If this latest Minesite Article is close on the facts, it explains a lot on recent activities of EPM- though writer sounds like us - disgruntled EPM shareholders
If the new Team taking over is 1/2 as good as their recent history - then maybe Your EPM.wts A might be worth ...hopefully they get that mill up and humming
Lero Gold Puts European Minerals Out Of Its Misery
By Rob Davies
Lero Gold will present at our 51st Minesite forum on Tuesday 22nd April. Ahead of that, here are three quotes from the recently published financial statements from European Minerals, which has just acquired Lero. One: “As at December 31, 2007, the debt facility was considered fully utilized”; two: “Owing to delays during the commissioning process, the Company’s gold production has proved insufficient to meet its hedge commitments. Prior to the year end, the Company commenced a dialogue with its lenders to redress the situation but these discussions have yet to be concluded. As a result, since the year end, certain hedge commitments have had to be settled utilizing cash totaling approximately $6.2 million to the date of this MD&A [management discussion and analysis]”; and three: “As the discussions with the Company’s Lenders have not been concluded, Management is actively pursuing alternative sources of additional funding to secure the Company’s treasury position until such time as the cash flows from Varvarinskoye are established at levels sufficient to meet ongoing working capital, debt, hedging and other capital commitments.”
In other words, the company has run out of money. It can’t produce the gold it said it would produce, and which it has already sold at $574 an ounce, and has had to buy gold at close to $1,000 an ounce to cover the contract. Moreover, at the time these financials were released on 14th April, two weeks later than planned, European Minerals had still not worked out a way of meeting its commitments. Seen in that light, the “merger” between European Minerals and Lero Gold makes a lot more sense. Late on Friday 18th April it was announced that European Minerals will take over Lero Gold in a one-for-one share exchange. Additionally Lero will raise C$40 million via a placing that will allow it to lend US$25m back to European Minerals. And more money will be pumped into European’s creaking coffers through a US$5 million bridging loan provided by Endeavour Mining Capital. Light dawns.
The deal wasn’t up for discussion until after the London markets had closed on Friday, at which point Minews was summoned to a conference call to hear the story direct from Sergey Kurzin, boss of Lero and soon to be boss of Orsu Metals, as the new company will be called. In his confusion at being thrown unprepared into a conference call, and trying to read the press release at the same time as listening, Minews asked Mr Kurzin why he was paying so much to acquire European Minerals. The answer was a polite reminder that European Minerals is acquiring Lero. After all, even after the precipitous recent slide in its share price from 80p to 42p, the market still thought European Minerals was worth £126 million on Friday, while Lero was capitalised at a mere C$60 million.
Mr Kurzin of course has just sold Oriel Resources and, together with Nick Clarke, also late of Oriel, has only recently formed Lero. There is a historic connection running through this deal though, namely that Oriel did, once-upon-a-time hold a stake in Varvarinskoye, European Minerals’ key asset, which it subseqneuntly sold to European Minerals. Additionally, Sergei Kurzin has in the past worked with the brains behind European Minerals, Tony Williams.
As Minews tried to get its head round the scale of the disaster that has befallen European Minerals he asked if the terms might be renegotiated. It’s not going to happen, was the uncompromising response. Tony Williams and European Minerals chief executive Bert Kennedy will both be kept on as “consultants” for a year, but presumably Mr Kurzin would prefer them to stay in London’s plush W1 district, rather than get under the feet of Randy Reinhard in Kazakhstan. Mr Reinhard is the “fixer” from Oriel who is going in to iron out the bugs in the Varvarinskoye operation so that it can produce at closer to 80 per cent capacity rather than the current somewhat dismal 60 per cent. That higher rate would make the operation cash flow positive and, crucially, allow it to fulfil its commitments to the hedge. Mr Kurzin thinks the plant is essentially good but just needs some refinement and tuning. The commissioning process wasn’t helped by a small fire and the need to replace some undersized electric motors.
European Minerals has been dogged by problems ever since its original contractor failed and forced it to renegotiate a new loan. Unfortunately, this came in at only US$61 million, not the US$74m originally planned for. That meant more equity finance and a constant stream of equity placings. Even as late as February management were exercising stock options, which probably contributed to the weak share price. Even so, it looks as if Mr Kurzin is doing the remaining shareholders a very big favour by coming in now, before the banks get really stroppy. His presentation at the Minesite forum on Tuesday the 22nd April should be a good one. |
