LONDON The award of a much-delayed mining permit that will turn European Goldfields EGUq.L into Europe's largest primary gold producer could also make it a prime takeover target, in a sector where players are scrambling for growth.
The permit to develop the Olympias and Skouries projects in north-eastern Greece was first submitted five years ago and the company hopes output from these, along with its Certej project in Romania, will transform it into a mid-tier miner with production of about 400,000 ounces of gold a year by 2014.
The projects and an attractive growth pipeline, delayed for so long by red tape and environmental concerns, should bring suitors, some of whom have already been circling, despite concerns about investing in Greece and mining in Europe.
Canadian group Eldorado Gold Corp (ELD.TO) is one of the natural predators as it already has two operating mines in Turkey, where European Goldfields also has exploration targets, and a development project in Greece.
"It got to board room level previously," an industry insider said.
"It just got rejected by their board at the last minute because they hadn't had the permits... Eldorado is the right size and European Goldfields would be a meaningful acquisition for them."
Eldorado was not available for comment.
Other Canadian gold miners, such as Barrick Gold (ABX.TO) and Newmont Mining (NEM.N), or Russia's Polyus Gold (PLZL.MM) PLZLq.L and Polymetal PMTL.MM may also take a look, although none of them has operations in Greece, Romania or Turkey. While Canada's Centerra Gold (CG.TO), which has exploration properties in Turkey, may also be interested.
"No-one was going to touch them until they had it, given the history of the permit," said a mining banker, adding the list of suitors will be limited, however, given European Goldfields' focus on Europe, specifically Greece, away from more traditional growth areas within Africa.
But many mid-size and larger gold producers are struggling to maintain production profiles, or to offset declines after years of growth, at a time when gold prices are near record highs. <GOL/>
Barrick's surprise acquisition of copper miner Equinox Minerals EQN.TO in April for C$7.3 billion ($7.6 billion) was seen by many as an attempt to add value by diversification due to a scarcity of attractive gold targets.
For the world's largest gold producer Barrick, which produces around 8 million ounces of gold a year, any takeover target would need annual output of at least 400,000 to 500,000 ounces -- with room to grow.
The Skouries project, which European Goldfields EGU.TO hopes will produce about 350,000 gold equivalent ounces a year, is a gold-copper porphyry deposit.
"The copper angle may deter some people, but it also may be of interest to others," said an industry banker. "Someone like KGHM KGHM.WA could look at it...but I think valuations could be an issue for them."
Poland's state-controlled KGHM is Europe's second-largest copper producer.
KEEN TO SELL?
Financing the acquisition is unlikely to be an issue as most M&A deals in the gold sector are typically paper transactions, although there could be a cash element.
Getting the permit was seen as the biggest risk for European Goldfields. Construction is also not seen as a major issue especially as the company's biggest shareholder Aktor SA is a wholly owned subsidiary of Ellaktor (HELr.AT), Greece's largest construction group, with a 19.3 percent stake.
"I don't think they (Aktor) want to be in the mining business...they would sell at the right price," said Andy Davidson, an analyst at Numis Corp.
Shares in European Goldfields jumped 33 percent last week, but are little changed from the start of the year as gold stocks continue to underperform.
Davidson said any offer was likely to come in above 13 pounds a share, valuing the company at more than 2.4 billion pounds ($3.9 billion).
The shares traded at 821.5 pence at 1241 GMT on Tuesday.
Importantly, analysts and industry insiders said, the board of European Goldfields -- including chairman Martyn Konig who joined the company when the shares were trading below 4 pounds -- are thought to be keen to sell.
The company has 10 million ounces of gold reserves and is expected to give a number of corporate updates soon.
Paul Burchell, analyst at Dundee Securities, said resource and reserve estimates on Olympias and Skouries are due to be revised using a long-term gold price assumption of $1,000 an ounce from $650 and $450 respectively.
Konig told Reuters last week that the company also hopes to have positive news in the next quarter on its Certej permit.
(Additional reporting by Euan Rocha; Editing by David Cowell)