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Eldorado to raise US$600 million

In November, Eldorado Gold announced plans to offer up to US$500 million in senior unsecured notes due in 2020 to help the company implement growth initiatives and augment its balance sheet. But the proposed offering was withdrawn several days...



In November, Eldorado Gold announced plans to offer up to US$500 million in senior unsecured notes due in 2020 to help the company implement growth initiatives and augment its balance sheet. But the proposed offering was withdrawn several days later due to “deteriorating conditions in the debt capital markets.”

Fast forward a month and the company thinks the time is ripe to try again. Yesterday, Eldorado announced it has priced an offering of US$600 million of 6.125% senior unsecured notes due in 2020, and claimed that the offering “benefited from a very positive market response, contributing to the decision to upsize from US$500 million to US$600 million.”

Chief executive Paul Wright said the financing will enhance the company’s balance sheet and support its plans to build out additional production at various businesses in Turkey, China, Brazil, Greece and Romania.

Kerry Smith of Haywood Securities argues the offering means funding should not be an issue for the company’s ambitious growth plan. “This offering combined with an available US$375 million (US$50 million drawn down as of Sept. 30) revolving credit facility and internally generated cash flow should be sufficient to fund Eldorado’s ambitious growth plan, which includes increased gold production to 1.5 million oz by 2015 and 1.7 million oz by 2016, at an estimated cost of US$2.0 billion (up from 660,000 oz currently planned in 2012.)”

Eldorado plans to raise output by expanding its existing operations, Smith says, as well as developing projects including Tocantinzinho, Perama Hill, Olympias, Skouries and Certej, and he views Eldorado’s current share price as “a compelling investment.” At press time in Toronto Eldorado was trading at $13.20 per share within a 52-week range of $9.94 to $16.50.

“Although we anticipate capital costs will be higher than expected by Eldorado and would not be surprised to see some project timeline slippage given execution risk consideration,” he writes in a research note to clients, “we believe the company will be able to deliver significant low cost production and cash flow growth.”

In the three months ended Sept. 30, Eldorado reported net income of $75.8 million or $0.11 per share, down from $102.5 million or $0.19 per share in the third quarter of 2011. The year-on-year decrease in net income was mainly due to lower gold sales volumes and prices.

The gold miner sold 154,841 oz in the third quarter (not including 10,524 oz of pre-commercial sales from Efemcukuru), compared with 179,513 oz in the year-earlier quarter.

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