Actual finance blog

Canadian Gold and iron producer Eldorado Gold Corp. said Sunday it will buy European Goldfields Ltd. in a deal worth about $2.4 billion, increasing its ability to produce gold.

The Vancouver, British Columbia, company said its offer values each European Goldfields share at 13.08 Canadian dollars ($12.59), based on Eldorado’s closing stock price on the Toronto Stock Exchange Friday.

That comes to 2.5 billion Canadian dollars. It’s a 10 percent premium to European Goldfields’ closing price on the Toronto Stock Exchange Friday.

Eldorado said the deal will create a company with a market capitalization of about 11 billion Canadian dollars ($10.59 billion) and help diversify production. It expects to increase annual production to reach more than 1.5 million ounces of gold by 2015. In October, the company said it expected to produce 650,000 ounces of gold this year.

Eldorado operates in China, Turkey, Brazil and Greece. It has six active mines and other projects in development.

European Goldfields, which is based in Whitehorse, Yukon, operates a mine in Greece and is developing projects in both Greece and Romania pay day loans. It said it has gold reserves of 10 million ounces within the European Union. It is also a partner of Aktor SA, the largest construction company in Greece.

“Integration of European Goldfields’ business with our own will provide Eldorado with the dominant gold mining business in the Aegean Region,” said Eldorado CEO Paul Wright in a statement Sunday. He added that European Goldfields’ partnership with Aktor will help the combined company safely develop operations in Greece.

Under the deal proposed Sunday, European Goldfields stockholders will receive 0.85 Eldorado share and a fraction of a Canadian cent for each European Goldfields share.

The acquisition requires approval from a majority of Eldorado shareholders and two-thirds of European Goldfields shareholders. Shareholders from both companies will meet in February to vote on the deal.

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Premier Mario Monti convened a Cabinet meeting in Rome on Sunday to discuss emergency austerity and growth measures aimed at saving the euro currency from collapse.

Monti is under extreme pressure to come up with speedy and credible measures that will persuade markets to stop betting against the common currency.

The Cabinet was originally scheduled to meet Monday, but was moved up following Monti’s weekend of meetings with political parties, unions, business groups and consumer lobbies.

The premier hasn’t disclosed details of his rescue plan, but has said it includes both austerity cuts and measures to boost growth in Italy’s anemic economy. He has promised it would be socially equitable, and that it would go after those who hadn’t paid their share of taxes before.

With the meeting still under way, Monti’s office issued a statement saying the package was still under discussion.

The various parties briefed have said the package likely includes reinstating an unpopular home property tax abolished by Berlusconi, raising the sales tax and the income tax at the highest brackets by a few percentage points, and requiring Italians to work more than the 40 years now needed to receive a pension.

The head of Italy’s industrial lobby said Sunday that the survival of the common euro currency depends on Italy’s coming up with very strong austerity and growth measures _ followed by a concerted effort at the European level so that Italian sacrifices are not in vain.

Confindustria President Emma Marcegaglia told reporters after meeting with Monti that the measures are “very heavy.”

The coming days “will decided if the euro will survive or not no fax payday loans. The first move to save the euro is in Italian hands, with a very strong measures,” Marcegaglia said. The measures will be “fundamental to saving Italy and to saving the euro.”

Italian borrowing costs have spiked, which could spell disaster if Italy is unable to keep up on payments to service its enormous debt of euro1.9 trillion ($2.57 trillion), or 120 percent of its GDP.

Unlike Greece, Portugal and Ireland, which got bailouts after their borrowing rates skyrocketed, the eurozone’s third-largest economy is considered to be too big to bail out. An Italian default would be disastrous for the 17-member eurozone and reverberate throughout the global economy.

Union head Raffaele Bonnani, however, urged Monti to reconsider raising the pension age across the board, saying that workers in hard labor should be allowed to retire without added requirements, and that women who join the work force after raising children might have to work well into old age if the 40-year seniority requirement were raised.

But he said he was against calling a general strike at this sensitive moment, and would instead pursue a policy of negotiation with the government.

