What Could Cause Eldorado Gold’s Costs to Fall Over 30%?



All-in sustaining costs

Eldorado Gold (EGO) reported all-in sustaining costs (or AISC) of $890 per ounce in 2Q16. During 2016, Eldorado reduced its 2016 cost guidance twice, landing it at $915 per ounce. 

While Eldorado’s costs aren’t in the bottom quartile of the industry cost curve, its new projects are relatively low in cost, which should improve its cost profile going forward.

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Improved cost guidance

In May 2016, Eldorado Gold announced the sale of its remaining assets in China, effectively exiting the country. This move should improve its cost profile going forward. The latest cost upgrade for the company from $930 per ounce to $915 per ounce in 2016 was mainly on the back of its sales of these and other non-core assets.

Long-term upside to costs

The company said during its September 2016 investor update that its AISC could fall 30% from ~$860 per ounce in 2017 to ~$620 per ounce in 2020. While part of this cost improvement could be due to operational improvements and productivity enhancements, increasing production is one of the major drivers behind EGO’s unit cost reduction. The company expects its production to rise 110% from 2017 to 2020.

Such a rise should positively impact the company’s unit costs by spreading its fixed costs over a larger number of units. Note that these production and cost upsides assume the successful ramp-up of Eldorado’s major growth projects, including Skouries and Olympias Phase II. A positive impact on unit costs would put Eldorado’s costs in the lowest quartile and among the lowest in its peer universe (GDX) (GDXJ), increasing its production quality and possibly leading to a major upside.

Currently, Barrick Gold (ABX) boasts a cost profile in the first quartile. Agnico Eagle Mines (AEM) also has very low costs. IAMGOLD (IAG), on the other hand, is on the upper end of the cost curve due to structural issues at some of its sites.


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