Home Analysis Exposure To Country Risk: The Eldorado Gold Edition

Exposure To Country Risk: The Eldorado Gold Edition


Source: Seeking Alpha

In a series of recent articles, we investigated the country risk of various mining jurisdictions in which US-listed precious metal miners are active. We collated country risk ratings for these countries from eight different sources and averaged these ratings into compounded country risk scores. The most recent results from this work can be found in this article.

Most definitions of country risk include factors such as political risk, exchange rate risk, economic risk, sovereign risk, transfer risk, socio-economic risk and others. Depending on the source, various contributing factors of country risk are weighted differently. Readers interested in the specific definitions are encouraged to follow the links to our sources given in this article. We used our compounded country risk score to evaluate country risk exposure for selected gold and silver mining companies using 2011 production results and reserve statements. As 2012 data becomes available, we are providing updates, and in the present article, we would like to do so for Eldorado Gold (EGO).

Eldorado Gold is a mining company with activities in Turkey, Romania, Greece, China, and Brazil. Its focus is on gold mining with five operating assets, but additionally, it also operates an iron ore mine in Brazil and a base metal mine in Greece. Two more gold mines are currently being built and other properties are at various stages of exploration. For further information on the company and its operation we would like to refer to this article.

The market capitalization is $5.8B, and the forward P/E is given as 11.6 on Yahoo.com. Analysts give a median price target of $16.00 for Eldorado Gold shares, which is almost twice the share price of $8.14 at the time of writing. Last year’s gold production was 656,324 ounces of gold, which puts Eldorado Gold into the world’s top 10 gold producers. For this article, only precious metal production and exploration was considered. The table below gives the 2012 numbers for production, reserves and resources at each of Eldorado Gold’s precious metal mines and projects. For the computation of gold equivalent ounces, we used a silver to gold ratio of 50.

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Consolidating the production and reserve data showing summations for each country of exposure results in the table below. The data is already calculated in percentages of gold-equivalent ounces. Country risk ratings as documented here are also shown in the central column of the table. In addition to the previously documented ratings, we derived the country risk ratings for Romania and China for this article. Country risk ratings range from 0 to 100, with low numbers indicating low risk and high numbers indicating high risk. The right side of the table shows the weighted risk contributions for each country separately for production, reserves and resources with summarized scores in the bottom line. The individual ratings can be interpreted as ratings going from present risk (production) into the future (inferred resource).

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The country risk rating for Eldorado Gold based on production computes to 42.04 . This rating indicates elevated country risk levels best comparable to Kinross Gold (KGC) and only exceeded by Iamgold (IAG) in our previous analyses. Gold production for Eldorado Gold only takes place in two countries (Turkey and China) which also provides little safety through geographical diversification.

The risk rating further increases when looking at gold reserves and resources through the addition of high-risk Greece to the mix. In actual fact, this risk has already manifested itself at Skouris last year where violent protests have taken place against Eldorado Gold’s operation there. Skouris is one of the gold mines presently under construction. Activists invaded the construction site and torched equipment and offices.

Overall, we believe that our analysis shows comparatively high country risk levels for Eldorado Gold, putting them on par with Kinross Gold and Iamgold into the most risky group of gold miners in terms of country risk. We would like to note, that high risk can also implicate high potential rewards for investors comfortable and familiar with the risks involved.


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