Eldorado financing cancelled

ANDY HOFFMAN

From Wednesday's Globe and Mail

February 24, 2009 at 6:41 PM EST

High-flying Eldorado Gold Corp. pulled plans for a $275-million stock offering yesterday, signalling the recent bullion rally and a wave of corporate financings by gold miners may have run out of gas.

The top-performing stock on the Toronto Stock Exchange's benchmark index last year, Vancouver-based Eldorado withdrew plans for the financing amid a sharp drop in the gold price and a widespread selloff in gold mining stocks.

“We had a very clear view of what the minimum level of raising was going to be and what the maximum level of dilution was going to be. Frankly, that was not deliverable to us by our underwriters. We made it very clear and we walked away from it and that's the story,” Eldorado's president and chief executive officer, Paul Wright, said at a mining conference in Florida yesterday.

The proposed Eldorado financing was announced Monday after markets closed. Macquarie Capital Markets Canada Ltd. was the underwriter on the offering, which was marketed to investors overnight before markets opened yesterday.

Eldorado Gold

The failed deal followed a slew of financings by other precious metals producers, including Kinross Gold Corp., Red Back Mining Inc., Yamana Gold Inc., Newmont Mining Corp. and Agnico-Eagle Mines Ltd. over the past few months. The bullion miners took advantage of a rising gold price to collectively tap the markets for about $3-billion at a time when access to capital for most companies had all but disappeared.

The buoyant gold price and the performance of gold producers' shares have been a lone bright spot amid the carnage of the global markets collapse brought on by the recession. Investors seeking a safe haven from the economic turmoil pushed gold futures from $760 (U.S.) an ounce in early December to above $1,000 an ounce last week.

But the price of gold tumbled just as Eldorado tried to push its stock on a market increasingly saturated by gold shares. Gold futures for April delivery fell $25.50 or 2.6 per cent to $969.50 an ounce on the New York Mercantile Exchange's Comex division yesterday, the largest one-day drop since Jan. 12.

“They missed the market by a day,” Jamie Horvat, a senior portfolio manager with Sprott Asset Management Inc., said in an interview.

“The market just moved away on them. Last guy to the window,” he added.

Eldorado's stock tumbled nearly 12 per cent on the TSX. Shares of Barrick Gold Corp., the world's largest producer, also fell 12 per cent yesterday. Barrick has been rumoured to be considering an equity financing in excess of $1-billion.

Mr. Horvat said he believes gold could give up some of its gains in the short term before resuming its climb back above $1,000 an ounce later this year.

Even in the hot gold mining sector, Eldorado has been a standout. The company's shares have nearly doubled in the past year, giving it a market value of more than $4.2-billion (Canadian).

While it produced just over 300,000 ounces of gold from its two mines in Turkey and China last year, costs were just $257 an ounce, among the lowest in the industry. Eldorado plans to double production to more than 800,000 ounces by 2013.

The fact that Eldorado wasn't able to get its deal done at satisfactory terms could foretell the end of the surge of gold miner financings, said one investment banker involved in the failed financing.

“This is not a good signal for the sector,” he said.