Eldorado Gold Stock: Q4 2021 Results Analysis (NYSE:EGO)

Introduction

The Vancouver-based Eldorado Gold (NYSE: EGO) released its fourth quarter and full-year 2021 results on February 24, 2022.

Note: This article is an update of my article published on January 17, 2022.

1 – 4Q21 and full-year 2021 Snapshot

It was a weak gold production this quarter. Gold production came in at 122,582 Oz, down from 138,220 ounces produced in 4Q20 and down from 125,459 Oz delivered the preceding quarter. The revenue for the fourth quarter of 2021 was $244.64 million.

2021 production was 475,912 ounces, ending at the upper end of the revised production guidance range of 460K to 480K ounces.

2 – Investment Thesis

The investment thesis is always a strenuous exercise for this gold miner. As I said in my preceding article, I continue to be very disappointed with Greece’s painful lack of progress after the company finally received all the necessary green lights from the Greek government in April 2021.

We are now in 2022, and we are still waiting for the Skouries project to restart. Most importantly, we are still waiting to learn how management will secure the financing needed to complete the Greek endeavor.

On the positive side, Olympias’ production is improving this quarter which is encouraging after many quarters of hiccups and hesitations.

Also, the company is buying back shares, and it is progress for shareholders.

Eldorado may purchase up to 1,421,373 of its common shares representing approximately 0.8% of the total 182,659,032 common shares of the Eldorado issued and outstanding as of December 17, 2021.

Finally, On December 15, 2021, the company published a mineral reserves update after the divestment of the Tocantinzinho mine project. Proven and Probable gold ounce as of September 30, 2021, was 15,264K Oz.

Thus, it is prudent to trade short-term LIFO a large part of your long-term position and keep long-term a core position expecting a breakthrough in the future.

The gold sector is highly volatile and could turn bearish or bullish on short notice.

3 – Stock Performance

The stock has underperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX) and Newmont Corp. (NYSE: NEM) and is now up 7% on a one-year basis.

Eldorado Gold – 4Q21 Balance Sheet And Gold Production: The Raw Numbers

Eldorado Gold	4Q20	1Q21	2Q21	3Q21	4Q21
Total Revenues in $ Million	278.52	224.62	233.22	238.44	244.64
Net Income in $ Million	22.79	8.27	-55.74	-52.22	-43.1
EBITDA $ Million	95.27	105.65	2.24	97.11	103.8
EPS diluted in $/share	0.13	0.05	-0.31	-0.29	-0.24
Cash from Operating Activities in $ Million	107.31	90.87	37.05	105.80	116.7
Capital Expenditure in $ Million	59.64	67.42	74.16	76.41	82.1
Free Cash Flow in $ Million	47.67	23.45	-37.11	29.39	34.6
Total Cash $ Million	511.19	533.81	410.73	461.20	481.33
Long-term Debt in $ Million	501.14	491.54	426.31	493.62	489.76
Shares outstanding (diluted) in Million	179.73	177.23	181.60	183.95	184.80
Eldorado Gold Production Au Oz	4Q20	1Q21	2Q21	3Q21	4Q21
Production gold Au Oz	138,220	111,742	116,066	125,459	122,582
AISC	959	986	1,074	1,133	1,077
Gold Price	1,845	1,723	1,835	1,769	1,776

Source: Company filing and Fun Trading files.

Note: More data are available to subscribers only.

Part I – Balance Sheet And Production Discussion

1 – Revenues for 4Q21 were $244.64 million

Revenues were $244.64 million, down from $278.52 million the same quarter a year earlier and up 0.4% QoQ. The company recorded a net loss to shareholders in the fourth quarter of $43.1 million or $0.24 per diluted share.

Gold sold this quarter was 122,582 Au ounces. The company sold its gold at $1,776 per ounce. The adjusted net earnings for the quarter were $25.1 million or $0.14 per share.

2 – Eldorado Gold’s net debt is $8.43 million in 4Q21

Total cash this quarter stands at $461.20 million, up from $410.73 million in the previous quarter. Total debt, including current, stands at $689 million.

Total cash is climbing again.

3 – The free cash flow was estimated at $34.6 million for the fourth quarter of 2021

Note: The organic free cash flow is cash from operating activities minus CapEx. The company has a slightly different way of calculating the free cash flow.

EGO shows a trailing twelve-month free cash flow of $50.33 million, with $34.6 million for the fourth quarter of 2021.

Part II – Gold Production Details For 4Q21

The fourth quarter of 2021 production came at 122,582 Au Oz, down year-over-year and sequentially. The company sold 119,384 Au Oz in 4Q21.

This quarterly production comes with a price of gold estimated at $1,776 per ounce, and AISC was $1,077 per ounce.

1 – Olympias Mine

The company continues to target efficiency and productivity improvements at Olympias. Production came at 15,461 ounces, higher than the 11,408 ounces produced in 4Q20.

Efficiency initiatives that started earlier in the year, coupled with positive grade reconciliation versus the plan, resulted in higher fourth quarter production to end the year.

The chart showed a steady improvement in 2021.

2 – Lamaque Mine

The fourth quarter solid gold production at Lamaque mine was mainly driven by higher-than-planned gold grades in the C4 zone.

The decline connecting the Sigma mill with the Triangle underground mine was completed, on schedule and budget, in December 2021. The decline will allow direct ore and waste transportation from the Triangle mine to the mill, thereby eliminating the re-handling of ore.

Production came in at 51,354 ounces, up from 44,168 ounces in 3Q20. It was an impressive quarter, up 37.4% sequentially.

3 – Kisladag Mine

Production was in line with expectations, but production was weak when we looked at the chart. It is hard to understand why the company said that the mine “performed well” this quarter.

Production came in at 33,136 ounces, down from 56,816 ounces in 4Q20 and from 51,040 ounces produced in 3Q21.

I was concerned with the production at Kisladag this quarter, and it is easy to see why by looking at the chart above.

4 – Efemcukuru Mine

Production was in line with expectations. Gold production was 22,631 ounces compared to 25,828 ounces in the same quarter last year.

5 – Operations update

Technical Analysis And Commentary

EGO forms an ascending wedge pattern with resistance at $11.4 and support at $10.3.

Rampant inflation boosted the gold price to $1,910 per ounce recently due to rampant inflation and the Ukraine invasion by Russia.

I believe it is crucial to trade LIFO a large part of your position in the short term to take advantage of the volatility that could accelerate significantly, starting in the second part of March. The FED is expected to hike the interest rate by 25-point or potentially more, and the gold price may drop on the news.

Hence, the trading strategy I suggest is to sell about 25% between $11.5 and $11.3 (trading LIFO). Accumulating on any weakness at or below $10.3 makes perfect sense.

However, if the gold price turns bullish and trades above $1,975 per ounce, EGO could cross its resistance (breakout) and retest $12.5-$13.

Conversely, if the gold price turns bearish due to the Fed’s action, EGO could drop quickly below $9.50.

Watch gold like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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