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This week, Eldorado Gold received a project permit approval for its Eastern Dragon project from China’s National Development and Reform Commission. The document is the most significant permit required to build the mine.
Eldorado put Eastern Dragon on care and maintenance in 2013, and has been waiting for the permit approval since 2011. Certainly, the news has “been a long time coming” as Kerry Smith of Haywood Securities states in a note to clients.
The open-pit and underground Eastern Dragon project currently holds 3 million tonnes of proven and probable reserves at an exceptionally high grade of 7.7 g/t gold and 70 g/t silver.
The company sold 20 percent of the project to China’s CDH Investments in February, anticipating that the participation of CDH in Eastern Dragon would “assist in the completion of development and advancement to full production.” Eldorado owns a 75-percent interest in the project, while a minority joint venture partner holds the remaining 5 percent.
“The PPA is the major permit approval required in the development of what we consider one of the highest quality gold assets in China,” said Eldorado Gold CEO Paul Wright. “This permit represents years of hard work and determination by our team in China, in combination with key support from the Canadian and Chinese governments.”
With the PPA in hand, Eldorado expects to commence site work in July. Initial work will focus on power and water supply, as well as testing the mill circuit. The company still needs forestry permits to commence earthwork at the project, but it expects to commence this work in Q3 2015. Haywood sees those permits being granted earlier since the PPA is the “golden stamp” needed in China.
Smith also states that the company has “been talking about a value realization process in China for some time,” noting that getting Eastern Dragon into production is a key catalyst for that process. Eldorado’s ptions on that front include an IPO of a minority interest in its Chinese assets on the Hong Kong or Chinese stock market, or an outright sale of its Chinese assets, which is Haywood’s preference.
To be sure, while Eldorado Gold has been keeping busy this year (it completed feasibility studies for its Certej project in Romania and its Tocantinzinho project in Brazil), it has also run into its fair share of troubles. The market didn’t react well to a lower yearly production outlook put out in January, and the Greek situation hasn’t helped things at Eldorado’s Skouries mine in the country. Greece’s government has taken a not-so-friendly stance on the project, although Greek miners protested the government’s decision to revoke the company’s license for the mine.
Still, Haywood believes that Eldorado is one of the lowest-cost gold producers within its coverage universe, “consistently operating at a cash cost in the lowest quartile of the world cost curve.” Furthermore, the firm states in Monday’s note that Eldorado is in a strong financial position, with US$494 million in cash and equivalents on hand and an undrawn US$375-million credit facility. “Eldorado remains well positioned to continue funding projects internally from cash flows,” the firm notes in its report. Overall, Smith has given the company a “buy” rating with a $7.75 target price.
Certainly, it will be interesting to see what happens next in China. During Monday trading hours, Eldorado’s share price was up 1.2 percent, or 6 cents, at $5; trading volumes were about half the daily average. Eldorado’s 52-week trading range is $4.88 to $5.05, and the company is down 29 percent so far in 2015.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
