Greece was a minimal gold producer up until 2011 when the country dribbled out some 16,000 ounces of the shiny stuff, but gold mining companies in the region believed the Hellenic Republic could up its output to 450,000 in a few years to become the largest producer in the EU by 2016. Eldorado Gold (TSX: ELD, Forum) was a heavy supporter of this push and in 2012 estimated the production increase could rake in $757.0 million into the Grecian economy based on the price of gold at that time; a certain boon for a country reeling from ~25% unemployment and severe austerity measures.
Unfortunately Greece already had a reputation of being a bureaucratic nightmare with other companies like European Goldfields after years of permitting delays, pulling up stakes and swearing never to return. However, Eldorado Gold dug in deep and through its 90%-owned subsidiary Hellas Gold; it got behind four projects in the Mediterranean country, Stratoni (producing), Skouries, Olympias (producing) and Perama Hill.
It was the Skouries project that became a massive thorn in Eldorado’s side. The proposed open pit project was in a land holding comprised of an area of 26,400 hectares in northern Greece’s Halkidiki peninsula. Approximately 1,013 hectares of the property was pristine forest land which was scheduled to be completely cut down for construction. Even though Eldorado pledged to replant afterwards, locals and environmental groups screamed foul, arguing the mine would cause irreparable damage to the ecosystem and local water supply.
Lines were drawn and the conflicts began with violent clashes between locals, protesters and police. In September 2012, a member of then opposition Coalition of the Radical Left (SYRIZA) was also involved in an angry demonstration where police claimed they were pelted with firebombs. Then in February 2013, a 54-year-old man was charged in the wake of an armed arson attack on the Skouries site which left four security guards injured, and destroyed various containers, vehicles and earth-moving machinery. SYRZIA still figured prominently as one of its members, Lazaros Toskas, had been detained by police for claiming to have been involved in the Halkidiki protests.
Despite the rather violent unease and controversy surrounding the Skouries development, Eldorado Gold, stuck to its guns and pledged to continue operations at the $303.0 million project that it hoped, along with its other projects, would add in excess of 2,000 jobs to the country’s beleaguered economy. The government at the time, led by Prime Minister, Antonis Samaras, promised company brass on a visit to Athens that it would address security issues at the mine and cut through the red tape which had, typical to Greece’s style, tied up activities at Eldorado’s Perama Hill located in Thrace. Protests continued but Eldorado remained committed. Petros Stratoudakis, Managing Director of Hellas Gold, stated in a 2013 press conference, “I don΄t know of any company that wants to pull out that has tripled its staff in less than a year. Does the Greek state want us? We are expressing our desire to stay.” Protests continued.
Back in April 2013, Greece’s highest administrative court handed down a decision that stated the 29 complaints lodged by villagers against the northern eastern Halkidiki project were “unfounded”, but when Alexis Tsipras was elected to the office of Prime Minister and SYRZIA came to power in Greece, the government’s stance changed. In March 2015, the government announced it would recall the permit for a processing plant at Eldorado’s Skouries project in Chalkidiki, because details regarding the plant’s size were incorrect and as such, caused concerns about the protection of environment and national interest. Eldorado immediately moved to challenge the decision, claiming it had no legal merit.
Things really got mean when, in August 2015, the Environment and Energy Minister, Panos Skourletis, announced that there would be a temporary stoppage of activities, stating, “With my decision today, we recall the approval of the technical studies.” Skourletis based this decision on the claim that Eldorado had violated some of the environmental studies’ agreed terms, even though the Greece Council of State, the country’s supreme court on administrative and environmental interest matters, had just issued two decisions in favour of Hellas Gold regarding its rights to the use of the woodland and site clearing rights for the Skouries gold/copper mining project construction.
Eldorado reacted the only way it knew how, suspending activities, except environmental protection, at Skouries, Olympias and the Stratoni Mine and announcing Hellas Gold’s intension to take the government to court over the Energy Minister’s decision. Paul Wright, Eldorado CEO, weighed in, “This unfortunate outcome is detrimental to the Company, Hellas Gold, our Greek employees, contractors, community supporters and the Greek society. However, Eldorado cannot and will not continue to allocate expenditures to our projects in Greece while the Energy Ministry is openly hostile to our activities, as evidenced by recent Ministry decisions. We sincerely hope to resume our activities in Chalkidiki at some point in the near future – preferably through constructive engagement with the Energy Ministry rather than a court decision.”
The soap opera continued with the Council of State abrogating the Energy Minister’s decision in November last year; however no formal decision was handed down at the time. Then to make matters worse, the Greek government slapped Eldorado Gold with €1.7 million in fines for 21 environmental violations between 2012 and 2014. Gloves came off at that point and Paul Wright reaffirmed in a statement that Eldorado was indeed considering stopping its investment in Greece due to the Greek government’s “openly confrontational” stance and Panos Skourketis’ “politicizing” the investment issue. Opposition party leader, Kyriakos Mitsitakis, jumped to call on Tsipras to intervene in what he felt was a campaign to drive out the country’s biggest investment.
Less than a week ago, Greece’s Council of State once again ruled in Eldorado’s favour, annulling the government’s 2015 decision to revoke the company’s mining license. Damage had already been done however and this morning, Eldorado Gold dropped the hammer, announcing it expected to write down the value of its Grecian assets by US$1.2 billion – US$1.6 billion. It also added a little salt to the wound by stating its 2016 forecast called for the production of 565,000-630,000 gold ounces, a ~15% drop from the estimated 723,532 gold ounces it produced in 2015.
MARKET REACTION:
Shares fell 14.24% on high volume to $2.77 per share during morning trading.
OUR TAKE:
This is the result of a long and bloody fight which has seriously stunted Eldorado’s efforts in Greece. Regardless of the extended battle, it doesn’t make economic sense for Eldorado to pull out yet, but this has certainly punched the company where it hurts and hasn’t set a good precedent for further efforts within the country. Is Eldorado violating its environmental obligations, will these projects forever destroy the surrounding ecosystem and Greece’s tourism industry? Clear-cutting an entire forest will certainly have implications and quite possibly severe ones, but as our species continues to overwhelm the planet in terms of population, we are faced with the moral and ethical dilemma of picking the lesser of two evils.
In a country bleeding with ~27% unemployment, is there a real choice here? Greece is fraught with problems, most of which arising from its crippling debt, pitting a myriad of political movements at violent odds. The fight has become personal; bloody. Is there a prosperous future for Greece? Even if the country is able to unify in regards to foreign mining activities, it is being torn apart by nationalist bigotry, a crushing economic environment and the looming threat of being tossed from the EU for non-compliance and the inability to control the influx of immigrants crossing its borders to enter the rest of Europe. Eldorado has been handed an incredibly hot potato when it comes to its holdings in Greece which may end up seriously burning the company’s bottom line well beyond today’s write down. My feeling is we haven’t seen the end of this and Eldorado investors may be in for a further bumpy ride.
For the record, I am not long, nor am I shorting Eldorado Gold.
--Gaalen Engen
https://twitter.com/gaalenengen