ESG Challenges And Decarbonization Will Weaken Gold Mining Prospects

Key Takeaways

• Waning gold demand, regulatory scrutiny, and higher input costs threaten revenue growth, margin stability, and future profitability for Eldorado Gold.
  
• Geopolitical risk and declining ore quality further strain project reliability, cash flow potential, and shareholder returns.
  
• Major project progress, operational improvements, and a strong gold market are boosting profitability, while ESG performance enhances access to capital and overall financial flexibility.

Catalysts

Engages in the mining, exploration, development, and sale of mineral products primarily in Turkey, Canada, and Greece.

• As the global push for decarbonization and energy transition accelerates, long-term demand for gold as a safe-haven asset is set to weaken, which could cap gold prices and erode Eldorado Gold's revenue base and future earnings growth as inflationary and geopolitical tailwinds fade.
  
• Increasing scrutiny on environmental, social, and governance (ESG) issues is likely to result in lower valuation multiples for gold miners, including Eldorado, whose operations may increasingly be perceived as environmentally damaging and socially contentious, raising the company's cost of capital and making access to funding for expansion more difficult.
  
• Eldorado Gold's project pipeline is disproportionately exposed to countries with significant geopolitical and regulatory risk, such as Greece and Turkey, heightening the probability of permitting delays, cost overruns, and asset write-downs-this persistent uncertainty threatens the reliability of future net margins and jeopardizes long-term earnings stability.
  
• Industry-wide, escalating input costs-including labor, energy, and equipment-as well as persistent global labor shortages, are expected to pressure operating margins and drive up all-in sustaining costs for Eldorado, limiting improvements to cash flows and further compressing profitability relative to expectations.
  
• The declining average ore grades and increasing scarcity of high-quality deposits mean that sustaining capital and exploration expenditures must rise in the coming years, which constrains the company's free cash flow generation and restricts potential for dividend growth and value return to shareholders.

Eldorado Gold Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Eldorado Gold compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Eldorado Gold's revenue will grow by 21.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 26.7% today to 31.4% in 3 years time.
• The bearish analysts expect earnings to reach $880.6 million (and earnings per share of $4.19) by about August 2028, up from $420.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, down from 10.9x today. This future PE is lower than the current PE for the US Metals and Mining industry at 17.3x.
• Analysts expect the number of shares outstanding to decline by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.86%, as per the Simply Wall St company report.

Eldorado Gold Future Earnings Per Share Growth

Risks

• The Skouries copper-gold project in Greece is progressing ahead of expectations, with overall construction 70% complete and first production scheduled for early 2026; as this operation transitions Eldorado to a mid-tier producer with lower all-in sustaining costs, this will likely increase net margins and boost long-term EBITDA once operational.
  
• Continued successful resource expansion and reserve growth at key assets like Lamaque in Canada and Kisladag in Turkey have extended mine life and have driven steady or improved gold production, which supports future revenue growth and earnings stability for the company.
  
• Operational improvements and investments in cost control-such as de-bottlenecking at Kisladag and process optimizations-have already resulted in lower cash costs and higher throughput, which are likely to lead to enhanced operating leverage and improved profit margins over time.
  
• Eldorado's recognition for strong ESG performance, numerous environmental and safety awards, and proactive sustainability initiatives are positioning the company for favorable access to capital and potential premium valuations, both of which can support an improved market multiple and financial flexibility.
  
• Strong secular gold market dynamics-including elevated gold prices from persistent global inflation and robust global central bank demand-have underpinned significant revenue growth, which has driven higher cash flow generation and improved the company's ability to invest in expansion and return capital to shareholders via share buybacks.

Valuation

• The assumed bearish price target for Eldorado Gold is CA$28.45, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Eldorado Gold's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$40.97, and the most bearish reporting a price target of just CA$28.45.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.8 billion, earnings will come to $880.6 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of CA$31.09, the bearish analyst price target of CA$28.45 is 9.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.