Image Source: Eldorado Gold
The shares of Eldorado Gold Corporation (NYSE: EGO) rose just over 17% last month. That easily bested giant gold mining peers like Newmont Mining (NYSE: NEM) and Barrick Gold (NYSE: ABX), which each advanced in the mid single digits. It was even more than similarly sized Alamos Gold Inc. (NYSE: AGI), which moved higher by 11% or so. The difference that investors focused on is all about the future, which looks pretty good at Eldorado these days.
Eldorado Gold's December advance was around three times as large as giant miners Newmont and Barrick. And it was roughly 50% larger than that of closer peer Alamos Gold. In other words, it was a big move not just because of the percentage gain, but also because it was materially larger than the gains experienced by other gold miners.
The backstory is one of future growth. In late November, Eldorado completed the sale of assets in China to Yintai Resources. The proceeds from the disposition were around $800 million. The sale should increase Eldorado's cash balance to around $1 billion.
Image Source: Eldorado Gold Investor Update.
Beyond this transaction, Eldorado has been investing in new projects that it believes will increase production over 100% by 2020. It has additional initiatives that could increase production another 35% beyond that 2020 goal waiting in the wings, too. Even better, management believes the projects it's working on will allow it to reduce the company's all-in sustaining costs from approximately $800-$900 an ounce in 2017 to something in the $600 to $700 range, per ounce, by 2020. To put that in perspective, Newmont and Barrick have also been reducing costs, but doing so by either shrinking production or holding it steady.
The missing piece for Eldorado was the cash to fund these growth plans. With the sale of the Chinese assets, the company now believes it has the cash it needs to internally fund its future into the next decade. But this all happened in November.
It looks like Eldorado Gold can self fund its growth. Image Source: Eldorado Gold Investor Update.
The other big change in December was in the corner office, where CEO Paul Wright announced plans to step down in early 2017. He has run the company since late 1999. Hired to replace him is George Burns, COO of GoldCorp (NYSE: GG). GoldCorp is one of the largest gold miners in the world and Burns has a 30-year history in the mining industry. Leadership transitions are always fraught with risk, but it looks like Eldorado has hired a CEO that could easily handle the company's transition to a larger operation as it organically expands its business.
So, with the mid-December CEO announcement, Eldorado appears to have a plan, plenty of cash to pay for them, and a new leader that can oversee the process. Which helps explain why the stock started to outperform after the news release announcing Paul Wright's retirement.
A lot can happen between now and 2020. Investors will need to watch the progress of Eldorado's growth initiatives. Right now, however, investors are caught up in a little bit of market euphoria because of the positive outlook that's taking shape around the gold miner. Eventually the excitement will fade. That, however, won't change the growth opportunity. Investors interested in a gold miner that's focused on growing its production while, at the same time, lowering its costs should be watching Eldorado.
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