Eldorado dealt blow in Turkey (July 23, 2007)

Vancouver — A surprise injunction is forcing Eldorado Gold (ELD-V, EGO-X) to shut down its Kisladag gold mine in western Turkey within roughly 30 days, and the mine will have to remain inactive until a court hearing that will come no sooner than September.

Eldorado opened Kisladag in June 2006 on a temporary permit. A few months ago, the company was awarded the full operating permit, based on a review of mine operations that showed good compliance with the project’s environmental impact assessment (EIA). But the same EIA is at the centre of a drawn-out lawsuit against Eldorado and the Turkish Ministry of the Environment.

“This is a longstanding lawsuit from a group against the development of gold mining in Turkey,” says Eldorado president and CEO Paul Wright. “This challenge questions the integrity of our EIA report and there questions the granting of our permit by the Ministry of the Environment.”

The local group charged in an initial court case that Eldorado’s EIA did not deal sufficiently with issues of water balance and closure plans for the open pit. At the time of the initial lawsuit, the group also asked for an injunction to halt mining until the case had been heard. The injunction was denied, and when the case went to court nine months ago, the judge sided with Eldorado.

The group immediately appealed the decision, again requesting an injunction based on a “risk of irreparable damage.” That the injunction was suddenly granted eight months later, and without any evidence of such damage, came as a complete surprise to Eldorado.

“We never ever in our wildest dreams expected that we would have an injunction served,” Wright says. “It is certainly somewhat perplexing, and as yet, we simply don’t understand what happened.”

The company has not yet received formal notice of the injunction. They are required to halt operations within 30 days of receiving the notice.

“The clock hasn’t started ticking yet,” Wright says. “And the manner in which we’ll be shut down will be determined by the Ministry of the Environment, who ironically, are codefendants with us in the case.”

Wright says the company will run as much solution through the heap-leach plant as possible over the next month. He hopes that the temporary closure agreement will allow the company to continue circulating solutions, in part because it has taken the mine months to build up inventory levels.

Eldorado has no means to argue the injunction decision. The company can only wait until the appeal is heard in court. If the appeal judge sides with Eldorado again, the injunction will be lifted and mining can continue.

However, to prepare for the case, Eldorado has to work with members of the Ministry of Environment, and upcoming elections are getting in the way.

“Right now a big part of the problem is the timing. We’re ten days away from national elections, which means so many of the people who are going to help us again, as they have in the past, are consumed right now,” Wright says.

And because the Turkish courts will also be closing for the entire month of August for their annual summer recess, there’s no telling how long the process will take.

Despite the surprise of the decision and the lack of complete information, Wright is confident the closure will be short-lived. He says the group’s anti-mining sentiment is at odds with the general mining environment in Turkey, where the Kisladag mine is supported by all levels of government and by local communities.

“Not to diminish the seriousness of this, but we’ve been through a lot of twists and turns and have had to unravel some pretty complicated knots in Turkey over the past ten years, and I just fundamentally believe that these problems are resolvable,” Wright says.

“This is obviously a significant and unanticipated setback, but we are confident that we will overcome it, largely because of the confidence we have in the integrity of the project and the manner in which it was designed, permitted, and executed.”

The Kisladag mine produced 70,895 oz. gold at a cash cost of US$206 per oz. in 2006. Production in 2007 had been forecast at 190,000 oz.

Eldorado’s stock dove 26% on the news, falling $1.89 to $5.33 on over 40 million shares traded. It was Eldorado’s busiest ever day of trading.