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Shares of Eldorado Gold (NYSE: EGO), a junior gold miner with precious metal assets in Turkey and Greece, plunged as much as 27% during Monday's trading session after the company provided an update on its Kisladag mine, an open-pit gold mine in Turkey. As you can probably surmise by the substantive move lower, production is not expected to meet expectations.
Four months ago, Eldorado Gold announced that while the placement of estimated recoverable gold on the leach pad in its open-pit mine proceeded as planned, the gold solution grade was well below what internal calculations had suggested. At the time, the company wound up lowering its full-year output from the mine to a range of 180,000 ounces of gold to 210,000 ounces of gold, from a previous forecast of 230,000 ounces of gold to 245,000 ounces of gold. Admittedly, though, at the time management didn't have all the answers, and it was expecting a full quarter of production (namely, the third quarter) to yield more results on gold solution grade.
Before the opening bell on Monday, Oct. 23, Eldorado Gold announced that after copious amounts of laboratory work, it now expects even lower gold recoveries from Kisladag than what it projected in June. Final recoveries in the low 40% range are to be expected, which will result in a reduction in the recoverable leach pad inventory by roughly 40,000 ounces of gold. That's more than $50 million based on the current spot price of gold. Management has lowered the 2017 output at Kisladag to a new range of 170,000 ounces of gold to 180,000 ounces of gold.
The company also boosted the cash-cost-per-ounce range to between $500 and $550, from its late June forecast of $450 to $500. Additionally, the company's 2018 forecast is under review, which is probably a fancy way of suggesting a production cut could be forthcoming.
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Today's news might as well be referred to as the Kisladag-ger in the backs of Eldorado Gold shareholders, because this is far from the only issue this junior miner is dealing with at the moment.
For those who may not recall, Eldorado and the Greek government have been butting heads for years over the development of the Olympias and Skouries mines. Skouries is of particular interest to Eldorado Gold and its investors, as it's expected to have about a 24-year mine life, and contain some 3.1 million ounces of gold and 1.47 billion pounds of copper. However, the Greek government remains concerned about the environmental impact of Eldorado's mining activity, which has halted permitting and development of these mines. Eldorado has gone so far as to threaten an investment halt in its Greek mines while arbitration is ongoing.
Between its troubles in Greece and now lower recoveries at Kisladag, the shimmers of hope are quickly dimming for Eldorado Gold. This is a company that could seriously struggle to generate positive cash flow without those Greek properties coming online anytime soon, and with Kisladag's production expected to be about 25% lower than initially forecast earlier this year. For the time being, investors would probably be wise sticking to the sidelines and waiting to see if this ship can right itself.
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