By Kishori Krishnan Exclusive To Gold Investing News
A Vancouver gold firm has decided to expand its holdings in China with a stake in an Australian firm. Sounds corny? With firms going for the kill, Vancouver’s Eldorado Gold Corporation (TSX:ELD) has taken the first step in acquiring a 19.9 per cent interest in Sydney, Australia-based gold mining firm in an all-share private placement worth approximately $279 million.
Eldorado is buying approximately 57.9 million shares of Sino Gold Limited from South Africa’s Gold Field Ltd. for 27.8 million Eldorado shares. The deal values each Sino Gold share at 0.48 Eldorado share, or about $4.82 per share based on Eldorado’s 30-day average trading price on the TSX.
It gives Eldorado a stake in China’s Jinfeng gold mine. Jinfeng, which produces approximately 180,000 ounces of gold a year, is China’s second largest gold mine. The deal expands Eldorado’s presence in China, which includes the Tanjianshan gold mine in central China that produced 118,480 ounces of gold in 2008. Together, both companies are among the largest foreign-owned gold producers in China.
Gold Field will own approximately 7 per cent of Eldorado following completion of the deal, which is expected to close by the end of August. Eldorado’s share price range during the past week: between $10.18 and $10.98; 52-week high: $11.90; 52-week low: $3.44.
The Vancouver firm knew a good thing when it saw it. With most traders predicting that gold is set to double over the next two years, it is time investors who are not already into the yellow metal, get in, feet first. The writing is clear on the wall: buy junior gold mining companies, which are set to be the number one asset class over the next two years.
They are poised to take the crown as performance kings. Controversial call? Think again, but some traders swear that junior golds could potentially make you more money than any other area of the market between now and 2011.
Why junior golds you might well ask. Because it’s a low-risk, high-reward scenario, analysts swear. Junior gold stocks didn’t fully participate in the rally that drove gold from $250 to $1,000 per ounce over the last seven years. But they absolutely got hammered in the commodity/credit bust of 2008.
Many fell by 75 per cent or more. And these are the top-tier, small companies with little or no debt and plenty of proven reserves. These are companies that were trading at market caps from $500 million to $1 billion a few years ago, that one can now pick in the $100 million range, argues Christian DeHaemer of Crisis Trader.
Incidentally, costs (primarily equipment, real-estate and oil) have been cut in half. And the price of gold is heading towards $1,000 per ounce. And yet, because of the credit crisis and the temporary hedge fund blowout in commodities last year, now is the time to indulge, analysts maintain. It doesn’t get any better than that in terms of when to buy.
Meanwhile, Indian gold traders are aiming to establish a domestic benchmark price for the yellow metal, although differing regional tax rules could hamper the push for uniform pricing, market players said.
India, the world’s largest importer of gold, consumes about 25 per cent of global mined output each year. However, it has no national-level physical market, and so local prices are determined by overseas prices, making it difficult for traders to manage currency risk.
Its export story has also picked up pace. In the last five months months of 2009, India exported nearly 30 tons of gold coins to Dubai, the City of Gold, which has several large India-based gold jewellery show rooms, according to unofficial figures from various jewellery and bullion trade bodies in the country.
Says Mumbai-based bullion trader Ajay Khanna: “We are sending old gold items including jewellery, gold coins and broken items to Dubai for processing. Gold refiners in Dubai and other parts of Middle East are buying such items in large quantity.”
Pamodzi Gold’s provisional liquidators will decide next Friday who will be the new owners of the final three of the embattled junior miner’s four mining businesses that have been put into provisional liquidation. Interested bidders had until Tuesday this week to submit bids for the Pamodzi Free State assets.
The company’s Orkney operations in North West were placed into provisional liquidation in March and the provisional liquidation of its Free State and East Rand operations followed less than a month later.
This was after the company struggled for a year to raise enough new debt to recapitalise its mines and make them profitable.