Marcegaglia said the measures were concentrated on raising taxes _ and to balance that she called for an immediate look at ways to cut political and bureaucratic spending. “This kind of fiscal pressure is not sustainable,” she said.

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China’s sovereign wealth fund wants to invest in improving neglected U.S. and European roads and other infrastructure to spur global growth, the fund’s chairman said in comments published Monday.

The announcement reflects a shift in strategy for the $410 billion fund, which was created in 2007. Until now, it has limited its investments mostly to small stakes in publicly traded companies to avoid stirring political opposition overseas.

China Investment Corp. wants to begin in Britain by teaming up with fund managers or investing directly in infrastructure projects, Lou Jiwei said in a commentary in London’s Financial Times newspaper.

“China is keen to get involved” in improving U.S. and European infrastructure, which “badly needs more investment,” Lou wrote. He cited energy, water, transport, digital communications and waste disposal but gave no indication of possible projects or the size of Chinese investment.

Some commentators in both Europe and China have suggested Beijing might use its $3.2 trillion in foreign reserves to gain leverage on political or trade issues at a time when other governments urgently want investment.

CIC was created to invest abroad in hopes of earning a better return on China’s foreign reserves, the bulk of which are in U.S. and European government bonds. It says investments are made on commercial rather than political grounds.

The move into infrastructure probably reflects CIC’s commercial views, rather than those of the government, said Citigroup economist Minggao Shen. He said it could help CIC earn a more stable profit and reduce Beijing’s exposure to U.S. and European government bonds amid volatile markets.

Some Chinese commentators have called for Beijing to reduce its exposure to the financial woes of Western governments by buying fewer bonds. China is Washington’s biggest foreign bondholder, with $1.15 trillion in Treasury debt as of September.

“There is a general thought that maybe China should not invest in U.S. Treasurys or European sovereign bonds. Instead, why can’t we hold direct assets in the economy?” Shen said.

By investing in individual projects, he said, “you don’t have to depend on government guarantees and it should be affected less by the sovereign debt crisis.”

CIC faced criticism over the performance of investments made just as the financial crisis was developing. But its results have improved and the fund reported an 11.7 percent return on assets last year.

Lou stressed that CIC is a commercial investor and wants to make a profit.

“CIC believes that such an investment, guided by commercial principles, offers the chance of a win-win solution for all,” he wrote.

Lou gave no indication in which other countries the CIC might invest but cited an estimate that the United States needs to spend at least $2.2 trillion in infrastructure repairs or rebuilding.

“Free of the inflationary pressure that afflicts many emerging economies, the U.S. and Europe should make substantial investment,” he said. “We cannot count on developing countries to deliver a stable economic recovery on their own.”

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U.S. manufacturing is recovering from a slump, and inflation may be peaking. The latest government reports suggest businesses and consumers may be seeing some relief after the economy stumbled earlier this year.

Industrial production rose in October at the fastest pace in three months. Factories made more trucks, electronics and business equipment.

At the same time, Americans paid less for gas, cars and computers last month as overall prices fell for the first time since June.

The data follow a strong report on retail sales in October and point to an economy that is growing at a solid pace in the October-December quarter. Still, the resurgence in the price of oil and a possible recession in Europe threaten to drain the economy’s momentum.

“The continued resilience of manufacturing is encouraging, since this should be the sector most exposed to the global economic slowdown,” said Paul Ashworth, chief U.S. economist with Capital Economics.

Output at the nation’s factories, utilities and mines rose 0.7 percent last month, the Federal Reserve said Wednesday.

Factory output, the largest component of industrial production, increased a solid 0.5 percent. It was the fourth straight monthly gain.

Production of autos and auto parts surged. Business equipment rose for the sixth straight month. Electrical equipment, appliances and transportation equipment all climbed.

Manufacturers “are benefiting from the strong growth in emerging markets, and domestic businesses are confident enough in the future to continue expanding purchases of capital equipment,” said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a trade group.

