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Eldorado Gold Corp. is on the cusp of creating a mining powerhouse around the Mediterranean. With a $2.5-billion bid for European Goldfields, (EGU-T11.800.524.61%) the owner of two undeveloped Greek gold projects, the Vancouver-based Eldorado is hoping the new assets will help it meet its goal of more than doubling this year’s production to about 1.4 million ounces by 2015.
The agreement, which was announced Sunday, comes at a time when gold has been hit hard. Since bullion peaked just shy of $1,900 (U.S.) per ounce in August, it has dropped 15 per cent, and some argue it could fall even more.
Still, analysts on Monday were generally positive about the deal. The acquisition fits into Eldorado’s strategy because it consolidates a region in which the miner is already established, Brad Humphrey at Raymond James wrote in a note to clients. It will also help keep cash operating costs low and maintains a gold-only focus, they said.
Investors were less impressed, sending Eldorado shares tumbling more than 12 per cent in Toronto trading on Monday.
Eldorado chief executive officer Paul Wright was undeterred about the outlook for gold, insisting a long-term view is key to his industry. Mining “is a capital-intensive, long-term business,” he said. While “the market tends to think in nanoseconds, if you’re actually trying to build a business, you need to be thinking in years, if not decades.”
European Goldfields fits snugly into Eldorado’s operations in that continent. The acquirer has assets in Turkey, and developed its Greek Perama Hill project for the past few years, so it knows the territory. Adding two new assets to the mix will help to diversify its project base.
The same is true for European Goldfields shareholders, who will add assets in China and South America if they approve the takeover. “Clearly our shareholders will benefit from a diversification of operations,” Goldfields chief financial officer Tim Morgan-Wynne said on a conference call Monday.
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