Commodity Stocks for Long-Term Portfolios: Eldorado Gold, Strategic Resources and Pan American Silver

Eldorado Gold: Appearances Can Be Deceptive

When a metal producer reports declines in production, one should normally steer clear of the stock. In the case of Eldorado Gold, there were good reasons for this in the second quarter. Group-wide production fell by 22% to 104,616 ounces of gold. However, this decline had been planned as part of operations. At the Kışladağ mine in Turkey, the company focused on lower-grade areas and reported lower overall throughput. Eldorado continues to make real money at the Lamaque complex in Québec, Canada, where 52,340 ounces of gold were mined at very low costs between April and the end of June. Management has raised this year's production forecast to 495,000 to 600,000 ounces of gold, as the next mine is set to begin operations in the second half of the year. The Skouries project in Greece, for example, is already 97% complete. The first ore has already been crushed at the copper and gold project; the first concentrate production is expected in the current third quarter. Commercial production is scheduled to begin no later than the fourth quarter.

Eldorado Gold is thus on a growth trajectory, even if the Q2 figures do not yet reflect this. Revenue came in at USD 487.5 million, up just under 8% from the same quarter a year ago. The bottom line was an adjusted net profit of USD 136.7 million, equivalent to USD 0.54 per share and a 51.7% increase compared to Q2 of the previous year. Higher gold prices had a noticeable impact here. In terms of costs, Eldorado reported USD 1,926 per ounce of gold sold (AISC), which is about USD 400 more than a year ago. These costs are expected to decline again over the course of the second half of the year. In the medium term, Eldorado will evolve into a gold and copper producer thanks to its investments in Greece. With the ramp-up of the new mines, the era of major investments is also coming to an end, which should have a positive impact on cash flow in 2027.

Eldorado Gold's stock has taken off on the back of the quarterly results and the resurgent gold price, but it remains well below its annual high. Analysts see potential: BMO Capital Markets, for example, set a price target of CAD 72.00.

Strategic Resources: Confirmation from Finland

Efforts are underway worldwide to make the steel industry greener and more environmentally friendly. A major project is getting underway in collaboration with industry partners at the University of Oulu in Finland. The project is examining the entire process chain: from the combination of electric arc furnace (EAF) technology with modernized hot-rolling processes to hydrogen-based processes. The vanadium-bearing magnetite concentrate (VTM concentrate) from Strategic Resources' Mustavaara project in northern Finland has now been selected for an advanced, hydrogen-based iron production test program. According to the company, this selection confirms the suitability of the Mustavaara material for modern direct reduction (DRI) processes and the production of green steel.

The global shift away from coking coal toward hydrogen-based processes will boost demand for high-quality, regionally sourced iron ore, according to Strategic Resources CEO Sean Cleary. He is thus drawing attention to the flagship BlackRock project in the province of Québec. It contains significant quantities of high-purity iron, as well as the important specialty metals titanium and vanadium. Regional sourcing is becoming increasingly important in the steel industry as the US tariff war disrupts supply chains and prices.

However, Strategic Resources does not intend to merely supply high-purity iron to the industry. Management plans to process the mined minerals on-site. Since the deposit consists of vanadium-titanium magnetite, the high-purity iron is produced as a byproduct during processing with minimal effort. Strategic can command significantly higher selling prices for this material than for standard products. According to the feasibility studies presented by the company, annual production is expected to reach 526,000 metric tonnes of pig iron. In the next processing step, Strategic Resources plans to produce iron pellets from this material. The target output here is 4 million metric tonnes per year. And it is precisely these direct-reduction-grade pellets that are indispensable for electric arc furnaces in the steel industry to produce green steel.

As the next step, Strategic Resources plans to build a pelletizing plant at the Port of Saguenay, Québec, for this purpose. The deep-water port provides access to the St. Lawrence River, linking industrial regions in North America and Europe. To meet the substantial financial requirements, Strategic Resources has partnered with the commodities trader Javelin Global Commodities. Until mining begins at BlackRock, Javelin intends to supply the high-grade iron ore. In addition, the partner secured the marketing rights for the entire production.

Strategic Resources is a classic choice for a long-term investment portfolio. The company's market capitalization stands at just EUR 17 million. The share has been trading sideways since the March correction. In the long term, the current level could prove to be an attractive buying opportunity.

Pan American Silver: High Prices Boost the Bottom Line

It is okay to miss a production target by a small margin—as long as you can offset it with higher selling prices. That is exactly what happened in Pan American Silver's gold segment. Gold production in the second quarter totaled 165,900 ounces, slightly below the quarterly forecast, as part of the output was delayed into the second half of the year. However, the Canadian company made no compromises when it came to silver production. It produced 6.47 million ounces of silver, excluding output from its 44% stake in the Juanicipio Mine. This placed the company at the upper end of its own quarterly forecast. Group-wide, Pan American generated USD 1.12 billion in revenue. Adjusted profit, at USD 308 million, was nearly double that of the previous year at USD 155 million. Earnings per share were USD 0.73. Remarkably, despite the temporary decline in the silver price, the company achieved a realized silver price of USD 70.97 per ounce in Q2, almost double the year-earlier level.

The silver segment is also unmatched in cost: AISC came in at just USD 17.80 per ounce, nearly USD 2 lower than the previous year. With free cash flow of USD 344 million, the company remains highly profitable. Pan American now holds cash reserves totaling USD 1.8 billion. This is offset by total debt of approximately USD 841 million. Management continues to pursue aggressive share buybacks. In total, USD 224 million was spent during the quarter to repurchase approximately 4.4 million of its own shares. The only downside: Pan American had to raise its full-year tax forecast. Success comes at a price.

The share had corrected amid the war in the Persian Gulf and the gold price. In recent weeks, however, the share has managed to break out again. Since the gold price looks strong from a technical perspective, there could be further upside momentum from here.

Eldorado Gold is now entering a phase of no major investments and should see significant increases in earnings and cash flow as the new mines ramp up production. Strategic Resources positions itself as a full-service provider of high-purity iron. With the shift toward green steel, the company should benefit from developments in the global market. Pan American Silver stands out with low production costs and is now making its mark as a bona fide gold and silver producer.