Investment banking prescriptions for Eldorado Gold’s ailment
Much opprobrium has been heaped upon Kinross for “dumb deals” but little has been said about Eldorado Gold. Despite this Eldorado has been a very poor share price performer in recent years and much of that has to do with its own deal history. While it did a clever deal in acquiring its Chinese assets at the point it did, they are not a drag on the share price rather than a help.
One does not have to be a genius to know that splitting off the Chinese assets from the rest of Eldorado has the potential to electrify the stock price of both halves of this business. There are three truisms:
- The Chinese love gold
- Chinese investors love China
- Investors elsewhere hate China
These sound like good enough reasons alone to create a spinco of the Asian business and send it on its merry way. It is more than likely that this entity (listed in Hong Kong?) would quickly attract a bidder and be taken out giving long-suffering shareholders a premium. A goodly chunk of the group debt could be pushed out into the Chinese spinco.
This would leave the rump of Eldorado. This is composed of the Turkish assets (two producing mines), $500mn in cash (at March quarter end), the Greek assets and the Brazilian activities. In Brazil, it owns the Vila Nova iron ore mine and is advancing the Tocantinzinho gold project (2P Reserves of 1.9 Moz Au @1.43 g/t). The Vila Nova mine is currently on care and maintenance pending a recovery in iron ore prices. In Mexico there are no interests these days. Quite clearly having one operating asset (in the future) does not make EGO into a Latin American mining company. But then again, it doesn’t have to be.
Other sorts of combos could be pondered. For instance it could combine its Turkish assets with Alacer Gold (TSX: ASR and ASX: AQG) and list the merged entity on the Istanbul Stock Exchange, here there is only one listed miner worth mentioning (Koza Altin).
It could take a run at some beaten down gold-producing assets or advanced projects in Latin America. Mexico is an obvious place to go hunting. Chesapeake Gold could be a good fit to bulk up in Mexico via an all-stock bid.
It could venture a merger-of-equals type arrangement with Iamgold.
Alternatively, it could spin out China and Turkey (in the aforementioned merger with Alacer) and retain some stock to sell/place into strength thus bringing cash in to fund an acquisitions war chest. It already has a mighty war chest but one can never have too much money in the current bargain basement market for mining assets. Really daring would be going after Patagonia Gold (PGD.L) or Everton (EVR.v).
Orosur, the Uruguayan/Chilean gold miner could be snatched up. More daring would be going after Mandalay, the gold/antimony/silver miner which straddles Australia, Chile and Sweden. The opportunities and configurations are virtually endless for a cashed-up (ex-China) Eldorado as it would also have stock that it could use as currency.
The problem of “what might have been” in the mid-tier Canadian players is a constant. The mid-tier gold group on the TSX has shown themselves to be more than exceptionally unimaginative, even by the low standards of the mining industry. The ”rescue” of Osisko by Yamana/Agnico just about took the cake for uninspired deals and summed up the level of deal-doing skills in the mid-tier.
It doesn’t take a genius to work out what ails Eldorado and the cure thereto. The question now becomes whether the company will self-medicate or the “corporate doctor” will come from outside the company.
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