Eldorado Gold underscores challenges of mine development outside N.A.

Eldorado Gold's Skouries Project in Greece, a high-grade gold-copper porphyry deposit. Source: Eldorado Gold Corp.

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By Peter Kennedy

Eldorado Gold Corp. [ELD-TSX; EGO-NYSE] shares were active Wednesday April 4 as investors warmed to a positive arbitration panel ruling affecting the company’s assets in Greece, a country where Eldorado continues to face significant challenges.

The shares rose 3% to $1.17 on volume of 6.26 million on news that an arbitration panel rejected the Greek State’s motion that the technical study for a metallurgy plant designed to treat concentrate from the company’s Olympias mine and Skouries Project (once it reaches the production stage) was in breach of its transfer contract.

The transfer contract refers to the document, dated December 12, 2003, whereby Eldorado subsidiary Hellas Gold acquired a basket of Greek assets, (collectively known as the Kassandra assets, and including the Olympias and Skouries properties). The transfer document was ratified by Greek National law.

The shares rallied Wednesday even though the company still needs to receive four key permits and the support of the Greek government for mining and the development of the Skouries Project in order to proceed.

The arbitration panel ruling is considered highly significant for Eldorado as its assets in Greece account for about 60% of the company’s net asset value.

They include the Olympias gold-silver-lead-zinc mine which is located in the Halkidiki Peninsula, northern Greece.  In 2018, Olympias is expected to mine and process 390,000 tonnes of ore at an average grade of 7.5 g/t gold, producing 55,000-65,000 ounces of payable gold at operating costs of US$550-US$650/oz. Olympias also produces significant amounts of lead-silver and zinc concentrates.

Skouries is a high-grade gold-copper porphyry deposit which is also located in Halkidiki Peninsula.

According to an updated technical report, which was released March 21, 2018, proven and probable reserves at Skouries stand at 3.8 million ounces of gold at 0.74 g/t, and 1.7 billion pounds of copper at 0.49% copper. That material is expected to support a 23-year mine life with average annual production of 140,000 ounces of gold and 67 million pounds of copper. Production would come from both open-pit and underground operations.

The estimated capital cost of developing the open pit and phase one of the Skouries underground operation is $689.2 million.

However, back in November, 2017, Eldorado announced its intention to begin moving the Skouries Project into care and maintenance as a result of ongoing permitting delays. It said development capital expenses at the site are expected to be $20 million in 2018 as the project fully transitions into care and maintenance.

Key components include a SAG mill, the size of which is unprecedented by Greek and European standards. The parts were transported on a specially designed fleet of trucks.

Eldorado said it will continue to evaluate the arbitration panel ruling and consider next steps with respect to its investments in Greece.
“We respect and acknowledge the Panel’s ruling,” said Eldorado Gold President and CEO George Burns. “We have always acted in good faith and in a manner we understood to be in accordance with our obligations under the Transfer Contract, including our commitment to develop the Kassandra assets in accordance with the Greek State’s approval of the Investment Plan for 2006, and the Environmental Impact study in 2011,” he said. “We have repeatedly communicated this commitment, including during the course of arbitration.”

Burns said he believes the Panel decision provides a foundation to allow the company to advance dialogue with the Greek government in order to define a mutually-agreeable path forward for the Kassandra investments.

Still, some say Eldorado’s experience in Greece underscores the challenges of developing projects outside North American boundaries.

“It is getting more and more difficult to find and own production in safe jurisdictions around the world,” Atlantic Gold Corp. [AGB-TSXV] Chairman Steven Dean said recently during an interview with Nick Hodge, Investment Director at Wall Street’s Underground Profits. “So there has been a fair amount of focus on companies with projects in mining friendly jurisdictions, and countries with a long tradition of mining, such as Canada.”

He explained that growth-hungry mining companies are once again eyeing gold projects developed by juniors in Canada as they aim to rebalance their portfolios with a view to replacing depleting reserves while reducing political risk.

Recent examples, he said, include Goldcorp Inc.‘s [G-TSX, NYSE-GG] $520 million acquisition of Kaminak Gold Corp., and Eldorado Gold’s $590 million purchase of Integra Gold Corp.

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