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Eldorado Gold to Halt Investments in Greece

- By Alberto Abaterusso

Through a news release published Sept. 11 on its website Eldorado Gold Corp. (EGO) informed its shareholders of its intention to interrupt investments in Greece where the Canadian miner is running operations, developing metal projects and undertaking exploration activities.

The move is a response to the Greek authorities' inactivity in releasing those building permits and licenses that are necessary for the Canadian miner to set up operations at Skouries and Olympias and the development of the metal projects it is undertaking at the two sites in the Greek peninsula of Halkidiki.

The suspension of investment activities involves the Kassandra Mines of Olympias, Skouries and Stratoni - which will be put on care and maintenance starting Sept. 22 - the two projects the miner is advancing in Thrace - the Perama Hill and Sapes projects - and any other exploration activity Eldorado Gold, through its Greek subsidiary, Hellas Gold, is undertaking in the country.

Practically Eldorado Gold's actions will be limited to care and maintenance activities at its Kassandra mines. Preparation will cost the miner approximately $30 million and investment in environmental protection.

The putting on care and maintenance of the Kassandra mines in Greece will cost Eldorado Gold annual sustainment of about $25 million not to mention the funds that the miner has invested in Greece since the acquisition of the Kassandra mines in 2012. We are talking about $3 billion already invested by the Canadian mining company in Greece, of which $2 billion was for the acquisition of the Greek assets and $1 billion was in additional investments.

In commenting on the board of directors' decision, George Burns, Eldorado Gold's president and CEO, expressed its regrets for not obtaining the necessary assistance in a timely manner from the Greek government and therefore the possibility to build a world class asset in Greece, which will give to the country, the families of Eldorado's workers and the local communities several benefits in terms of more job opportunities, well-paid jobs, the payment of taxes and the participation of Greece in export revenue. Not to mention the funds that Eldorado will keep on investing in Greece over the coming years to secure future production through the development of mineral projects and the undertaking of exploration activities campaigns.

Eldorado Gold counted on increasing its personnel and contractors' numbers over time if the Greek authorities put the mining company in position to realize this world class and long-term project in Greece. But because of Eldorado Gold's intention to suspend any kind of investment in Greece, a not-yet specified number of workers and contractors is at risk because of contract ending. This will of course be done by the company, according to the Greek labor law.

This news will for sure have a negative impact on the market value of Eldorado Gold on the stock market over the coming trading days as it paints a cloudy picture of the Canadian miner's possibilities to fill the gap in gold production that, after the sale of the Chinese assets, has been created.

This may represent a catalyst to the market value of Eldorado Gold because if the Greek government finally releases all the necessary building permits Eldorado Gold needs to realize its projects in Greece, the share price that is trading at $1.93 per share - 40% down year to date - will start to soar again. The Canadian gold stock lost 13 cents per share, or 6.31%, following the news from Greece.

Burns also added that "should the Greek government wish to work within the framework of its contractual obligations with Hellas Gold, issue permits in a timely manner and support the investment, Eldorado will then be able to re-evaluate its investment plans in the country."

Eldorado Gold is one of the cheapest gold mining stocks in the industry with an EVO - the enterprise value per ounce of proven and probable gold reserves - of $87.21. Eldorado Gold has a price-book (P/B) ratio of 0.39, a price-sales (P/S) ratio of 3.42 and an EV to EBITDA ratio of 11.98.

The analysts' target price per share for Eldorado Gold is $3.38 on average. This is the result of 12 analysts' estimates on the share price that Eldorado Gold is expected to reach within the next 12 trading months on the New York Stock Exchange. The estimates of surveyed analysts range between $2.06 and $4.75 range. The average target price per share of $3.38 is a 75.1% increase from the current market value per share.

Disclosure: I have no positions in Eldorado Gold.

This article first appeared on GuruFocus.