Eldorado targets Frontier Pacific

VANCOUVER — Frontier Pacific Mining (FRP-V, FRPMF-O) is fighting an unsolicited takeover offer from Eldorado Gold (ELD-T, EGO-X) in a battle focused on Frontier’s 1.4- millon-oz. Perama Hill gold deposit in northeastern Greece.

In its proposed “friendly transaction,” Eldorado is offering 0.122 Eldorado shares for every Frontier share. Based on each company’s closing price on April 18, the offer values Frontier shares at 90, a 28.6% premium. The deal represents a 35.5% premium based on 10-day volume-weighted average share prices.

“Perama Hill will contribute significantly to our growth strategy in the Aegean region,” said Paul Wright, Eldorado’s president and CEO, in a statement. Eldorado is already present in the region, running two operations in neighbouring Turkey. Eldorado’s Kisladag mine produces roughly 185,000 oz. gold annually and its Efemcukuru gold project is under development.

Eldorado says it has discussed a merger with Frontier several times over the past few years, envisioning a deal of mutual benefit. Eldorado would boost its gold reserves and Frontier would get an experienced team with sufficient financial backing to develop Perama Hill.

Frontier does not agree. In a letter to Eldorado, Frontier’s board said the proposal of 90 per share just does not represent fair value. Frontier argues that the overall economics of the Perama Hill project are “extremely compelling” and outside financing sources have validated the project’s greater value. As an example, Frontier reports it has received five proposals from financial institutions to provide debt financing for Perama Hill development, all of which were on “very favourable terms” and several of which proposed 100% financing with no hedging requirements.

Moreover, Frontier calls Eldorado’s move “opportunistic” in that it came just as reports from the Greek House of Parliament started to indicate that the issuance of Perama Hill’s permits is “tantalizingly close.”

Frontier’s board says it has made it clear to Eldorado that it is open to a business combination of the two companies at a fair price. Along those lines, the company says it offered to immediately start discussions but Eldorado declined. Frontier’s second-largest shareholder, Stewart Blusson, holds roughly 14% of the company and does not support the offer.

Eldorado, however, has an ally in Frontier’s largest shareholder. Dundee Precious Metals (DPM-T, DPMLF-O) holds 41.9 million shares or 25.5% of Frontier and has agreed to tender its holdings to Eldorado as part of the takeover.

The offer, once mailed, will be open for acceptance for at least 35 days. To succeed, Eldorado has to win 66.7% of Frontier’s shares, on a fully diluted basis.

Perama Hill is in the Thrace region of northeastern Greece, 28 kmfrom the city of Alexandropolis on the Aegean Sea and 5 km from the main highway. Frontier discovered Perama Hill in 1995 by following up on a stream-sediment anomaly.

By 2004, the company had outlined 11.7 million indicated tonnes grading 3.62 grams gold per tonne and 8.2 grams silver, plus 330,000 inferred tonnes grading 2.58 grams gold and 4.5 grams silver, in a mushroom-shaped deposit. The deposit is a typical low-sulphidation, stock-work- veinlet system, with porosity and rock competency controlling mineralization.

Initial capital costs to develop the project are expected to come in at US$97 million. Plans call for milling of 1.25 million tonnes of ore per year through a conventional carbon-in-leach plant to produce 131,000 oz. gold. Gold recovery is roughly 90%, while silver recovery sits at 60%. The mine life waste-to-ore ratio is 0.4:1. Total gold production over a nine-year mine life is estimated at 1.2 million oz. at total cash costs of US$171 per oz.

In addition to Perama Hill, Frontier holds a 50% interest in the Macusani uranium project in southeastern Peru. Frontier operates the project, carrying joint-venture partner Solex Resources (SOX-V, SLXRF-O). The project has seen ground radiometric surveys, channel and chip sampling, trenching, and 22,000 metres of drilling.

Frontier’s third property is the Taraira gold project in southeastern Colombia, adjacent to the Brazilian border. Frontier holds 51% of Taraira with privately owned Cosigo Resources holding the remainder. The property, which sits at the far southwestern edge of the Neblina basin, has seen limited work.

On news of the takeover offer, Eldorado’s share price lost 22, closing at $7.16 on 2.4 million trades. Frontier gained 19 or 27% to close at 89 on 11.2 million shares traded. Frontier has a 52-week trading range of 44-$1 and has 164.6 million shares issued.