It remains no secret at all that gold has enjoyed a massive bounce in 2016. The shiny yellow metal itself was up about 24% year to date, but the key gold mining stocks have seen their shares rally close to 100% (or more) for the major gold stocks and in some cases well over 200% in the junior miners. Now we have the highly speculative case of Eldorado Gold Corp. (NYSE: EGO) to consider after a key analyst upgrade from Merrill Lynch on Wednesday.

24/7 Wall St. has seen enough upgrades of late in Eldorado Gold that some investors might start thinking it is now the perfect speculative gold stock. While this gold miner trades below book value, investors better keep in mind that much of the story will not play out for several years. 24/7 Wall St. has also provided other recent analyst calls talking up Eldorado after the Merrill Lynch noted below.

Eldorado is an unhedged mid-tier gold producer, developer and explorer with key mines and projects in Turkey, Greece and Brazil. None of those nations are exactly considered first tier nations where there are no political risks. That makes this a highly speculative story, and the ‘safety net gold buyers’ better stick to buying the actual metal or its exchange-traded funds instead.

Now keep in mind how Eldorado Gold has been a massive laggard in 2016. Its shares are up 22% so far in 2016, down 13% over the last month and over the last quarter alike.

The Merrill Lynch upgrade seen on Wednesday was noted as “double upgrading” Eldorado Gold to Buy and maintaining a $5.00 price objective. Their take is that Eldorado is guiding to gold output of over 800,000 ounces by 2020, which would be up some 109% versus 2017. They also see its all-in production cost falling to $650 per ounce by 2020.

Another positive in the note is that the recent Chinese gold mine sales will greatly strengthen the balance sheet, providing sufficient liquidity to advance the projects. Merrill Lynch has talked up trading at substantial discounts to its peer group, trading at 0.89 times its net asset value. After the operating updates, Merrill Lynch pointed out the following:

• Improved gold production profile;
• Lower all-in productions costs (all-in sustaining costs);
• Higher EPS forecasts for 2016-18;
• 15% higher net asset value;
• and it being Financially strong to pursue revised growth plan.

Merrill Lynch’s investment rationale for Eldorado Gold says:

Eldorado Gold is a mid-tier gold producer with key assets located in Turkey, Greece and Brazil. For 2016, we expect Eldorado to produce 357,000 ounces of gold (ex-the Chinese assets). Through the development of several projects, Eldorado has the potential to push its gold output to the 800,000 ounces level by 2020, with all-in sustaining costs (AISC) falling to around $650/oz by 2020. We see the potential for regulatory issues in Greece as a risk.

Merrill Lynch did not go without reminding investors about the risks here. The firm’s Michael Jalonen said in his report:

Risks to our price objective for Eldorado Gold are commodity price weakness, the inability to secure financing for expansion or development projects, unforeseen operating problems, political, legal or permitting challenges in the regions in which the company operates, rising capital and operating costs and delays in the development of its growth projects. Upside risks are a higher than expected gold price, a more hospitable regulatory environment in the jurisdictions in which Eldorado operates (in particularly, Greece), more favorable than forecast foreign exchange rates, and better than expected operational results.

As far as other recent analyst calls in Eldorado Gold, there were other positive calls and points made as follows:

• (September 12) Credit Suisse sees almost 60% upside.
• (August 10) Goldman Sachs raised it to Buy with a $5 target too.
• (June) 5 Sub-NAV gold stocks.
• (May 18) Scotia Capital Markets raised it to Outperform.

Eldorado Gold shares were last seen trading up 2.7% at $3.73, versus a 52-week range of $1.87 to $5.16. It also has a consensus analyst price target up at $5.75.

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