Eldorado Gold (TSX: ELD; NYSE: EGO) plans to acquire the remaining shares of Glory Resources (ASX: GLY) in order to take control of Glory’s high-grade Sapes project in Thrace, Greece, which lies 15 km from Eldorado’s Perama Hill project.
The friendly all-cash takeover offer values Glory at A$30.5 million (US$28.84 million). Under the transaction each Glory shareholder will receive A15¢ per share, which is a 42% premium over the company’s closing share price on Oct. 30.
Eldorado owns 19.9% of Glory.
Under the deal Eldorado would acquire all of the options Glory has issued valued at A$1.8 million, and would settle Glory’s deferred obligations in the Sapes project for A$6.5 million.
Sapes has a Joint Ore Reserves Committee-compliant proven and probable reserve of 637,000 oz. gold at a grade of 15.1 grams gold per tonne.
Eldorado CEO Paul Wright noted in prepared remarks that the acquisition reaffirms the company’s belief in Thrace’s geologic potential, and says the projects’ proximity would result in synergies.
El Dorado says that Perama Hill has measured and indicated resources of 1.38 million tonnes grading 3.46 grams gold and inferred resources of 554,000 tonnes grading 1.96 grams gold. In a September update, Eldorado reported that exploration drilling at Perama Hill was suspended pending receipt of the project’s environmental-impact assessment.
David West of Salman Partners commented in a note to clients that based on the offer amount, the Glory acquisition “represents a cost of US$48 EV per oz. (based on 830,000 oz. in gold resources), and compares well to Eldorado’s acquisition for European Goldfields that was announced late in 2011 at US$200 EV per oz. [which provided the Skouries and Olympias projects.]”
West compares the deal with Yamana Gold’s (TSX: YRI; NYSE: AUY) acquisition of Extorre and its high-grade Cerro Moro gold-silver asset in June 2012, at US$161 EV per equivalent oz. gold.
“Cerro Moro was similar to Sapes based on its high-grade ore, shallow depth of deposit [and] size,” West writes, adding that Sapes has exploration potential and comes with a 2010 feasibility study. The study outlined potential production of 510,000 oz. gold over a seven-year mine plan, he says, with US$100 million in capital costs and US$297 per oz. operating costs.
“The likelihood of trucking the ore [from Sapes] to Perama Hill would decrease this capex to virtually nil, which makes the amount paid per ounce all the more attractive for Eldorado,” he continues. “Although Eldorado’s large investment in Greece thus far has been a rocky venture, the relatively small cost for this asset represents a prudent risk, given its proximity to Perama Hill.”
The mining analyst has a “buy” rating on Eldorado, with a target price of $11.35 per share. The company closed at $7.03 per share on Oct. 31, and has traded within a range of $5.82 to $15.50 per share over the last year.
Eldorado has just over 715 million shares outstanding and owns seven operating mines, and a number of projects across Asia, Europe and South America.
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