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TABLE OF CONTENTS Nov 12 - 18, 2012 Volume 98 Number 39 - 0 comments

Eldorado Gold sees higher costs in Q3

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Eldorado Gold (ELD-T, EGO-N) forecasts gold production this year from its operating mines in China, Turkey, Greece and Brazil will reach 660,000 oz., at cash-operating costs of US$465 per oz.

In the third quarter the company produced 169,565 oz. at an average cash-operating cost of US$493 per oz., which includes pre-commercial production at Efemcukuru, Eldorado’s second gold mine in Turkey.

Kerry Smith of Haywood Securities in Toronto models the company’s gold production at 660,000 oz. in 2012 at a cash-operating cost of US$475 per oz., and 840,000 oz. in 2013 at US$430 per oz., and describes Eldorado as one of the low-cost gold producers under his coverage with cash costs that are consistently in the lowest quartile of the world cost curve. 
Net income for the quarter was $78.5 million, or 11¢ a share, down from the year-earlier quarter of $102.5 million, or 19¢ a share, mainly due to lower gold sales volume and prices, the company reports.

Eldorado generated $110.8 million in cash from operating activities ­before changes in non-cash working capital, compared with $159.7 million in the same quarter of 2011. 

“The current year has been challenging for Eldorado, as operational setbacks and delays, specifically with the Chinese assets, have resulted in lower grades, throughput and inevitably higher cash costs,” Haywood’s Smith writes in a research note. “However, as Eldorado works out the issues at its current operating mines and brings low-­ cost operations — such as Eastern Dragon — online, we should see lower cash costs and higher margins. In our model, with the addition of Eastern Dragon, Perama Hill and Skouries, Eldorado should achieve production of 1.5 million oz. in 2015, at a cash cost below US$300 per oz.”

Although Smith expects capital costs will be higher than Eldorado expects and anticipates “some slippage in the project timeline owing to execution risk,” he still believes the company will be able to “bring on significant low-cost production and cash-flow growth,” and sees Eldorado’s shares as “a compelling investment at current levels.”

Eldorado’s projects in development include Eastern Dragon in China’s Heilongjiang province, Perama Hill, Olympias and Skouries in Greece, Certej in Romania and Tocantinzinho in Brazil. It has two operating mines in Turkey (Kisladag and Efemcukuru), three mines in China (Jinfeng in Guizhou province, Tanjianshan in Qinghai and White Mountain in Jilin), the Stratoni silver-lead-zinc mine in northern Greece, and an iron ore mine, Villa Nova, in Brazil.

At press time Eldorado was trading at $13.99 per share within a 52-week range of $9.94 to $20.17, and has 713 million shares outstanding.

Cosmos Chiu of CIBC World Markets in Toronto decreased his 12- to 18-month target price on the stock, after Eldorado reported its third-quarter results from $18 per share to $16 per share.

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