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Morningstar | Eldorado Gold’s Small and Concentrated Production Portfolio Magnifies Individual Mine Risk

Eldorado Gold's cost position has weakened as key development projects have been delayed and current mines have reached transitional stages. Because its production is concentrated in just a few mines, development plans have an outsize impact on growth and valuation.After selling much of its production, Eldorado focused on development projects to return to historical production levels. However, ongoing problems with the Greek government have hampered progress, putting the company in a tough position of stagnant production growth. While the company has a handful of promising development projects, internally generated cash flow is inadequate to fund them, leaving the company in need of outside financing after a period in which it's disappointed the market with meager growth.However, the projects are attractive, so we expect the company to develop them, albeit in stages. While careful investment will protect the balance sheet, it also slows the return to production growth.Eldorado's Skouries project remains the biggest overhang on the company. Constant interference by the Greek government has resulted in sunk capital that won't deliver for the next couple of years. Nevertheless, we think Eldorado has a good chance to win arbitration and ultimately open the mine.Our long-term nominal gold price forecast is $1,300 per ounce in 2020 dollars. In recent years, investment demand weakened as the Federal Reserve raised rates amid the strength of the U.S. economy. This downward pressure on gold prices should soften in the near term, as the U.S. central bank appears to be opting for a more dovish approach due to rising economic uncertainty.On the back of stabilizing investment demand and improving jewelry demand in China, we expect gold prices to reach a nominal price of $1,300 per ounce by 2020.