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Shares of Eldorado Gold (NYSE: EGO), a junior mining company with assets in Europe and South America, rocketed higher by as much as 10% during Monday's trading session. The reason for the sustained move higher, which began late last week, appears to be derived from the update the company provided on its Greece-based mines last Thursday.
According to Thursday's press release, the Greek Ministry of Energy and Environment issued a press release stating that it intends to have arbitration underway before the end of August. (Arbitration is currently holding up the development of the highly touted Skouries mine in Greece.) Furthermore, the press release states that all permits for Olympias are underway, while Skouries' permits remain unissued.
So why the pop? Though the press release from the Greek Ministry of Energy and Environment didn't exactly suggest whether any arbitration would be favorable to Eldorado Gold's subsidiary Hellas Gold, it takes away one of the clouds of uncertainty -- which was when arbitration would begin. It's possible it could have been many more months before Eldorado's subsidiary would have had a chance to argue its case, which would have meant time and money flying out the door. The arbitration, which primarily concerns Hellas' adherence to environment regulations, is expected to be completed by the end of this year.
George Burns, CEO of Eldorado, had this to say:
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While the press release did not result in any additional clarity regarding the details of the intended arbitration by the Greek government, the Ministry stated that this is the best path forward in resolving all outstanding issues with the Company's projects. To be clear, we have not yet received formal notice of arbitration and permits applied for remain unissued. We continue to evaluate all capital spending and development timelines at our projects in Greece. At this time, commissioning at Olympias and reduced development works at Skouries are continuing.
Eldorado Gold is truly a head-scratcher for investors. On one hand, the company is one of the lowest-cost gold producers on the planet. Last year's all-in sustaining costs of around $900 an ounce came in well below its initial forecast at the beginning of 2016 of $940 to $980 an ounce.
It's shed its non-core assets in China, minimized its capital expenditures, and pushed itself into a net cash position from a net debt position. Assuming Skouries comes online by 2019, as planned, and Eldorado's subsidiary is able to retrieve the more than 3 million ounces of gold and 1.5 billion ounces of copper contained within the mine over the next quarter of a century, its stock would be a bargain at these levels.
Conversely, there are no assurances that Eldorado's development plan will remain on track. Greek regulators have stymied Eldorado's attempts to develop Skouries on numerous occasions, and it's always possible we could see another year-or-two delay in its development, which would further push back Eldorado's ability to generate healthy cash flow.
If you have a long-term mind-set with a five-year or longer investment horizon, I believe Eldorado Gold represents an intriguing value. I would, however, caution that there will likely be plenty of bumps along the way in the near term.
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