Eldorado Gold (EGO) is one of the very few gold stocks to have fallen in value year-to-date (or YTD). It has returned -11% as of November 18, 2016, compared the rise of 49% in the VanEck Vectors Gold Miners ETF (GDX) in the same period.
Eldorado Gold has also significantly underperformed its close peers. IAMGOLD (IAG), Yamana Gold (AUY), New Gold (NGD), and Agnico Eagle Mines (AEM) have returned 138%, 58%, 61%, and 57%, respectively.
Drivers of underperformance
While gold prices were supportive of mining companies’ stocks throughout 1H16, fears of a Federal Reserve rate hike have since eroded their returns. Based on their financial and operating leverages, the returns of gold miners have diverged since the beginning of 2016.
Permitting issues and geographical concerns have plagued Eldorado’s share price since the start of the year. Turkey’s failed coup in July 2016 reignited investors’ fears about Eldorado’s geopolitical risks. In addition, the company’s financial and operating leverages are lower than those of some of its peers. This was also not helpful for its stock price in the rising gold price (GLD) environment.
The key question is whether Eldorado’s stock has already priced in all the negatives and is gearing up for outperformance, or whether the concerns plaguing the stock are still around.
In this series, we’ll perform a fundamental analysis of EGO. We’ll also explore its near-term challenges and opportunities and perform a thorough analysis of its costs, production growth, and balance sheet. We’ll also examine whether Wall Street is turning optimistic about the stock.
To understand Eldorado’s YTD underperformance, let’s try to understand its geographical profile and its implications in the next part of this series.