Tuesday, 29 May 2012

Recent management hires to drive "substantial" upward rerating in EurOmax shares, says First Berlin

Recent management additions to EurOmax Resources (CVE:EOX) are expected to drive a "substantial upward rerating" of the miner's shares, according to a recent report from First Berlin Equity Research.

First Berlin has rated the company with a "buy" recommendation and a price target of 50 cents, up from its previous target of 45 cents.

Earlier this month, it was announced that three former high-ranking members of European Goldfields' (EGU) management team have taken charge at EurOmax.

The significance of this move, said First Berlin analyst Simon Scholes, is that EurOmax's 6.76 million ounces of gold resource base will now be combined "with the proven ability of the former EGU management team to raise money."

In December of 2011, Canadian gold mining company Eldorado Gold (TSE:ELD) (NYSE:EGO) announced the takover of London-based European Goldfields for C$2.5 billion.

European Goldfields has reserves in Greece at  the Olympias and Skouries projects, and in Romania at the Certej project totalling 9.2 million ounces of gold.

EurOmax Resources is a Canadian mineral explorer that is advancing three core properties in Bulgaria, Serbia and Macedonia.

At the EurOmax annual general meeting on May 22, three members of European Goldfields' former management team - former executive chairman and president Martyn Konig, former treasurer Varshan Gokool and former senior vice president of business development Steven Sharpe - were elected as directors of EurOmax.

What's more, First Berlin noted that the newly elected directors and other ex-European Goldfields associates will invest C$6.3 million in a private placement of 42 million EurOmax shares at 15 Canadian cents each.

The money raised will be used to fund the forthcoming infill drilling program at its Ilovitza copper-gold porphyry project in Macedonia as well as general working capital requirements.

First Berlin analyst Scholes also took note of further "high quality additions" to the EurOmax management team on the technical and engineering side, which are in progress. Arrangements are already in place and new hires in this area are expected to be announced later this year.

"The EOX share is trading at a large discount to its peer group reflecting past doubts as to whether any of the company’s properties would go into production," Scholes said.

"We expect the last few days’ newsflow to dispel this scepticism and drive a substantial upward rerating of the share."

Sharpe, who has more than 25 years of corporate and project finance experience, is EurOmax's new president and CEO based in London, and will replace Mark Gustafson, who moves to the COO position.

In addition to starting up the mining finance businesses of Rothschild and Standard Bank in the 1990s, Sharpe arranged over US$3.5bn in the debt market, receiving two Euromoney Project Finance Awards.

Gokool is the new CFO and before joining European Goldfields in 2009, he was treasurer of Katanga Mining Limited, where he arranged funding for the Kamoto copper project in the Democratic Republic of Congo. Gokool has also held positions at Société Générale in London, where he was a vice president of the mining finance team, and at Ashanti Goldfields, where he managed the hedgebook.

Konig is the new non-executive chairman and became executive chairman and president of European Goldfields in October 2009. Konig was brought in to re-focus the company and prepare it for financing and development as well as to raise its profile in the international financial markets.

Konig has 30 years experience in investment banking and the commodity markets and is also a non-executive director of TSX listed Newgold Inc.

First Berlin noted he has "extensive experience in the natural resource sector", and for 15 years and held senior positions at Goldman Sachs and UBS.

"One of the principal highlights of Konig's tenure was the orchestration of a US$750m debt facility comprised of US$600m from Qatar Holding and US$150m from existing shareholders which secured EGU’s financing to production.

"We understand that this financing package was the catalyst for the Eldorado takeover," the report said.

First Berlin noted that from conversations with the new management team, it gathers that were two key drivers of their decision to join EurOmax, including similarities between Ilovitza and European's Skouries project, and the attraction of EurOmax's undervaluation.

"Ilovitza and Skouries are similar style deposits (both are copper-gold porphyries) and are in the same geological belt. Management’s understanding of and experience with permitting in the region (both in Greece and Romania) positions EOX well for the permitting process," said the research report.

In addition, First Berlin analyst Scholes said the initial focus of the new management team will be the advancement of the Ilovitza property, with "Trun in Bulgaria following close behind and KMC providing the blue-sky upside."

A program of infill drilling at Ilovitza is planned to improve the quality of the resource estimate from inferred to indicated and measured.

EurOmax is transitioning from a pure exploration play, currently listed on the TSX-Venture Exchange, to an exploration and development company with a London listing in early 2013. The company plans on rebranding with a move in headquarters from Vancouver to London.

Management is targeting an AIM listing for the second quarter of 2013, First Berlin said, on the back of a pre-feasibility study to be completed in the first quarter of next year.

With regards to the pre-AGM management team, Gustafson moves from CEO to COO, while Dimitar Dimitrov remains senior VP of exploration and Quinton Hennigh remains chief geologist.

First Berlin concluded that EurOmax is trading at an "unwarranted discount to peers."

"Our peer group comparison now shows an average EV/oz of C$27.19 for the peers and C$4.55 for EOX."

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