Eldorado’s Balance Sheet Is Strong, Cash Deployment Remains Key

At the end of 3Q16, Eldorado Gold (EGO) had $652 million in total liquidity, including $412 million in cash, cash equivalents, and term deposits and $240 million in undrawn lines of credit. These sources don’t include the proceeds from the sale of its Chinese White Mountain and Tanjianshan mines or its Easter Dragon development project.

The company expects to close these transactions in November 2016. Including these transactions, Eldorado should have ~$1 billion in cash and cash equivalents by the year’s end.

These sales will place Eldorado very comfortably as far as its financial leverage is concerned. Following the close of the above-mentioned transactions, EGO’s balance sheet should be among the strongest in the industry. The deployment of these funds has become key to the stock’s future appreciation.

On a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) basis, Eldorado is less leveraged than its peers Agnico Eagle Mines (AEM), Yamana Gold (AUY), Barrick Gold (ABX), and New Gold (NGD).

During its 3Q16 earnings call, Eldorado’s CEO, Paul Wright, mentioned that the company was planning to spend these funds on financing its next phase of growth. Eldorado will place emphasis on its Olympias Phase II development, its Skouries development, its Kışladağ expansion, and its Tocantinzinho project.

During its September 2016 investor update, the company demonstrated how its capital requirements from 2016 to 2020 were fully funded through its cash on hand, operating cash flow, and proceeds from its Chinese asset sales.

ETFs such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the ProShares Ultra Silver ETF (AGQ) provide leveraged exposure to precious metals prices.