Eldorado signs on for Tocantinzinho earn-in (July 21, 2008)

VANCOUVER — Eldorado Gold (ELD-T, EGO-X) is focused on expansion. Fresh from negotiating a takeover of Frontier Pacific Mining (FRP-V, FRPMF-O), the Vancouver- based producer just signed on to earn in majority ownership of Brazauro Resources’ (BZO-T, BZOFF-O) Tocantinzinho gold project in Brazil.

The agreement allows Eldorado to earn up to a 75% interest in the project, in stages. First, the major will subscribe for 8.8 million Brazauro units at 95 apiece, with each unit comprising one share and one warrant. That initial $8.36-million investment, combined with exploration spending of $9.5 million over two years, will give Eldorado the option to acquire a 60% interest in Tocantinzinho by paying Brazauro $40 million.

Eldorado can then increase its interest to 70% by paying another $30 million within 90 days of a decision by the joint venture to proceed with a mine, based on a feasibility study. Then, at any time during construction, Eldorado can exercise a third option and pay Brazauro another $20 million for an additional 5% interest, bringing its ownership to 75%.

Finally, if the feasibility study determines that Tocantinzinho hosts proven and probable gold reserves greater than 2 million oz., Eldorado must pay a production decision fee. For reserves between 2 and 2.5 million oz., Eldorado is on the line for $5 million; if reserves come in above 2.5 million oz. gold, Eldorado will have to hand over $10 million.

All told, payments for the project could exceed $120 million.

In addition to its earned interest in Tocantinzinho, the deal assures Eldorado a right of first offer if Brazauro wants to sell its interest in Tocantinzinho or is seeking a joint-venture partner for any other properties in Brazil.

Tocantinzinho is located in the Tapajos district of north-central Brazil. Brazauro discovered gold in the area in 2004 by drill-testing the area underneath a tailings pile left behind by artisanal miners. As of June 2007, the project hosted resources of 24.6 million indicated tonnes grading 1.33 grams gold per tonne plus 27.7 million inferred tonnes grading 1.18 grams gold, for a total of 2.1 million contained ounces gold.

Gold mineralization occurs as stockwork veinlets within Proterozoic granite. Pyrite is ubiquitous; in high-grade zones, chalcopyrite and galena are also present. Metallurgical testing has indicated gold recoveries of 91% using conventional grinding, flotation and cyanidation.

The 2007 resource estimate used indicated and inferred resources to develop a preliminary mine plan. The plan foresaw gold production of 123,000 oz. per year over a 13-year mine life. An open-pit mine with a stripping ratio averaging 2.84 would produce 3 million tonnes of mill feed annually. Operating cash costs come in at US$367 per oz. gold and the project would require US$128 million in initial capital investment. The project’s net present value is US$42 million, at a 5% discount and a gold price of US$550 per oz., and the internal rate of return is 10%.

This isn’t Eldorado’s first foray into Brazil. The company owned and operated the San Bento underground gold mine in Minas Gerais state from 1986 until the mine ceased operations early last year. In all, the mine produced 1.8 million oz. gold.

In announcing the agreement, both Eldorado and Brazauro referred to the major’s Brazilian experience and its group of skilled mining professionals available from the closure of San Bento to work at Tocantinzinho.

Eldorado is also working to develop the Vila Nova iron ore project in northern Brazil.

On news of the deal, Eldorado gained as much as 32 in mid-day trading but ended the day down two pennies at $8.04.

Eldorado currently operates the Kisladag gold mine in Turkey and the Tianjianshan gold mine in China. It is also developing the Efemcukuru gold project, in Turkey.


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