With last year's acquisition of Sino Gold Mining Ltd., Eldorado Gold Corp.
has established itself as the world leader in gold mining in China. It
also increases the company's exposure to a rising Chinese currency.
The
government has loosened its peg of the renminbi (RMB) to the U.S.
dollar, but there is still a long way to go before it floats freely.
UBS economist Tao Wang wrote that the RMB could end the year 5%
stronger than it is now.
With that in mind, UBS analyst Dan
Rollins calculated the potential impact of a 5% RMB increase on
Eldorado, and his study shows that it is not that bad at all. He wrote
that the company's cash costs could go up 2% to US$355 an ounce, and
its net asset value (NAV) could decline 1.1%.
Not a big deal,
obviously. But his study also shows that greater currency appreciation
will have a more pronounced effect. If the RMB rises 10%, his NAV
estimate for Eldorado drops 2.1%. If the RMB rises 15%, then his NAV
falls 3%.
Given that China has not unveiled any plans to let its
currency increase, Mr. Rollins did not make any changes to his
valuation for Eldorado. He rates it a "buy" with a price target of
$15.00 a share.