Eldorado Gold (EGO) is a popular gold mining stock. Specifically, it is an intermediate gold producer with mining, development and exploration operations in Turkey, Greece, Romania, Serbia, Canada and Brazil. The company has a portfolio of high-quality assets, and long-term partnerships with the communities where it operates, but has faced some issues with political matters and mining access issues in recent years. Today, shares are getting absolutely pounded again, and the stock is now down 75% form the highs last year. That is painful:

Source: Yahoo finance

What triggered today’s selling? Well the company reported earnings and it had a surprise loss. However, it also had to reduce its reserve estimates, and this is a very bad sign. Let us discuss.

This was a surprise quarter as analysts were looking for the company to break even. That said, loss attributable to shareholders for the fourth quarter was $20.7 million, or $0.03 per share. This is well below breaking even. However, it is worth noting that this is better than what we saw in the year ago quarter. Last year the company saw a loss of $32.5 million or $0.05 per share. However, if we make adjustments which impact comparability, we see that adjusted losses were $0.4 million this quarter as compared earnings of $2.9 million a year ago. Sales volumes and gold prices were the main reason for the changes. That said, we believe the stock sold off on a day where gold and miners rallied because of the reserve estimates. What do we mean?

Well, Eldorado Gold ended 2017 with proven and probable gold reserves of 392 million tons at 1.37 grams per ton gold containing 17.3 million ounces.  A gold price of $1,200 per ounce was used in the reserve estimates, the same as in 2016. This is well below what was noted last year.

In fact, there was a 10% overall reduction in reserve ounces. This was primarily attributable to the planned conversion of Kisladag from a heap leach asset to a mill processing option, with resulting higher processing costs and higher recoveries. While minable reserves at Kisladag declined by 1.7 million ounces, incorporating expected higher mill recoveries, the forecast recoverable ounces dropped by only 400,000 ounces. Still this is a problem.

It was not just Kisladag either. Lower reserves at Olympias are the result of increases in forecast operating costs and mining dilution, both based on actual data seen since start-up. This crushed the stock.

Looking ahead, it is going to take some serious PR to get the stock back in favor with investors. After years of struggles, the company is losing money when others in the sector are breaking even, or making money. Gold is in a comfortable price range. We are unhappy with what we see, despite the value proposition of the assets at hand. Right now, we cannot recommend the stock here.