Greece approves European Goldfields’ EIS

It has taken five years but Greece has finally approved European Goldfields‘ (EGU-T, EGU-L) environmental impact study on its Greek assets.

“We consider this to be the single most important positive catalyst for European Goldfields and its share price since the company’s formation,” Dominic O’Kane, a mining analyst at London’s Liberum Capital, wrote in a research note to clients.

“The environmental impact study was originally submitted in 2006 and the approval time reflects the exhaustive review process by the Greek authorities to confirm the Olympias, Skouries and Stratoni projects will comply with Greek and European Union environmental standards.”

Shares of European Goldfields closed up 8.53% at £8.81 apiece in London. In mid-day trading in Toronto the company’s shares were up $1.22 or 9.9% at $13.53 with 1.9 million shares changing hands.

O’Kane noted he believes European Goldfields will initially trade to £10.00 per share but expects the company to trade towards 1.5 times NAV or £12.63 per share as it nears production.

“There is a likelihood of high liquidity in the coming trading days as event-driven hedge funds may use this positive news to take profits,” O’Kane wrote. “However with a credible path now cleared for the shares to more than double before first gold production in 1Q 2012, we reiterate our buy recommendation…we have long argued that an EU-based gold mining company should attract a premium rating on account of lower sovereign risk-with permitting complete we now expect this premium to be realised.”

The approval from the Ministry of Environment Energy and Climate gives European Goldfields the green light to continue operations at the Mavres Petres deposit at its operating Stratoni mine and move ahead with the next stages of its Olympias project, including mining and processing ore and the metallurgical treatment of the concentrate. It also grants permission to European Goldfields to develop mining and processing at its Skouries project, and expand the port facilities at Stratoni to service all of its projects.

The Stratoni mine is about 4 km from the coastal town of Stratoni in northern Greece. The mine has well-defined mineral reserves and the company believes it has exciting exploration upside. About 20 million tonnes of ore has been mined at Stratoni historically, at grades of 16-22% lead and zinc, and 200 grams silver per tonne. Underground production resumed in the fourth quarter of 2005 and production is currently running at about 950 tonnes per day.

The Olympias project consists of a polymetallic massive sulphide deposit 8 km north of the Stratoni mine. The company has been selling gold concentrates from an existing stockpile on the property and plans to resume underground mining there. The Skouries project is about 35 km by road from the Stratoni port and is a typical gold-copper porphyry deposit that forms a near-vertical pipe.

Paul Burchell, a mining analyst at Dundee Capital Markets in Toronto, who has a 12-month target price on the stock of $17 per share, wrote in a research note to clients that the positive decision on permits could put the company “in play.”

He also noted that the last resource/reserve estimates on Olympias and Skouries were based on long-term gold price assumptions of US$650 per oz. and US$450 per oz. respectively, but that the company had confirmed that it is going to publish new estimates using US$1,000 per oz. gold in the next few weeks.

“We expect the new estimates to indicate increased tonnage and contained ounces at both projects, while likely lowering the average grades,” he wrote. “We are forecasting production ramp up at Skouries in 2014 and at Olympias in 2015. Both projects have very long reserve lives with the existing resource/reserve estimate. The Olympias and Skouries development projects represent over 65% of our $18.49 NAV estimate.”