that is.
I can't say Eldorado is shady at this stage, BUT I have not being impressed by their d!ck-move news release 3 days before results(which prevented me to exit half my leverage position).
#2 The assets are over-valued, assets look good on paper and everything but in reality they are worthless, for example, let say that Skouries cannot be mined IAW environmental regulation, it's value is now negative 2 billions.
#3 The company has his operation under water and no entity will finance it whatsoever. (you don't want to wait until it gets there, because it's too late at this point you're looking at your equity getting wiped-out through a debt-holder equity swap(not exactly sure of the proper term), but that is wipng out the current shareholders and transfer them to the debt holder as a form of compensation. It is true management has been burning capital like no tomorrow, without they chinese assets, the balance sheet would not have looked good.
Right now is Eldorado cheap or expensive? It really depends on 3 things...which at this point rest of faith and very few facts. And it also depends compared to what, if you compare it to tech stocks or crypto it is dirty cheap. Personally i believe gold miners have bottomed, I don't see gold crashing in a 1980's-like scenario simply because we are looking at a close to a multi-decade trend. ( and when I hear "quality-names", it's laughable, all miners have their problems, Barrick with multi-billions write-off, Agnico-eagle with their problems at Goldex, Goldcorp with the issues ramping up Eleanor mines and their strikes, South Africa has always a labour strike looming. If you put thing in perspective you will see it is not that gloomy for a gold miner.
#1 Can they put back Kisladag on track? (Canada operates mines with even lower grades, again I am not an engineer so it's probably the type of ore that makes it hard to extract.
#2 Can they mine Skouries in the next future? (I believe the next elections will be positive toward the project).
#3 Can they control their capital spending on their current projects? Not too sure about that one, really looking at Q4 results and Q1 2018, I might cut my position if it gets really ugly.
Enough rambling. GLTA
Disclosure: Concentrated long position