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European Goldfields $600 million funding deal with Arab Investment Fund "total game changer"

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European Goldfields' (LON:EGU, TSE:EGU) funding agreement with Qatar Holding is a “total game changer” for the miner, according to London based Evolution Securities.

Earlier this month it secured a US$600 million loan from the Arab investment fund, which owns Harrods and holds stakes in Sainsbury (LON:SBRY) and the London Stock Exchange (LON:LSE).

Existing shareholders stumped up an additional US$150 million.

European Goldfields is now poised to become Europe's largest primary gold producer with production of 300,000 to 400,000 ounces a year when at full capacity. 

“(The) financing deal with the Qataris is a total game changer for the group, and is all the more impressive given such uncertain financial markets,” said Louise Collinge of Evolution Securities.

“The company’s development plans are now fully financed in a deal which has been endorsed by the Greek government.”

 The analyst repeated her buy advice, but has nudged her valuation down by 70 pence a share to 930 pence (current price 613 pence). 

EGU has three projects – Olympias and Skouries in Greece and Certej in Romania – and one producing mine: Stratoni, a lead, zinc and silver operation.

Its reserves are an impressive 10 million ounces of the precious metal, while its resource figure is an incredible 24 million ounces. 

The company, which received its long-awaited permit to mine in July, expects to generate first gold from the tailing on the Olympias site in the second quarter of 2012. And it will go underground in the final quarter of 2015.  

The Skouries copper-gold mine, meanwhile, should deliver first ore in the first three months of 2014.

“Now that European Goldfields has resolved its funding issue, the group can start to look more closely at its exploration potential,” said Collinge. 

“Indeed, the company has set the ambitious sounding target of identifying an additional five million ounces of gold within the next three years. 

“Given the geological potential of the area, we believe this target should be within the company’s reach.”

The sovereign wealth fund also became the company’s largest single shareholder with 9.9 per cent and the move appears to be part of a investment wider strategy.

According to reports Qatar Holding is preparing to create its own specialist fund that will acquire stakes in gold companies or buy the businesses outright.

It is believed to have as much as US$10 billion to pump into the mining sector, with about half that going into gold.

At just over US$1,600 an ounce, the gold price has been in retreat since hitting a record US$1,920.20 last month.

However experts say the recent pull-back will be short-lived. According to research by City broker Oriel Securities, the price may hit US$2,000 an ounce in the next 12 months.

“The underlying factors leading to gold’s meteoric rise have not gone away,” said Oriel analyst Charles Cooper in a research note last week.

"We retain our positive medium to long term view on the precious metal for its role as a hedge against a plethora of macro challenges (sovereign debt concerns in Europe, double dip recession, sustained low real interest rates and the prospect of continued loose monetary policy). 

“Furthermore, physical gold positions held in ETFs have been relatively steady suggesting that the recent correction did not reflect a general reassessment of gold’s fundamentals as an investment asset class.”

Quick facts: European Goldfields

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TSX:EGU
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