Eldorado Gold (TSX: ELD; NYSE: EGO) shares have plunged after two events: Greece’s new left-wing government’s opposition to the company building a gold mine in the country, and a weaker-than-expected 2015 guidance. Eldorado recently closed at $6.17, down 34% since the double whammy.
On Jan. 30, Greek Energy Minister Panagiotis Lafazanis, a member of the more radical wing of the ruling Syriza party, said he was against developing a Canadian-owned gold mine in northern Greece.
Vancouver-based Eldorado is building Skouries, a high-grade gold-copper porphyry deposit, in the Chalkidiki peninsula of northern Greece. Skouries is the most advanced of Eldorado’s Greek projects, followed by Olympias. The miner also operates the Stratoni underground silver-lead-zinc mine in the country.
“We are absolutely against it, and we will examine our next moves,” Lafazanis told Reuters. While he didn’t say what the government intends to do with Eldorado’s assets, his comments sent the stock down 13% on heavy trading.
But Eldorado, which mines in China and Europe, appears unfazed by the opposition. “As far as we are concerned, we have our permits and it is business as usual,” Krista Muhr, the company’s vice-president of investor relations, told The Northern Miner.
Analysts believe it is unlikely that the Greek government, determined to boost the country’s economy, would revoke Eldorado’s permits.
“Our [fluid] view is that the destabilizing rhetoric seen since the newly elected government was formed will lessen as European Union pressure builds over time,” Raymond James analyst Phil Russo said in an email. “We think there could be room for potential negotiation on the tax or royalty regime for the mines, as opposed to confiscation or suspension of a project, which is a more amicable resolution for both parties.” Russo has a US$9.50 target and an “outperform” rating on the stock.
Kerry Smith, an analyst at Haywood Securities, points out that the Greek coalition government, formed on Jan. 25, has more jobs and investments as part of its platform. He says Eldorado is investing in new mines and creating employment opportunities. Smith has a “buy” and a $9 target on the stock.
The company employs 2,000 workers at its assets in Greece. That number should go up to 5,000 (including direct and indirect jobs) once Skouries and Olympias are in full operation, Muhr notes.
The company has budgeted US$200 million to develop Skouries this year. Work plans include advancing plant construction and building the tailings dam and underground exploratory drift. Construction should wrap up in late 2016. Eldorado intends to spend US$110 million at the Olympias project in 2015 to continue underground mine development and second-phase plant construction, with commissioning expected in mid-2016.
The company’s Sapes and Perama Hill projects in Greece are on hold, Muhr says.
On Jan. 21, Eldorado shares fell nearly 19% after the 2015 outlook for higher costs and lower production. The company expects to churn out between 640,000 and 700,000 oz. gold, down from the 789,244 oz. in 2014.
Russo says the lower production comes from declining year-on-year grades at Kisladag in Turkey, which is Eldorado’s biggest gold mine.
Given the lower gold price, the company has pushed back Kisladag’s phase-four expansion. This will result in a smaller open pit and likely lower reserves.
Company-wide operating cash costs in 2015 are estimated at US$570 to US$615 per oz., compared to last year’s US$500 per oz. All-in sustaining costs are pegged at US$960 to US$995, which is considerably higher than last year’s US$780 per oz.
On the weak 2015 guidance, Dundee Capital Markets analyst Josh Wolfson has downgraded the stock to a “sell,” and his target to $7.
Why in the world would anybody want to bail out Greece, when they voice opposition to the only way out of their predicament? A new mine, with all the safeguards of modern permitting, would be a tremendous lift for the economy.
Can’t figure Greece out .Here is a company that wants to invest and has was planning to increase employment and they are turned down ? Wonder why Greece is a basket case here is an example of why.