Eldorado inks iron ore MOU with BHP Billiton

Vancouver – Eldorado Gold (ELD-T, EGO-X) has signed a preliminary agreement to sell future iron ore production from its 75%-owned Vila Nova project, in northern Brazil’s Amapa State, to mining giant BHP Billiton (BHP-N, BLT-L, BHP-A).

The non-binding memorandum of understanding (MOU) is expected to be formalized into a long-term supply agreement over the next few weeks whereby BHP Billiton will purchase the first 3 years of production of lump iron ore and sinter fines from the project.

Recent updates to a mid-2007 prefeasibility study tables initial capital expenditures of US$39 million to construct the iron ore operation. Eldorado reports site clearing is underway and anticipates mining to commence near the end of the year. Initial ore shipments are expected in early 2009.

Vila Nova has 9.3 million tonnes of proven and probable reserves grading 61% iron plus a further 10 million tonnes of measured and indicated resource averaging 61.6% iron. Current reserves will feed a 9-year mine life (averaging 900,000 dry tonnes of ore per year) to generate a 54% after-tax internal rate of return along with a 1.8-year pay back. A net present value for Eldorado’s share comes in at US$108 million using a 5% discount.

Eldorado is earning its 75% interest in Vila Nova by financing roughly US$39 million in pre-production capital expenditures (including working capital) and property payments to its Brazilian partner Mineracao Amapari that will retain a 25% interest in the project.

Iron ore from the open pit operation will be crushed, screened and processed through a gravity separation circuit producing lump ore and sinter fines. The product will be transported to the port of Santana, roughly 170 km to the east, for loading onto ships.

Total cash costs of US$39 per dry metric tonne of finished product (FOB Santana Port) are projected for Vila Nova.

With demand outpacing production increases over the past several years, the iron ore market has seen spot prices recently soar beyond the US$200 per tonne level. Contract prices are pegged lower than spot with recently negotiated levels around US$120 per tonne.

Roughly 35% of the world’s iron ore deposits are controlled by Vale (RIO-N), BHP Billiton and Rio Tinto (RTP-N, RIO-L). The trio also accounts for about 78% of the seaborne trade in the commodity.

In early-March Eldorado resumed operations at its Kisladag gold mine in western Turkey. Kisladag, which commenced production in 2006, was temporarily closed by a court injunction in mid-2007 pending a decision on its environmental impact assessment approval.