Due to rising taxes, royalties, changes to mining codes, and asset nationalization over the last few years, many big gold projects have been rendered uneconomical. This is why investors and miners have become wary of geographic exposure to risky mining jurisdictions.
The first half of 2016 reiterated gold miners’ (GDX) (SGDM) focus on attractive mining jurisdictions. Kinross Gold (KGC) purchased assets situated in the United States from Barrick Gold (ABX), lowering the relatively risky Russian contribution to its overall production. Newmont Mining (NEM) sold its interest in the Batu Hijau mine in Indonesia, improving its geographic exposure.
In this article, we’ll analyze Eldorado Gold’s (EGO) geographical exposure as well as its implications for the company’s growth and stock valuation.
Risky geographical exposure
Eldorado Gold was left behind in the gold equities rally this year, mainly due to its risky geopolitical exposure. Political uncertainty in its operating areas of Turkey and Greece has led to an overhang on its shares. Its key projects and mines are situated in Turkey, Greece, and Brazil.
While ~93% of EGO’s production in 2Q16 took place in Turkey, the rest took place in Greece. None of the above-mentioned countries are considered ideal as far as mining attractiveness in concerned.
In Greece, EGO has constantly faced permitting delays. In August 2015, Greece’s energy ministry revoked the technical studies for the company’s Skouries and Olympias projects. A failed coup in Turkey in July 2016 raised the risk of its projects in Turkey, after which its stock took quite a beating.
EGO exited all its remaining assets in China in 2016. This move is viewed as a positive one by most market participants. On one hand, it will relieve Eldorado of the pressure of operating in a difficult jurisdiction, and on the other hand, it will provide the company with sufficient capital to fund its other attractive growth projects.
As we’ll see later in this series, analysts are increasingly focusing on the stock’s positives, and they believe that the above-mentioned risks have already been priced in to the stock.
In the next article, we’ll have a look at Skouries, one of Eldorado’s most important projects.