The management team at Eldorado Gold Corp. has its eyes set on becoming a regional powerhouse, and its all-stock bid for European Goldfields is a large step in this direction.
“A big part of this transaction is to further solidify our position in the Aegean” region, chief executive officer Paul Wright said on a conference call Monday.
“We believe that if you can create dominant regional business... you will create a sustainable competitive advantage,” he added. And, of course, by bidding for European Goldfield, Eldorado is removing its major competitor in this area of the world.
This isn’t the first time Eldorado has employed this strategy. In 2009 the miner bought Sino Gold Mining to double down on its Chinese operations. By adding European Goldfields to the mix in Europe, Eldorado will diversify both by country and by project.
However, shareholders seem skeptical. At mid-day, Eldorado's shares are down 11 per cent for the day.
The latest deal also highlights the problems that miners are facing much more often. As old projects and mines start to run out of production, it is becoming much harder to find new undeveloped assets that haven't already been scooped up. So instead of developing something on its own, Eldorado had to buy European Goldfields to get its hands on the target's Greek projects, Olympias and Skouries. Wrapped into the acquirer, they will become Eldorados' first and third largest projects that haven’t yet started construction.
If the deal goes through, Eldorado claims it will become the largest mid-tier gold producer by market capitalization, surpassing Yamana Gold. Both have a market value around $11-billion. And combined with European Goldfield, Eldorado said its production will go from 650,000 ounces in 2011 to 1.4 million ounces in 2014. However, Eldorado had also planned to jump to 1.1 million ounces by 2015 on its own, and that rise hasn’t been implemented in the new number because the company needs time to figure out how it will allocate its resources.
Mr. Wright did point out that both Olympias and Skouries contain metals other than gold, but Eldorado isn’t paying them much attention. “To us the base metals are simply gravy,” he said.