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European Goldfields' new mines likely to get Greek approval - UBS


Analysts at UBS reckon European Goldfields (LON:EGU, TSE:EGU) will get the go-ahead for its new mine development projects, because the Greek authorities won’t want to reject any foreign investment into the country.

Yesterday the gold miner revealed that sales were up in the first quarter, at US$13.5 million compared with $10.4 million in the same period last year. This helped EGU cut its pre-tax loss to $4.9 million, from $5.7 million in the first quarter of 2010.

But UBS analyst Ben Davis emphasised that sales still missed market estimates, the consensus estimates were US$24 million and the banks own estimate was above that, at US$26 million.

Importantly Davis, who rates EGU as a ‘buy’ with a £12.00 target, points out the stock’s performance hinges on the approvals process and a decision is now expected from the Greek government within three weeks.

“The approval process in Greece has been significantly delayed, with the company previously announcing that it would be completed year end 2010; since then the stock has fallen 40 percent against a rising gold price,” Davis said in a note to clients.

“We remain positive on the stock as we would not expect the Greek government to reject capital investment, given the current state of the economy and when the environmental study on a local level has been approved.”

Similarly Goldman Sachs analyst Eugene King also believes the permitting process is nearing a positive outcome. “While the delays to the permits are frustrating for investors, we believe permits will be granted,” the analyst told clients.

“EGU’s share price has underperformed its peers in 1H11, with increased volatility on market speculation relating to the progress of the permits. We believe issuance of the permits would lead to a re-rating of the stock, and close the discount to our DCF that currently represents construction and ramp-up risks.”

Goldman Sachs has a ‘conviction buy’ rating for the stock, with a £13.50 price target.

In yesterday’s results statement EGU’s executive chairman Martyn Konig expressed his disappointment that the approvals had not yet been granted.  Once green-lighted EGU will kick start the development work for both the Olympias and Skouries projects.

European Goldfields plans to place orders for new equipment required for the reprocessing of tailings at the Olympias Mill. Once approval has been received first gold production is scheduled for the first quarter of next year from the reprocessing of tailings at 63,000 ounces per annum. After that primary gold production at Olympias is expected to begin in Q4 2015, at an initial rate of 125,000 gold equivalent ounces per annum.

At Skouries the firm has completed its invitation to bid package for the engineering, procurement and construction contract. Here EGU expects open pit production to begin in Q1 2014 at an annualised average rate of 350,000 gold equivalent ounces.

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