Haywood Securities analyst Kerry Smith says Greece’s energy minister Panos Skourletis was on a “fishing expedition” when he revoked the technical studies on Eldorado Gold’s (TSX: ELD; NYSE: EGO) Skouries and Olympias gold projects in the Halkidiki Peninsula of northern Greece, forcing the company to halt its operations in the country and lay off workers.
Eldorado reported the suspension on Aug. 19, based on test work by Outokumpu-spinoff Outotec on Olympias’ third-phase, flash-smelting process (Metals giant Outokumpu invented flash smelting in the 1940s.) The Ministry of Energy claims the company violated its contract by conducting pilot-scale test work in Finland, and not Greece. The test work is part of the technical studies for Skouries and Olympias, which make up the basis of other permits Eldorado needs to build the assets that are crucial for its growth.
Smith says he’s never heard of a requirement in the permitting process for companies to do test work at-site, especially when Halkidiki has no expertise in flash smelting. If this was the case authorities would have flagged this issue earlier, Smith argues, noting Eldorado has had permits for both projects for some time.
“There have been a number of appeals against the permits. The Council of State, which is their equivalent to the Supreme Court, has upheld the permits … probably three times.” Smith says. “It’s not like there have not been challenges to the legitimacy of the permits, and it has been upheld every time.
“I kind of feel like [Skourletis] is on a fishing expedition, and I’m not really sure what exactly his motive is. My gut feeling is that … if this was really an issue, it would have come up in the past, when there were all these petitions to have the environmental impact assessment (EIA) overturned.”
(The EIA covers Skouries, Olympias and Eldorado’s Stratoni underground silver-lead-zinc mine, collectively known as the “Kassandra mine.”)
On Aug. 20, Eldorado confirmed it would stop mining and development in the Halkidiki region starting Aug. 24, while dismissing most of its Greek workforce for up to three months. Eldorado’s Greek arm, Hellas Gold S.A., employs 2,000 people at the Stratoni operation, and the Olympias and Skouries projects.
In a statement Eldorado’s CEO Paul Wright said the “unfortunate outcome” is detrimental to all its stakeholders, and to Greek society. He says the company will not spend on its projects in Greece while the Ministry of Energy is “openly hostile to our activities.”
Eldorado aims to restart its activities in Greece “at some point in the near future — preferably through constructive engagement with the Ministry of Energy, rather than a court decision,” Wright said.
The miner has started legal action against the ministry’s decision — including filing an injunction before the Council of State — but has not specified when it would receive a court decision.
Smith says the company suspended activities and dismissed employees to put pressure on the government. “They are tired of the shenanigans. I think it is the exact right strategy. You need to force these [officials] in some way, shape or form to sit down and come to the realization that what the company is trying to do in the country is actually a net benefit.”
Eldorado’s resource investment in Greece has created 5,000 direct and indirect jobs — including 2,000 on Hellas’ payroll — in a country where the average unemployment rate is 25%.
“I think it is the only way is to force their hand, to be honest, because it is a joke over there. There is a contingent of people within the government that are a problem,” Smith says.
“The way you put the government in the hot seat is that you put the employees out of work, because you know the employees have been supportive of the projects in the past … and the reality is, there are no other jobs for them.”
Eldorado’s Greek projects have also received their share of criticism from activists with environmental or foreign-ownership concerns. Reuters reported miners held counter protests in Halkidiki on Aug. 24, one day after activists staged demonstrations.
Eldorado acquired Stratoni, Skouries and Olympias — along with the Certej project in Romania — through its $2.5-billion takeover of European Goldfields in 2012.
Smith says the Greek assets aren’t generating any cash, noting that Skouries and Olympias are long term. “These assets over the course of time will be material, and it would be a shame if the company couldn’t build these mines and get them up and running.”
Asked what Eldorado investors should do given the uncertainty in Greece, Smith says that if he owned shares, he wouldn’t feel bad sitting with the position. He says things will resolve “favourably” for Eldorado. Smith has a “buy” and a $6.75 target price on the stock.
Mackie Research analyst Barry Allan says the ministry’s decision “defies economic logic and continues to add to a Greek comedy that in actual fact is a tragedy — ELD is an environmentally sensitive company and would add billions to Greece’s gross domestic product, helping solve its current debt crisis.” Allan adds that “economic logic will prevail.” He has a “buy” and $8.50 target on the stock.
But not all analysts are optimistic about Eldorado’s situation in Greece.
Raymond James’ Phil Russo has cut his US$6.75 target to US$4 and his “outperform” rating to “market perform,” after removing the Greek assets from his valuation.
Despite the lower rating, Russo writes that “investors searching for deeply discounted gold names should consider Eldorado, given the market has effectively removed the Greek assets from its share price,” with the possibility for the “Greece value to come back into the game on a changing risk landscape.”
The landscape could change with the Greek election, which is expected in September, after Prime Minister Alexis Tsipras resigned on Aug. 20. The company is also restarting its operations through court proceedings.
Eldorado closed Aug. 25 at $3.95 per share, down 28% since Greece’s government suspended the technical studies. The stock has fallen nearly 50% since the start of 2015.