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Qatar's offer for Greek gold will be hard to refuse

Greece's Prime Minister George Papandreou, left, shakes hands with Qatar's Emir Sheikh Hamad bin Khalifa Al-Thani in Athens Oct. 1, 2011. Qatar Holdings will invest a total of $1-billion in European Goldfields, including $600-million to finance operations in Greece, where the firm has a permit to mine gold, the chief executive of the sovereign wealth fund said on Saturday.


Qatar is getting Greek gold for a steal. The financing offer to European Goldfields will buy the world's richest country at least 27 per cent of the Canadian miner for a fraction of its mooted July valuation. But the company's shareholders will have to think hard before turning down Qatar's audacious near-$1-billion (U.S.) foray into gold .

A seven-year $600-million secured loan facility will finance European Goldfields' entire project portfolio, focused on mines located in recession-hit Greece, at 7 per cent over Libor (London Interbank Offered Rate). For daring to lend where no Western bank would dare, Qatar will receive warrants worth almost 17 per cent of European Goldfields on a pro-forma basis.

Qatar also bought a further 9.9 per cent of shares from a subsidiary of indebted Greek construction firm Ellaktor and another shareholder for around $173-million. At $9.5 a share, that values European Goldfields at less than $75 per ounce of its 24 million ounces of gold equivalent resources. A developed miner like rival Randgold Resources trades at several times that amount.

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Qatar is paying close to the miner's average weighted share price over the last week. The Ellaktor deal also gives Qatar a call option over a further 5 per cent of shares that would lift its stake to 32 per cent. Qatar isn't interested in a full takeover, according to a person familiar with the situation.

Existing shareholders get some protection. They have the option to subscribe to notes with warrants for $150-million, on the same economic terms. Asset manager Blackrock owns more than 10 per cent of shares and is understood to be co-underwriting the notes, suggesting that other shareholders may be equally grateful to get any financing.

Qatar's opportunistic deal may yet entice an all-paper offer from a larger rival for the miner, which some analysts were recently valuing at twice its Friday closing price.

But for now, turning away Qatar might force European Goldfields to wait a year to start developing the projects that will turn it into the continent's largest gold producer. Qatar, hungry for exposure to gold equities as well as physical gold, is clearly betting shareholders agree that a miner without project financing isn't worth much at all.

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