London // Qatar Holding has an option to take a controlling interest in European Goldfields to help it to command a presence in the global gold market, says the executive chairman of the gold miner.
The Gulf's fastest-growing economy is keen to invest in gold as it seeks to diversify its earnings away from natural gas.
The investment arm of Qatar's sovereign wealth fund signed a deal on October 1 with European Goldfields involving providing a US$750 million (Dh2.75 billion) loan for a 9.9 per cent stake, including $600m to finance gold production in Greece.
The investment involves so-called warrants, giving Qatar Holding the option over the next seven years to buy shares to increase its stake to just under 30 per cent in the company, which is quoted in Toronto as well as on the London alternative investment market.
"This may be their first toehold into getting a better understanding of the global gold market," said Martyn Konig, the executive chairman and president of European Goldfields, based in London. "The warrants themselves could add up to just under 30 per cent. That's quite a sizeable stake and in most markets that would be a controlling interest."
From London property to stakes in car makers Volkswagen and Porsche, Qatar has made giant strides to expand its global business interests in recent years as revenue from gas production have swelled.
Now Qatar is turning its focus to gold. The commodity touched a record high of $1,923.70 an ounce early last month as concerns about the US economy stoked demand for the metal. It has since fallen back by about 15 per cent, but demand is expected to remain robust in the long term as the commodity is viewed as a potential hedge against a weakening US dollar.
Qatar Holding is aiming to invest about $10bn in metals and mining companies, including $5bn in gold equities through a special investment vehicle, according to people familiar with the fund, the Financial Times reported last week. Qatar Holding's investment in European Goldfields appears a first move in its plans.
"The Qataris have a lot of capital at their disposal and are astute buyers - when there's volatility in markets people begin to look at gold," said Cormac Sheedy, the senior executive officer for Middle East and Africa at RBC Dexia Investor Services.
Valuations of gold miners have appeared low over the past year, trailing a strong gold price and not reflecting the company's own improved earnings.
Qatar's investment will be used to finance European Goldfields' entire project portfolio, helping to accelerate the miner's goal to become the largest primary producer of gold in Europe.
The company was granted regulatory approval in July to construct two gold mines in northern Greece. Eventually, they are expected to produce a combined 450,000 ounces of gold annually from 2014.
"Our first gold will be produced from April next year," said Mr Konig. "The two big developments in Greece mean we will significantly increase our production." It also has a development project in Romania and is considering projects in Turkey and elsewhere in Europe.