Is Eldorado Gold’s Valuation Looking Attractive?


Nov. 24 2016, Updated 10:04 a.m. ET


The EV-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple is an important relative valuation multiple. It’s generally used for capital-intensive industries such as gold mining.

With the help of relative valuation, we can calculate a company’s valuation with respect to its closest peers’ valuations. In this part of the series, we’ll compare Eldorado Gold’s (EGO) forward EV-to-EBITDA multiple to those of its peers.

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Eldorado’s valuation multiple

Eldorado is trading at a lower multiple than Agnico Eagle Mines (AEM) and New Gold (NGD). Its forward EBITDA margin, however, is the same as Agnico’s. Investors are giving a discount to Eldorado due to its relatively risky geopolitical exposure. Analysts are also more convinced about Agnico’s growth profile as well as its management’s execution. The development of New Gold’s Rainy River project appears to be the biggest catalyst for its stock price performance.

Yamana Gold’s (AUY) valuation multiple of 5.2x is lower than Eldorado’s. Yamana’s operational inconsistency has been a major investor worry, but for the last few quarters, the company has started to deliver consistently at all of its mines. Still, it could be some time before investors’ confidence in the company is restored.

IAMGOLD (IAG) has consistently traded at lower multiples than its peers (RING) (GDXJ). Currently, it has a 2017 EV-to-EBITDA multiple of 3.9x, 49% lower than the peer average. Its lower multiple is probably due to its above-average all-in sustaining costs and concerns regarding production falls in the medium term. As you can see in the above graph, IAMGOLD has the lowest EBITDA margin in its peer group.

Key catalysts

Eldorado Gold has a low-cost, long mine life portfolio and a strong balance sheet. Given the apparent improvement in government relations in Greece and the resumption of EGO’s Skouries development, we believe that its stock could rerate. Investors should closely watch the company’s deployment of its excess cash as well as its execution of its key growth projects.

While investors with short-term investment horizons may want to wait on the stock, those with long-term horizons may want to consider the positives this stock has to offer. Its improving production profile, falling cost structure, robust balance sheet, and prolonged relative underperformance could be some of the factors working in its favor.


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