As Vancouver-based Eldorado Gold (TSX: ELD) and Frontier Pacific mining announced Wednesday that they had finally reached a friendly acquisition agreement, Haywood Securities praised the addition of the Perama Hill gold project in Greece to Eldorado's portfolio of properties and mines.
Eldorado's original offer had escalated into a hostile bid as the Frontier board had insisted that Frontier Pacific and the Perama Hill project are worth more than Eldorado's offer.
As late as Tuesday, Frontier (TSX.V: FRP) was opposing the bid , while Eldorado COO Norm Pitcher told the Denver Gold Group's Asia Pacific Forum that we're certainly not betting the farm on Frontier accepting the offer. We think it's a fair offer. The price is not negotiable, Pitcher had declared on Tuesday.
But, what a difference a single day had made when Frontier announced that Eldorado has sweetened its offer with one exchange receipt for each common share of Frontier. The receipt entitles the holder to receive an additional 0.008 common shares of Eldorado, conditional upon a joint ministerial resolution being issued prior to July 1, 2009, by the Greek Ministerial Council accepting the environmental terms of reference for the Perama Hill gold project.
Eldorado had originally offered 0.1220 Eldorado common shares and Cdn$0.00001 in cash to Eldorado shareholders.
A Bankable Feasibility Study is expected to be completed next month regarding the development of the Perama Hill open pit gold mine extracting the oxide resource during a 9 year mine life. The project is believed to have an estimated annual production of 131,000 ounces of gold, and a mineable reserve of 1.2 million ounces of gold.
Based on preliminary modeling and a US$850/oz gold price, Haywood estimated that the US$150 million Perama project has a NAV of US$190 million at a 5% discount rate. Eldorado is paying about $160 million for Perama Hill, Haywood's Kerry Smith wrote. If Perama can be permitted, Eldorado is acquiring the project at a reasonable risk-adjusted price, he advised.
Exploration upside at Perama is good and we expect Eldorado will aggressively drill to expand the current 1.4 million ounce resource, Smith noted, adding the acquisition could push Eldorado through the 650,000 ounce-per-year mark by 2012.
As a result, Haywood raised its target price for Eldorado by 35-cents to $9.60 per share, with a rating of SECTOR OUTPERFORM and a SPECULATIVE risk profile.