It’s All Greek to European Goldfields

European Goldfields (EGU-T, EGFDF-O) is both ramping up production and adding years to the life of its Stratoni silver-zinc-lead mine in northern Greece.

And while following in the footsteps of TVX Gold, a company that experienced years of permitting woes with the same project, may seem like a bad omen, European Goldfields’ future in the Mediterranean country appears much more promising.

TVX Gold, which merged with Kinross Gold (K-T, KGC-N) in 2003, had several Greek properties but found itself in litigation related to its projects.

European Goldfields’ apparent success in Greece is due, in part, to its influential joint-venture partner, Aktor, the largest Greek construction company in the country.

“Aktor is one of the reasons we’ve been able to unlock value in Greece,” says David Reading, European Goldfields’ CEO.

Reading says Aktor has strong local ties and is also European Goldfields’ contract miner for Stratoni.

The company, a subsidiary of Hellas Gold S.A., exceeded its 2006 production target, milling 185,000 tonnes of ore instead of the projected 170,000 tonnes.

Reserves have increased by 23% over European Goldfield’s initial estimate in 2005, upping the mine life to seven years from six.

The company reports that ore production will increase more rapidly than expected at 250,000 tonnes this year, 350,000 tonnes in 2008 up to a maximum of 400,000 tonnes of ore per year from 2009 to 2012.

Stratoni hosts proven and probable reserves, compliant with National Instrument (NI) 43-101, of 2.2 million tonnes grading 172 grams silver, 6.9% lead and 9.7% zinc.

A marginal reduction in grades is expected to be more than offset by an increase in production over the total mine life.

A better understanding of the orebody has allowed Hellas Gold to increase inferred resources to 555,000 tonnes grading 7.3% lead, 10.2% zinc and 181 grams silver per tonne. The company is now upgrading its inferred resources to be compliant with NI 43-101.

As well, Hellas Gold started a new exploration drill program at Stratoni, which is expected to increase the mine life by another two years. Initial drill results are expected this quarter.

Hellas Gold has offtake agreements for 90% of its lead-silver and zinc concentrates produced during 2007, and 65% of the lead- silver and 25% of its zinc production in 2008. The company will sell the rest of its production on the spot market.

The company shipped a total of 13,775 tonnes of payable zinc, 10,4667 tonnes of payable lead, 818,139 tonnes of silver and 17,649 tonnes of gold concentrate during 2006.

European Goldfields began production at Stratoni in late 2005. The mine previously produced at a rate of 450,000 tonnes per year until it shut down in 2003. With the extensive infrastructure that already existed, little capital investment was required, though the company refurbished the mill and flotation plant.

The mine is located just 4 km from the coastal town of Stratoni, where a port can accept vessels of up to 8,000 tonnes.

European Goldfields has had a 65% interest in Hellas Gold since 2004. The company has two other gold and base metal deposits in northern Greece: the Skouries gold-copper mine and the Olympias gold, lead, zinc and silver mine.

“Polymetallic properties would have been considered a negative in the past, but all metals are precious these days,” Reading says.

The company has begun selling gold stockpile concentrates that were left over at Olympias with 100,000 tonnes already booked for 2007. The stockpile is about 258,000 tonnes grading 23.3 grams gold per tonne or about 193,000 oz. gold. Reserves stand at 14.1 million tonnes averaging 8.6 grams gold per tonne, 120 grams silver, 3.9% lead and 5.2% zinc, or 3.9 million oz. gold, 54 million oz. silver and 1.3 million tonnes lead and zinc. The site has existing underground infrastructure and a concentrator, which needs some refurbishment.

European Goldfields plans to finish a feasibility study for Skouries by the end of this quarter.

The Skouries open-pit project is projected to produce 200,000 oz. gold annually and 40,000 tonnes of copper. Mining will be done by open pit for about six years, followed by underground mining. A paste tailings facility will be used to eliminate potential acid drainage issues. The latest reserves are 146 million tonnes at 0.8 gram gold per tonne and 0.5% copper, or 3.9 million oz. gold and 800,000 tonnes of copper.

European Goldfields also owns 80% of the Certej gold-silver project in Romania. The company is considering two options — selling high-grade concentrates or producing dor. Certej hosts reserves of 27.7 million tonnes at 2 grams gold per tonne and 12 grams silver, or 1.8 million oz. gold and 10 million oz. silver. The company expects to wrap up the feasibility study by the end of 2007 and estimates annual production of 170,000 oz. gold and 1 million oz. silver.

European Goldfields is based in London, England. Reading met with investors and shareholders across North America in January, during which time the company’s closing share price peaked at $5.32, after trading in the $3-$4 range for the last year.

The company has no debt, a market capitalization of US$480 million and US$40 million in working capital. It has no warrants or royalties and pays the Greek government a corporate tax of 25%.