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Why Analysts Are Turning Positive about Eldorado Gold

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Nov. 24 2016, Updated 8:04 a.m. ET

Analysts’ favorite

Among intermediate gold miners (GDX) (SGDM), Eldorado Gold (EGO) is analysts’ favorite. It has “buy” recommendations from 75% of analysts and “hold” recommendations from 25% of analysts.

Yamana Gold (AUY) has “buy” recommendations from 45% of analysts, and New Gold (NGD) has “hold” recommendations from 61% of analysts. IAMGOLD (IAG) has “buy” recommendations from 35.3% of analysts. In this article, we’ll see what makes Eldorado analysts’ favorite.

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Double upgrade from Merrill Lynch

Eldorado Gold received an upgrade from Merrill Lynch on September 14, 2016. It was essentially a double upgrade, with Eldorado now a “buy” compared to its previous rating of “underperform.” 

According to the investment thesis for the stock from Merrill, “Through the development of several projects, Eldorado has the potential to push its gold output to the 800,000 ounces level by 2020, with all-in sustaining costs [AISC] falling to around $650/oz by 2020. We see the potential for regulatory issues in Greece as a risk.”

The broker’s thesis, however, isn’t without its risks. According to Merrill, “Risks to our price objective for Eldorado Gold are commodity price weakness, the inability to secure financing for expansion or development projects, unforeseen operating problems, political, legal or permitting challenges in the regions in which the company operates, rising capital and operating costs and delays in the development of its growth projects.”

Upgrade from Credit Suisse

On September 12, 2016, Credit Suisse (CS) upgraded Eldorado from a “neutral” to an “outperform” rating and increased the stock’s target price from $5 to $5.5. Credit Suisse now believes it has “improved clarity” on Eldorado’s long-term outlook and seems to think that the political risk for the company is receding.

As we discussed earlier in this series, Eldorado’s stock has been a laggard in the gold mining space in 2016. Recently, its project update and its asset sale in China have provided a great deal of clarity to its long-term prospects. This clarity is likely the main reason for analysts’ recent optimism on the stock.

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