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Minews Story Date: May 12, 2006
The Only Shadow Now Remaining Over European Minerals Is Its Hedging
By Jack Hammer
Tony Williams is off to the New York Gold and Precious Metals Conference. Ahead of the trip he’s had a new presentation made up on what he calls his "flagship" company. The flagship company is European Minerals, which is listed on AIM and in Canada, and the reason why a new presentation is of any relevance at all is that progress on construction at the Varvarinskoye gold-copper project in Kazakhstan is moving along so swiftly that last month’s presentation is already out of date. Mr Williams is proudest of all of the photographs that visibly demonstrate that construction is underway.
Pictures from March are available on the company’s website, but the ones from May show leaching facilities nearing completion, rail infrastructure running up to site, a huge crane, and several of the company’s fleet of trucks proudly displaying fresh and spangly tyres. Mr Williams and his partner in European Minerals Bert Kennedy bought the trucks last year in a US$25million deal after getting frustrated with haggling over leasing contracts. That purchase looks inspired now, with equipment increasingly hard to source and tyres at a premium.
So it seems as though it’s finally coming together for European Minerals. The company owns its own trucks and other equipment, and it owns 100 per cent of Varvarinskoye. It’s got a track record in Kazakhstan and should be commissioning this time next year. The debt’s still not been drawn down, but Mr Williams hopes to make an announcement on that at the company’s annual meeting on 23rd June. The only other thing that’s really getting him down is the hedging that Investec forced on the company at the back end of 2005, when gold was still hovering at just under US$500/oz. Fifty per cent of the first eight year’s production, or 440,000 ounces, is a lot to be selling at $574 an ounce, especially in the week when gold went through $700/oz. At the time, it has to be said, he was full of praise for Martyn Konig who negotiated the deal with Investec.
Jim Taylor, analyst at Canaccord, concedes that now the company “could probably sell forward at US$800/oz”, but adds that at the time the deal looked reasonable enough. And Seymour Pierce’s Charles Kernot, in a general note of caution, remarks: “I don’t believe that gold will be at US$700/oz for ever”. That said, Mr Williams is surely justified in ruing the problems that European Minerals had with contractors last year that forced him to agree terms with Investec just before the real run on gold got underway.
Since then European Minerals’ shares have seen something of a re-rating though, although as Mr Williams readily concedes, that’s partly because of the gold price. He anticipates a further re-rating once the debt is in place, and then, looking further ahead, “I can’t see the company not being taken over,” he says, adding the caveat: “we are not soliciting bids”. Russian brokerages have been showing an interest lately, and there’s certainly no shortage of other operators in Kazakhstan. If everything works out European Minerals certainly would present an attractive target.
On current plans the company will produce an average of 145,000 ounces of gold and 20 million lbs of copper per year for the next ten years, although there’s considerable scope for revising those numbers upwards. “If we don’t mine 5 million ounces I’ll eat my hat”, says Mr Williams, adding, “and then we’ll go underground”. There are still some residual doubts about processing, but Mr Williams insists those issues have long since been resolved. He knows how to talk the talk – “we’re better than Bema”, he pronounces - but it’s fair to say that the market knows Mr Williams too, and although he’s been punished for his failures, he may well reap big rewards on this one. “This company won’t be independent in a year,” he re-iterates. But in some respects he’d prefer it if it was. European Minerals has a projected free cashflow of US$150million. “I can use that cashflow better than most people”, he says. It remains to be seen whether the market will give him a chance to make good on his word.
Companies featured in this Story
European Minerals Corp (TSX-EPM,AIM-EUM)
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