Greece welcomes gold miners to rank first in Europe
By Thomas Biesheuvel
For three years, Steve Sharpe’s company prodded Greek officials for permission to drill for gold. Before approval was finally granted this year, European Goldfields Ltd.’s battered share price attracted a takeover bid.
“No way on earth would I go back to Greece,” said the Canadian producer’s former head of business development, who left to head a mining company across the border in the former Yugoslav Republic of Macedonia (FYROM).
Delays like Sharpe’s are less common after the economic collapse in Greece spurred a new urgency in the government to create jobs. Eldorado Gold Corp. (ELD) and Glory Resources Ltd. (GLY) are developing four mines that should turn Greece into Europe’s biggest producer of the precious metal by 2016.
Gold mining is gathering momentum after Greece began what it called a “fast-track” approvals program. The Canadian and Australian companies said their projects will add about 425,000 ounces by 2016, worth $757 million at the Oct. 5 spot price, to the 16,000 ounces the country produced in 2011.
“There’s clearly evidence that Greece has woken up to the potential of their mining industry,” said Jeremy Wrathall, chairman of Perth-based Glory Resources. “Politicians increasingly realize that a pro-mining stance is appropriate due to job creation potential.”
Greece is set to overtake Finland as the continent’s largest gold producer within four years, as regulators in Athens sign off on mines kept on hold for more than a decade by official red tape and environmental rules. Finland, which mined 220,000 ounces last year, currently ranks 40th among the world’s gold producers.
Greece was Europe’s largest bauxite producer and the world’s biggest supplier or perlite, used in insulation and as a soil replacement in horticulture, in 2010, according to the U.S. Geological Survey. Gold is currently the only metal targeted for fast-track approvals.
Eldorado Gold is leading the gold inflow. The Vancouver- based company gained three mines last year through its $2.4 billion acquisition of European Goldfields, trumping a rival offer from Qatar Holding LLC, the country’s sovereign wealth fund.
Eldorado is developing European Goldfields’ Skouries and Olympias mines and the Perama Hill project that it already owned. The three sites will produce about 345,000 ounces by 2016, while Glory estimates its Sapes mine will have output of about 80,000 ounces a year.
That may be just the start. “We think Greece has the potential to be a major gold producer,” said Wrathall. “It is bizarre that Greece is virtually unexplored because of the political situation that prevailed before the crisis. Modern exploration techniques have not been used in Greece at all.”
Greece will account for about 21 percent of Eldorado’s 2016 gold production of about 1.7 million ounces, according to BMO Capital Markets research. The company targets output of 660,000 ounces this year. Eldorado’s Greek 2016 operations would generate revenue of more than $500 million a year at $1,500 an ounce, based on average forecasts compiled by Bloomberg.
Eldorado has doubled its workforce in the country to 800 since the takeover and plans to increase that to 1,500 when it’s in full production. Glory Resources says it will employ about 200 when in production. Greece reported that 3.79 million people were employed in the second quarter with 1.17 million unemployed.
Eldorado says it will pay a tax rate of 20 percent in Greece, where there is presently no royalty in place. The company said it plans to pay about 1 percent of revenue to local communities until a royalty comes into effect.
Glory forecasts that it will pay about $80 million in taxes and $22 million in royalties during the current estimated life of project, based on a gold price of $1,200 an ounce. The discovery of more reserves would extend the life of the mine and the payment of royalties and taxes.
The Skouries and Olympias mines are in Central Macedonia, a region of Greece with 25.1 percent unemployment at the end of the second quarter. Eastern Macedonia and Thrace, site of the the Perama Hill and Sapes mines, had a 24 percent jobless rate. Both are higher than the national average.
Greece, which reported 10,300 mining and quarrying jobs in the second quarter, is in its fifth year of recession. The economy is forecast to contract 6.9 percent this year, the same as in 2011, according to the Athens-based Foundation for Economic and Industrial Research. Since 2008, the number of jobless has more than tripled to a record, reaching a level of 23.6 percent.
That has led to government support for mining, according to Eldorado’s Eduardo Moura, vice president and general manager for Greece, and Sharpe, now CEO of Euromax Resources Ltd. (EOX)
In 2011 Greece implemented the “Fast Track” program to spur investment in projects that are of national importance, including gold mines. The environment ministry has speeded the issue of permits.
“We noticed an enormous change in Greece in the time we were there driven by the financial crisis,” said Sharpe. “With tourism falling and with the crisis they were collapsing into with the Euro they really had no choice.”
European Goldfields battled for more than five years to win environmental licenses to mine the Skouries and Olympias gold projects. The company’s stock plunged or surged by more than 10 percent at times as speculation or reports of permit delays or imminent approvals reached investors.
TVX Gold Inc. repeatedly clashed with local government officials and courts and eventually abandoned Greece in 2003 after its permits for Olympias were declared illegal and annulled. TVX had spent more than $250 million developing gold projects in the country.
TVX also operated the Stratoni mine which it closed after Greek government officials ordered the company to suspend operations because an exploration tunnel extended under a nearby town. Residents were concerned the company would start mining below their homes.
Environmentalism and local opposition remain the biggest obstacle to gold mining in Greece, according to Euromax’s Sharpe. “There is a strong groundswell of opposition to those mines going ahead. These are not brownfield industrial sites, there is a clear choice between tourism and mining,” said Sharpe. “They can just point to TVX and the mess they left. It’s a very easy case to make.”
Local villagers and mining protesters from Thessaloniki clashed with police at the Skouries site last month, according to local press reports.
Eldorado’s Moura is betting more than $3 billion that objectors to expanding gold exploration in Greece will be swayed. The company intends to invest about $1 billion in the next five years.
“I think people realize we are part of the solution, that part of the economic recovery will be due to mining,” said Moura. “I’m convinced that people who oppose our projects will come to realize that mining can be a positive force for change.”