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. By midday 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 one-and-a-half times the net asset value (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 Q1 2012, we reiterate our buy recommendation . . . we have long-argued that an E.U.-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 realized.”

The approval from the Ministry of Environment, Energy and Climate Change gives European Goldfields the green light to continue operations at the Mavres Petres deposit in its operating Stratoni mine, and move ahead with the next stages of its Olympias project, including mining and processing ore, and 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 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. Twenty 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. Production runs 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 35 km by road from the Stratoni port. It 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 and reserve estimates on Olympias and Skouries were based on long-term gold price assumptions of US$650 per oz. gold and US$450 per oz. gold, respectively, but that the company would 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 and reserve estimate. The Olympias and Skouries development projects represent over 65% of our $18.49 NAV estimate.”