Eldorado to sell Jinfeng 
to China National Gold

VANCOUVER —  Eldorado Gold (TSX: ELD; NYSE: EGO) is the largest foreign gold producer in China, with three of the company’s six producing mines operating in the country. But that reign is coming to an end with an agreement the gold miner announced in late April to sell its Jinfeng mine for US$300 million in cash, and more recent announcement of a sale of its remaining assets in China (see story, Page 1).

The Vancouver-based company is selling its 82% stake in the gold mine in China’s southern Guizhou province to its partner, a subsidiary of China National Gold Group. The state-owned company has been Eldorado’s minority partner at Jinfeng for the last 14 years.

Paul Wright, Eldorado’s president and CEO, declined to be interviewed about the sale or the company’s China strategy, but said via email that management thinks its mines in China have been under-appreciated.

“We believed that the market was not fairly valuing the Chinese assets within our portfolio,” he told The Northern Miner. “In August 2014 we began evaluating alternatives, which included the status quo, a Hong Kong listing, or a full divestment of the assets.”

Jinfeng has consistently delivered solid operating results since it went into production in 2007, and has been a “strong contributor” in the company’s global portfolio, Wright said in a press release announcing the sale. (That portfolio includes two other operating mines in Turkey and development projects in Greece.)

The company also noted that China National Gold was “the logical buyer,” as Jinfeng transitions to the underground part of its mine life. (The open-pit operations were exhausted in April 2015).

This year, Eldorado estimates Jinfeng will produce 95,000 to 105,000 oz. gold from underground operations and a small amount of stockpile, at cash costs of between US$700 and US$750 per oz. gold.

Phil Russo and Kent Neal of Raymond James said in a research note they view the transaction “positively,” as the sale price for the asset is 1.35 times their net asset value (NAV) estimate of $225 million.

They also point out that “the market is likely to welcome Jinfeng’s sale price as a potential read-through for the remaining Chinese assets,” which they value at a $450-million NAV prior to the subsequent announcement of their sale for US$600 million.

CIBC analysts Cosmos Chiu and Kevin Chiew earlier modelled a $527-million NAV for Eldorado’s remaining Chinese assets: Tanjianshan, White Mountain and Eastern Dragon.

Eldorado holds a 90% stake in the Tanjianshan mine, a 95% stake in the White Mountain mine and a 75% stake in the Eastern Dragon project. (China National Gold does not hold the minority stakes in any of these assets.)

Tanjianshan is an open-pit gold mine in northwestern China’s Qinghai province consisting of two deposits: Qinlongtan and Jinlonggou. White Mountain is an underground mine in northeastern China’s Jilin province, and Eastern Dragon is a high-grade epithermal gold-silver deposit in northern China’s Heilongjiang province.

This year Tanjianshan could produce 70,000 to 80,000 oz. gold at cash costs of US$700 to US$750 per oz., while White Mountain could produce 75,000 to 85,000 oz. gold at cash costs of US$625 to US$675 per oz. gold.

Eastern Dragon would commission this year and begin as a small open-pit mine, before transitioning to underground. Production this year at Eastern Dragon is forecast to reach 10,000 to 20,000 oz. gold (45,000 tonnes at a grade of 14.75 grams gold per tonne), at cash costs of between US$125 to US$175 per oz. gold.

The transaction could close by September.

Outside China, Eldorado owns 100% of the Kisladag open-pit mine in Turkey’s Usak province, 100% of the Efemcukuru underground mine in Turkey’s Izmir province and 95% of the Stratoni underground silver-lead-zinc mine in northern Greece’s Halkidiki Peninsula.

Kisladag, Turkey’s largest mine, is forecast to produce 225,000 to 240,000 oz. gold this year at cash costs in the US$550 to US$600 per oz. range. Efemcukuru could produce 90,000 to 100,000 oz. gold in 2016 at cash costs of between US$550 and US$600 per oz. gold. Stratoni would process 220,000 tonnes of ore at grades of 6.2% lead, 10% zinc and 163 grams silver per tonne.

The company also has the Certej gold-silver project in western Romania; the Tocantinzinho gold project and the Vila Nova open-pit iron ore mine (on care and maintenance) in northern Brazil; and the Olympias gold-silver-lead-zinc project and Skouries gold-copper porphyry projects in Greece.

News of the Jinfeng sales agreement lifted Eldorado’s shares on the Toronto Stock Exchange 2% — or 9.5¢ to $4.90 — on 3 million shares traded.

On the Jinfeng announcement Cosmos Chiu and Kevin Chiew of CIBC raised their 12- to 18-month target price from $3.50 per share to $4, and noted that the Jinfeng sale would strengthen Eldorado’s balance sheet.

At the end of December 2015, Eldorado had US$667.7 million of liquidity, including US$292.6 million in cash and equivalents, and US$375 million in unused credit lines.

In its year-end results tabled on March 23, Wright noted the company’s balance sheet “remains one of the strongest in the industry, allowing us to internally fund our robust growth pipeline.”

Eldorado exceeded production and cost guidance for the third year in a row, with gold production of 723,532 oz. at an average cash operating cost of US$552 per oz., and all in-sustaining cost of US$842 per oz. gold.

In 2015, Eldorado posted a loss attributable to shareholders of US$1.5 billion, or US$2.15 per share, compared to a net profit attributable to shareholders of US$102.6 million, or 14¢ per share in 2014.

The company attributed the loss to US$1.5 billion in impairment losses, net of tax; a US$63.5-million deferred income tax charge, related to a change in income tax rates in Greece; and lower gross profits from gold mining operations.