Yahoo Finance Eldorado Gold to Buy Integra Gold
- By Alberto Abaterusso
Eldorado Gold Corp. (EGO) announced May 15 it is buying Integra Gold Corp. (ICG.V) for 590 million Canadian dollars ($432.4 million).
The company is looking to fill the gap left by the sale of its Chinese assets, which included the White Mountain and Tanjianshan Mines, the Eastern Dragon development project and the Jinfeng Mine.
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The intrinsic value of EGO
The Chinese mines together contributed between 325,000 and 330,000 ounces of gold to the company's total annual production at average cash operating costs of $571 per ounce and a total cash cost of $669 per ounce of gold.
The sale of the first three assets was completed Nov. 22, 2016, while the disposal of the Jinfeng mine was completed Sept. 6, 2016.
The sale of its Chinese assets and the cash flow generated from operations during the first quarter enabled Eldorado to accumulate $919.07 million in cash on hand. The company also has a $250 million line of credit, bringing the company's total liquidity to $1.124 billion.
Using this liquidity to fund acquisitions will revitalize the company's portfolio of assets, which has been affected by political and econimic headwinds. Currently, the stock is trading below $5 per share even though gold prices are rising.
The Canadian gold stock needs to regain traction on the market. One way to make traders confident in the company again is by enhancing the quality of its assets through acquisitions.
Once the deal with Integra is completed, the miner will have access to the Lamaque project, which is located close to Val-d'Or, Quebec, that brings - among other benefits - "the potential to add meaningful near-term production and cash flow with modest upfront capital."
According to a preliminary economic assessment (or PEA) Integra completed last February, it is estimated that 123,000 ounces of gold can be produced every year through underground techniques at an all-in sustaining cost (AISC) of $634 per ounce of gold over a mine life of 10 years. The PEA also assesses mineral resources of 5.1 million tonnes grading 9.13 grams of gold per tonne of ore. It must be noted these resources are estimated as indicated resources and further drilling activities must be done in order to move them up to the category of gold reserves. Only when a definitive economic assessment has been completed, we will know more about the economic viability of the Lamaque project and how many ounces of gold the company can add to its annual production. The high grade of the mineralization, the preliminary estimates about costs and the life of the mine and the location of Lamaque are all good preconditions for the project's success.
Eldorado is currently trading around $3.66 per share with a price-earnings (P/E) ratio of -7.75, a price-sales (P/S) ratio of 5.78, a price-book (P/B) ratio of 0.75 and an EV/Ebitda ratio of 14.23.
The analysts' average target price per share is $4.88, ranging between a low of $3.66 and a high of $7.50. The recommendation rating is 2.1 out of five, which ranges between 1.0 (Strong Buy) and 5.0 (Sell).
Disclosure: I have no positions in Eldorado Gold Corp.
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This article first appeared on GuruFocus.
Warning! GuruFocus has detected 3 Warning Signs with EGO. Click here to check it out.
The intrinsic value of EGO
