www.jameswinston.com
European
Minerals to Acquire Lero Gold
On Friday morning I received news that European Minerals intends to acquire
Lero Gold. At first I was upset. Actually very upset. I kept reading the news
release and then after hearing directly from Lero Chairman Dr. Sergey Kurzin, I
couldn�t be happier. This is going to be a huge win-win for both European
Minerals and Lero Gold shareholders.
You may recall I mentioned Kurzin�s name when I introduced Lero Gold to you
back in February. Kurzin was the primary reason I took a hard look at Lero. Kurzin
means strong management.
Following Kurzin is like following the money. Over the years we have profited
handsomely with his winners.
Dr. Sergey Kurzin is a Russian-born research engineer who moved to the United
Kingdom in 1990 and has played a key role in initiatives to acquire and
progress several important Former Soviet Union (FSU) mining assets. These
include Julietta (a high grade gold deposit in Magadan, Russia with Bema Gold),
Kupol (a high grade epithermal gold deposit in Chukotka, Russia, also with with
Bema Gold.
One of our best winners last year was UrAsia Energy which morphed into Uranium
One. It was another triple digit winner that went from pennies to dollars in
just a matter of months. A key player in that deal was Kurzin, who seems to
have a unique talent for sniffing out high potential resource projects in the
former Soviet Union (FSU) countries.
Kurzin was also a founder of European Minerals, back in 1995. However the
management of EPM was left in other hands. The current management needed some additional
expertise to help get the Varvarinskoye gold and copper mine running smoothly. The
company also needed a cash injection before they could themselves move into a
cash flow positive position.
Hence an opportunity arose where Kurzin and his team will take over the
management of European Minerals. The win for European shareholders is that the
grossly undervalued Varvarinskoye mine will reach its potential faster: 149,000
ounces of gold and 25 million pounds of copper per year. By year end, their goal
is to reach 99% capacity from the mill which will generate an annual cash flow
of $250 million.
The existing European management team was having difficulty in getting their
mine into production. That�s why I was more then a little shocked at the
headline that EPM was intending to acquire Lero Gold.
However now I�m greatly relieved.
As for Lero shareholders - well again, in just three months another Kurzin deal
has done well for us. We�re up about 80% so far and we�ll no doubt have another
triple digit winner on our hands shortly.
The immediate objective for Lero is to advance their Taldybulak copper/gold
property in Kyrgyzstan this project toward a Definitive Feasibility Study
(DFS).
Lero should soon have an initial resource calculation ready, a 43-101 compliant
report, which by my math will be a huge step towards outlining a 10 million
ounce resource at Taldybulak. Oh, and add in almost 2 billion pounds of
copper.
The win for Lero shareholders will be that they can take part in the cash flow
and further development of the Varvarinskoye project while the Taldybulak
project advances.
Details of the Acquisition (from the press release)
Under the terms of the Acquisition, Lero shareholders will receive one common
share of EMC for each issued share of Lero, representing a value of C$0.98 per
share based upon the 20-day volume weighted average price of EMC on the Toronto
Stock Exchange (the �TSX�) for the 20- day period leading up to and including
April 17, 2008. This represents an 9% premium to Lero�s 20-day volume weighted
average trading price based on the 20-day volume weighted average prices of EMC
and Lero shares on the TSX and TSX Venture Exchange, respectively.
Subject to receipt of required stock exchange approval, following the
completion of the Acquisition, EMC�s shares will continue to be listed on the
TSX and admitted to trading on the AIM market of the London Stock Exchange
(�AIM�).
The combined company will focus on regional consolidation and growth
opportunities in the countries of the former Soviet Union. Some of the salient
terms of the Acquisition and characteristics of the combined company are set
forth below:
� Upon the closing of the Acquisition, Dr. Sergey V. Kurzin, currently Chairman
of Lero,
will join the board of EMC as Executive Chairman, together with Dr Alexander
Yakubchuk (currently Chief Executive Officer of Lero) and Mr Takhirzhan T.
Baratov
(currently the chairman of EMC�s Kazakh subsidiary, JSC Varvarinskoye).
� At the next meeting of shareholders of EMC following the closing of the
Acquisition, the name of EMC will be changed to Orsu Metals Corporation
(�Orsu�).
� Concurrent with this announcement of the Acquisition, Lero announces a
C$40,000,000 �bought deal� financing with Canaccord Adams Limited, details of
which are set out below. Of this financing, US$25 million will be lent by Lero
to EMC (the �Lero Loan�) prior to closing of the Acquisition on the terms
outlined below.
� Endeavour Mining Capital Corp. has agreed to provide a US$5 million bridge
loan to
EMC for working capital purposes to be repaid upon the completion of the Lero
Loan.
� EMC is currently commissioning the Varvarinskoye gold/copper project in
Kazakhstan where commercial production is expected to be achieved by the end of
Q3 2008. At steady state production the mine is expected to produce 149,000
ounces of gold and 26 million pounds of copper annually in its first three
years of production.
� As previously announced (see EMC�s press release dated 31 March 2008) EMC has
appointed an independent engineering company to undertake a scoping study to
engineer the expansion of the Varvarinskoye plant throughput beyond the
currently planned 4.2 million tonnes per annum.
� Lero is currently exploring the Taldybulak Talas gold copper deposit in
Kyrgyzstan and is also exploring at the Karchiga copper deposit in western
Kazakhstan. Lero expects to announce National Instrument 43-101 compliant
resource estimates for both properties by the end of April 2008.
� The board of directors of Lero believes there is substantial exploration
upside at their Taldybulak Talas and Karchiga deposits and also within EMC�s
three square kilometer mining lease for Varvarinskoye and surrounding 220
square kilometre exploration
licence.
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Lero Gold
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