Eldorado Gold Corp. is finally making its long-awaited exit from China.
The Vancouver-based miner unveiled a deal Monday to sell its White Mountain, Tanjianshan and Eastern Dragon operations in China for US$600 million in cash. The buyer is an affiliate of the Yintai Group, a large Chinese conglomerate involved in many different industries.
Just three weeks ago, Eldorado agreed to sell its Jinfeng mine to China National Gold Group for US$300 million.
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The result of these two transactions is that Eldorado gets completely out of China for US$900 million. Eldorado was also studying an initial public offering of its Chinese assets, but these two sales make for a quicker and cleaner exit.
Eldorado has been trying to divest its Chinese business since 2014. The mines are smaller than its core projects in Turkey and Greece, and the company is facing a challenging political environment in Greece that requires management’s full attention. Eldorado also believed it was getting insufficient value for the Chinese mines in its stock price.
China is a difficult and complex place for foreign miners to operate. Its gold industry is extremely fragmented, with many small mining companies running tiny operations. None of the senior North American gold companies has built a mine there. Eldorado is one of the only foreign miners to have success in China, and it was on a modest scale. Jinfeng, its biggest Chinese operation, produced less than 150,000 ounces of gold last year.
Analysts and investors were curious whether Eldorado could fetch a good price for the Chinese business, knowing it would attract a limited number of potential buyers.
Barry Allan, an analyst at Mackie Research Capital, noted that the price of the initial Jinfeng mine sale (US$300 million) was far below his US$500 million valuation, so he did not expect the other assets to fetch very much.
He was pleasantly surprised by the US$600-million deal with Yintai, which far exceeds the US$375 million valuation he placed on White Mountain, Tanjianshan and Eastern Dragon. Eldorado’s total haul of US$900 million for the Chinese business thus exceeds his overall valuation of US$875 million for the assets.
“Given that (Eldorado) believed it was not getting value for the Chinese assets, we view the sale of these mines, along with the Eastern Dragon project, for slightly over (net asset value) as quite positive,” Allan said in a note.
Credit Suisse analyst Anita Soni said the Yintai sale price was slightly below her expectations, but that is offset by a strengthened balance sheet and tightened geographic footprint for Eldorado.
Both Chinese deals are expected to close in the second half of 2016. Eldorado said it would use the proceeds to “continue to grow its business based on long-lived, low-cost assets.”
“We look forward to closing the sale of both transactions and advancing our internal project pipeline,” chief executive Paul Wright said in a statement.