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European Goldfields cuts losses and looks forward with confidence



Two city brokers today hailed dual listed European Goldfields' (LON:EGU, TSE:EGU) progress in Greece as the firm revealed its second quarter results, in which it cut its second quarter pre-tax losses and struck an upbeat note on outlook.

The company said it remained confident of making progress towards becoming the largest primary gold producer in Europe.

Brokers Investec and Evolution Securities both retained "buy" ratings for the stock targeting 964 pence and 1,000 pence respectively (current share price: 750 pence).

The company's results for the three-month period to June 30 2011 comprise primarily activities related to operations of its 95 percent-owned subsidiary Hellas Gold in Greece, and exploration and development programmes in Romania and Turkey.

Second quarter pre-tax losses totalled US$15.2m, down from US$20.3m last time as sales eased to US$11.1m from $11.9m.

Gross profits increased to US$2.8m from US$579,000 a year ago.

Last month the group announced formal approval by the Greek government of a key environmental impact statement (EIS) submitted by its Hellas Gold subsidiary.

The EIS covers a number of Hellas projects and development plans, including the continuation of operations at the Mavres Petres deposit of the Stratoni Mine; the next stages of the Olympias project, namely the mining and processing of ore and metallurgical treatment of the concentrate; and development of mining and processing at the Skouries asset.

The EIS also approved the expansion of the port facilities at Stratoni in service of the above projects' operations.

European Goldfields’ executive chairman and president Martyn Konig hails the EIS approval in today’s quarterly statement as a “key milestone for the company”.

He says the approval represents “the culmination of over five years of tireless effort, particularly on the part of our Greek colleagues at Hellas Gold, and allows us to progress towards our goal of becoming the largest primary gold producer in Europe.

"With build-out timelines clearly defined, we were able to revisit our business plan, review our reserve base and update the project economics,” he says.

Accordingly, the company has now increased its total mineral resource base by around 10 percent to 24 million ounces gold equivalent.

Konig adds that while the majority of the industry is experiencing rising capital costs, European Goldfields has successfully contained both its operating and capital costs at “highly competitive levels”.

“With the EIS approval in hand…we have hit the ground running both at Olympias and Skouries and we are firmly on schedule for first gold production from our Olympias tailings project in the second quarter of 2012.

Meanwhile in Romania, the group continues to build up its technical team, with intensive training on project management software also currently underway.

Konig says: “Our longer term exploration programmes are focused on increasing our resource base significantly over the coming years.  

"We are looking forward to drill testing near mine targets in Greece and also working toward defining a resource at our three advance-stage exploration targets, with Piavitsa our first priority.  We also aim to provide an update on drilling in Turkey in the next couple of months."

In a note, analyst Louise Collinge, at broker Evo, said that the highlight of 2011 so far had undoubtedly been the approval of the EIS.

"This hurdle overcome, the group is now able to move towards production at its Olympias and Skouries projects in Greece. In addition, we view it as very positive news that the group is concentrating on exploration in this very prospective area – the team aims to estimate maiden resources at three new prospects during 2012," she said.

Investec analysts Hunter Hillcoat and Mark Heyhoe entitled a note: "Full steam ahead in Greece" and said EGU remained confident that Romanian approvals should follow around the end of next year.

EGU remained on schedule for first production from the next operation, Olympia, in Q2, 2012, it added.


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