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M&A: Eldorado Gold to Buy European Goldfields for $2.4 Billion

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Eldorado, the fifth-biggest gold company in Canada, expects the purchase to diversify its production base. (Image: Felipe Wiecheteck)
Eldorado, the fifth-biggest gold company in Canada, expects the purchase to diversify its production base. (Image: Felipe Wiecheteck)

FINANCE

  • Deal will create a company with an $11 billion market capitalization
  • Eldorado predicts production will exceed 1.5 million ounces of gold by 2015
  • Gold sector sees growing trend toward consolidation

Canada-based gold producer Eldorado Gold will buy EU-focused Canadian precious metals company European Goldfields for $2.4 billion in shares and cash, marking its largest acquisition.

Eldorado, the fifth-biggest gold company in Canada, expects the purchase to diversify its production base and to constitute a firm with a near $11 billion market capitalization. The company predicts an output increase to over 1.5 million ounces of gold a year by 2015.

In 2011, Eldorado expects gold production to reach 650,000 ounces. The company, which has six active mines, has operations in Greece, Turkey, Brazil and China.

Whitehorse-based European Goldfields has a mine in operation in Greece, with projects in progress in Romania and Greece. The firm estimates its EU gold reserves to be around 10 million ounces. It has a partnership with Greek building firm Aktor SA.

The deal is pending the green light from a majority of shareholders and a two-third European Goldfields shareholder approval. The two firms’ shareholders are scheduled to vote on the deal in February.

After the deal has gone through, Eldorado shareholders will hold close to 80% of the company, with European Goldfields’ shareholders owning over 20%. Should European Goldfields scrap the deal to opt for a higher bid, Eldorado will have the right to a break fee of almost $72.5 million.

Bid 5X Goldfield's Assets

The bid is at more than five times European Goldfields’ assets. The offer, at $12.66 per share, constitutes a 20% premium over the average price recorded during the past three weeks, compared with a more than 25% average premium for world gold deals in 2011.

The UK arm of US asset and investment management firm BlackRock Investment Management holds close to 7.5% stake in European Goldfields, while Ellaktor, the leading construction company in Greece, holds over 12% through its Aktor arm.

European Goldfields is developing the Olympias and Skouries projects in Greece. It also holds an 80% stake in Romania’s gold and silver mining, and continues to explore Turkey’s Ardala region.

European Goldfields, already an attractive option for competitors, became even more so on receiving its long-awaited Greek mining permit, which may make it one of the leading primary gold producers in Europe.

M&A Continues To Go For Gold

The gold sector has been witnessing increasing levels of consolidation of late. Australia’s Catalpa Resources and Conquest Mining merged in 2011 to form a firm with gold reserves in excess of 3.5 million ounces.

In addition, Focus Minerals took over Crescent Gold in a deal the company hoped would lead to yearly output of 230,000 ounces.

Consolidation serves smaller firms well due to economies of scale, allowing them to better manage the growing cost of developing new mines, which is due to higher general costs (labor and electricity) and because demand is pushing companies to move into more difficult, and therefore more costly, environments.

Key Statistics – Global Gold Market (source: World Gold Council)

  • Global gold supply exceeded 1,030 tons in the third quarter of 2011.
  • Investment in gold exceeded 460 tons in the same quarter, close to 35% more than the same period in 2010.
  • Gold demand grew by 6% in the third quarter compared with 2010 to exceed 1,050 tons worth close to $60 billion.

By Ellsy O'Neill for
Ellsy O'Neill is a Paris-based writer, proofreader and translator. She covers industry, culture and current affairs.

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