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Eldorado Gold pulls CAD 275m bought deal

While the rest of the investment world continues to tremble with fear, top gold diggers can drop capital raisings that don't meet their metrics.

Author: Barry Sergeant
Posted: Wednesday , 25 Feb 2009

JOHANNESBURG -

On Monday this week, Eldorado, among the world's top performing established gold stocks, announced its intention to raise CAD 275m via a public offering. The next day, the offer was pulled. In the words of Eldorado, "while the offering received strong support, the terms presented by our underwriters did not meet our minimum expectation of net proceeds without exceeding an acceptable limit of dilution".

While the rest of the investment world continues to anticipate the next disaster or scandal, trembling in fear, gold stocks are having a fine time of it, underpinned by the world's best performing commodity. Non-bank capital raisings by gold stocks, mainly by way of bought deals, have reached nearly USD 4bn in total over the past couple of months, led by the 30m shares sold by Tier I gold miner Newmont for USD 1.1bn, and USD 450m in convertibles sold by the same company.

The majority of these transactions are known as "bought deals", where a small number of brokers buy an entire issue from the gold company, and then onsell the shares or convertibles to their own clients, in what may become numerous smaller transactions. In Eldorado's case, however, it seems clear that the seller can afford to be snooty. Markets remain volatile, and can turn on a nickel. Gold bullion, which traded up to USD 1,006 an ounce on Friday, very close to the all time record seen back in March 2006, fell on Monday and again on Tuesday, to as low as USD 960 an ounce, and may have influenced Eldorado's decision to pull its offer.

Eldorado pointed out that "as the industry's lowest cost pure gold producer, our balance sheet remains strong, with no debt". Eldorado said it "clearly" has the financial strength to meet its development goals to produce around 800,000 ounces a year by 2013. Paul Wright, Eldorado president and CEO said in a statement that to have accepted "the offered terms of the equity issue would have resulted in an unacceptable level of dilution for our current shareholders".

During the past few days, successful bought deals have gone through markets from, among others, Great Basin Gold, Focus Minerals, Victoria Gold, Allied Gold, Gold Wheaton, and Rusoro Mining, raising a total of just under USD 400m, excluding over-allotments that may still be made. There have also been bought deals from a number of silver stocks, including Silver Standard, for USD 93m, and Hecla Mining, for USD 75m. Listed gold stocks, along with the far smaller listed silver stock subsector, rank as the world's best performing equity subsectors, when measured on a relative basis.