EurOmax: Rediscovering and developing the mineral wealth of South East Europe

As most exploration companies are painfully aware there is a diminishing quantity of “low-hanging fruit” available.  Most resources which are high grade, low cost and in accessible and politically safe areas have been already taken. Companies nowadays must generally travel further, dig deeper or increase either the political or technical risk that they face.

EurOmax Resources however believes that its strategy of exploring and developing projects in South Eastern Europe - Bulgaria, Serbia and Macedonia - has enabled it to find some newly available and relatively low-hanging “fruit”.  The region has many advantages, and perhaps proof of the pudding is that the company survived the recent shake-out in the sector and is now looking well-positioned for future growth.  It has an impressive portfolio of projects which should enable it to generate early cash flow from gold production while continuing to explore potentially world class metal deposits, sufficient cash to last for around 2 years, and a strong CSR programme to boot.  Its largest NI43-101 resource is currently at Ilovitza which hosts 1.6B pounds of copper and 2.9M ounces of gold and is open in all directions.


South East Europe

So why South East Europe?  One of the principal reasons, according to interim CEO, Christopher Serin, is the exceptional geology of the region which hosts, for example, the Bor District in Serbia (with resources of 12 million tonnes of copper and 13 million ounces of gold), the Panagyurishte District of Bulgaria (5 million tonnes of copper and 7 million ounces of gold) and a Tertiary belt through Serbia Macedonia and Greece which contains several major deposits including Trepcha and Sasa (each of which is 100+ million tonnes with 10% lead/zinc).  Proof of the geology lies in the long and productive mining history of the region, which has produced precious and base metals since the Bronze Age.

However the region remained underdeveloped during the communist era of the twentieth century.  Although there was extensive State exploration for key industrial metals which left a legacy of geological databases, this was not translated into a commensurate amount of mining activity and there was little exploration for gold as this was not considered a priority.  After perestroika in the 1990s there was a delay in the development of mining law, little finance available to fund modern exploration, and Serbia was embroiled in political turmoil and conflict.

So Western companies have only been able to operate in the region in very recent years.  Consequently it has been possible to obtain projects available that would be unobtainable in more mature areas such as Australia or Canada.  Moreover there has been significantly less competition to acquire them, even though the area has relatively developed economic, legal and political frameworks, an excellent level of education, local professionals, and relatively good infrastructure and accessibility throughout the region. 

EurOmax Background


EurOmax’s interest in the region began in 2003 when the company, (formerly called Omax Resources), was a profitable, debt-free oil and gas enterprise looking for expansion possibilities.  South Eastern Europe was selected from a review of global possibilities, and the then-CEO, John Menzies, was dispatched to Bulgaria.

Here the company assessed thousands of exploration reports in the Bulgarian state archives against a rigorous set of criteria and the first five projects were duly acquired.  The cost was essentially just work commitments on the projects plus Net Profits Interests agreements of between 1%-1.5%, even though some 200,000 metres of diamond drilling and 35,000 metres of underground development had already been conducted on the properties – work which would have cost $50m or so at prevailing costs.

The company then embarked on further exploration work using modern techniques.  This was initially funded by the oil and gas revenues.  In 2005 EurOmax entered into a JV with Teck Cominco on the Trun property in Bulgaria, while in 2006 three of the properties were sold to ASX-listed Balkans Gold (ASX:BNL).  2007 was a bumper year with expanding budgets and considerable exploration success.  The company’s portfolio was expanded and geographically diversified by the acquisition of nine advanced exploration properties in Macedonia and Serbia from Freeport McMoRan (NYSE:FCX).

But if 2007 was good it will come as no surprise that 2008 was very difficult for EurOmax, as it was for many other exploration companies. EurOmax continued to explore, entering an option agreement with Freeport McMoRan to acquire a 100% interest in the Karavansilija property in Serbia, and announcing a major 3.5 billion pound of copper equivalent resource at the Ilovitza project in Macedonia, but it almost ran out of cash. The share price slumped from 55 cents in February to 5 cents by the year-end, and in December 2008 Teck terminated its option on Trun.

Bold steps to secure finance and ensure the viability of the company were therefore urgently required. So EurOmax undertook several private placements, it sold its oil and gas operations in December 2008 and signed a letter of intent to merge with Silk Road Resources which had gold projects in China (including the marketable Bulagou property) but similar financial stresses to EurOmax.  The plan was to create an entity with a broader asset base, a stronger balance sheet and an experienced management team with complementary skills.  The new board would comprise six members including metallurgist Michael Mason and David Bell, the CEO of Silk Road and an esteemed geologist who had the distinction of having a mine named after him (the David Bell gold mine in Ontario, which has produced 3M+ ounces since 1985).

By 2009 it became clear that things were on the up.  Early in the year EurOmax acquired Thrace Resources in exchange for the cancellation of monies owing it for A$169,000. Thrace had two Bulgarian projects including Breznik, an advanced property with more than 90 drill holes and a JORC indicated resource of 1.079 million tonnes at 2.01g/t gold and 6.05 g/t silver and an inferred resource of 0.689 million tonnes at 1.79 g/t gold and 5.66 g/t silver. 

In June the merger with Silk Road took place and in July the combined company sold the Bulgalou property to the Chenzhen Mining Group for net proceeds of $13M.   This set up the company with sufficient cash for some time so the focus could return to the projects themselves.

Current Project Portfolio

The company now controls a large portfolio of projects in Bulgaria, Serbia and Macedonia. Key projects include Ilovitza in South East Macedonia, a newly discovered copper-gold-molybdenum porphyry more than 1.2km in diameter which has the potential to be an open pit heap leach operation.  An independent preliminary resource study in 2008 concluded that the deposit contained an N43-101 compliant inferred resource of 303 million tonnes at 0.23% copper, 0.31g/t of gold, 0,005% molybdenum equivalent to 1.6B pounds of copper, and 2.9M ounces of gold equating to a copper equivalent of 3.5 billion pounds.  For the moment the deposit is open in all directions.

Meanwhile exploration on EurOmax’s Kazanadol copper project, also in Macedonia and home to historic mining activity, has identified outcropping and near surface shallow dipping copper oxide zone 25-100 metres thick over a length of 5km with widths in excess of 200 metres.  Kazanadol could be amenable to low cost Solvent Extraction Electro-Winning technology and the company could decide whether to produce copper sulphate for regional sale or higher value-added copper cathode.

EurOmax is currently evaluating the potential at Breznik in Bulgaria for narrow vein high grade gold and silver mineralisation.  Further drilling to extend the initial JORC resource has yielded encouraging results with 1 metre at 16.7g/t gold and 1 metre at 21.1g/t.  2km of strike remain untested though there is evidence of ancient mining activity.  The company has also undertaken further metallurgical testwork to confirm previous estimates of high recovery rates.  Breznik would be amenable to low impact underground mining and it is of a size and location which make it suitable for custom milling so there would be no need to build a plant.  The only impact on the area would be the tunnel entrance to the mine or a shaft. It is hoped that ongoing exploration will pay for itself as the ore can be processed

Karavansalija, a 12 square kilometre skarn system covered by a volcano, lies along a strongly mineralised trend in Serbia which is well known for its world class lead-zinc-silver and copper mineralisation.  Drilling to date has produced encouraging intersections including 42 metres at 2.05 g/t gold, 0.76% nickel and 0.06% cobalt.

Most of the projects have paved roads already on site or nearby, rail within 20 or so kilometres, access to deep water ports and are within a few hundred kilometres of a smelter.

In addition to the mining projects the company runs a number of environmental and community programmes with the aim of offering preferential employment and training to local residents and businesses, contributing towards local education and health and consulting communities on any development proposal.


Future Plans

At the moment the company holds C$8M in as cash.  The cash position has been helped enormously by the Silk Road deal which will enable the company to proceed with its plans for more than two years at the current burn rate.

The company’s objective is to generate cash flow in the fairly near term from Breznik and to continue to explore potentially world-class deposits. Priorities for this year are therefore to drill and surface trench Kazandol so that a preliminary resource can be defined, to test the potential of Ilovitza with a 1400 metre drill program, and to evaluate existing exploration data at Karavansalija to better focus drilling of the skarn mineralization.

The company will also be seeking a new CEO following the departure of John Menzies at the beginning of February to pursue other opportunities.  An independent committee has been set up for the search and in the meantime the post is being held by the CFO, Christopher Serin, a mining engineer and MBA with 25 years experience, mostly in Natural Resource projects, including a 4 year tenure as CFO at Royal Oak Mines during which the market capitalization rose from $35m to over $500m.

In Serin’s view the biggest challenge over and above those faced by all exploration companies are the bureaucratic delays. He notes too that as part of Europe there is some stigma in the region attached to mineral development in the region.  But as he points out the challenges of operating in an area with new regulation also provide opportunities.  In a mature mining region similar project areas would already have been raked over by thousands of companies.  After 7 years in the region EurOmax has now built up a dominant position. It has world class projects, early mover advantage, a tremendous knowledge base of the region a strong well-educated local team, plenty of community involvement and sufficient funding for the next two years.

Investors can decide for themselves whether this represents low hanging fruit…