Production was dragged down this spring after the Japanese earthquake and tsunami disrupted key supply chains for automakers and other manufacturers. Rising food and gas costs and shaky financial markets caused consumers to cut back on big purchases.

The auto industry has rebounded to drive most of the growth in factory output. Many U.S. auto plants, which depend upon parts from Japan to produce various models, are seeing supply chains flow more freely.

Higher output at auto plants has allowed dealers to stock popular models that were in demand this spring. As a result, October sales were 7 percent higher than the same month last year. Light trucks were the biggest contributor.

A steep drop in gas prices was a key reason the Consumer Price Index dropped 0.1 percent in October, the Labor Department said. Food prices did rise, but at the slowest pace this year.

Excluding volatile food and energy costs, so-called “core” prices rose 0.1 percent.

Slower inflation could give the Federal Reserve more leeway to lower long-term interest rates to help the economy.

Still, oil prices have been climbing in recent weeks and hit $100 a barrel Wednesday for the first time in four months. They have been rising as the economy improves while tensions rise in countries that hold some of the world’s major sources of crude.

If those prices translate into higher gas prices, consumers could pull back on spending and slow economic growth.

Strong consumer spending helped the economy grow at an annual rate of 2.5 percent in the July-September quarter. The October gain in retail sales suggests similar growth in the final three months of the year.

Instability in Europe might also hurt the U.S. economy. A shaky euro would likely strengthen the dollar, making U.S. goods appear more expensive to overseas buyers. And exports to Europe already account for about one-fourth of U.S. corporate revenue, analysts say.

Europe’s economy is barely growing, and sharp government spending cuts might tip it back into recession. If that happens, slowing output by U.S. manufacturers could hinder the broader economic recovery.

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Surrounded by dozens of cardboard boxes packed with 4 million petition signatures, the presidents of major Japanese automakers demanded Monday the end of what they called exorbitant taxes on cars that threaten to hollow out manufacturing and wipe out jobs.

The plea from the heads of Toyota Motor Corp., Nissan Motor Co., Honda Motor Co. as well as representatives from auto unions and dealers _ a rare show of combined forces _ underlines the industry’s crisis from the March tsunami disaster, the surging yen and stagnant sales.

“This goes beyond the problem of a hollowing out of the economy. The industry could be destroyed,” Toyota President Akio Toyoda said after standing with other officials with clenched fists. “Once jobs are lost overseas, it is impossible to recover them.”

The officials said they want to retain manufacturing in Japan as much as possible to keep technological development going, as well as protecting jobs.

But the odds are stacked against them, they said, partly because of a complex system of taxation on cars estimated to be about twice or triple those in Great Britain and Germany, and a whopping 49 times the U.S.

Also battering Japan’s manufacturers has been the strong yen, which eats away at the value of overseas sales. Each time the dollar falls by one yen, the eight major Japanese automakers lose 80 billion yen ($1 billion).

The auto execs appear to have public opinion on their side. They were taking to the government a petition demanding the end of such taxes, signed by more than 4.3 million people in just two months.

Japanese taxeswhich are paid each year for ownership in addition to the time of purchase, are so high that over a decade a car owner pays more in taxes than their original outlay on the vehicle, they said.

Reducing the tax burden would potentially add some 920,000 vehicles to annual auto sales in Japan, according to a government estimate.

Japan’s annual sales of new autos have shrunk to about 4.25 million vehicles, falling from a peak 7.8 million vehicles in 1990.

Studies show younger people’s interest in cars has been fading rapidly, especially in urban areas. Rural residents tend to need more than one car per household, but are suffering from the heavy tax burden.

The March 11 earthquake and tsunami in northeastern Japan disrupted parts supplies and slowed production, battering the profits at the Japanese automakers. Just as they were starting to recover and make up for lost production, the recent flooding in Thailand has disrupted the supply chain again.

Toyoda said Japan needs to recover from the disaster, and help for the auto industry is critical in the recovery.

“Please look at all of us who are here today,” he told reporters at a Tokyo hotel. “We want to speed up the recovery so we are all here.”

The representatives also asked that tax breaks on green cars, which began in 2008 and are set to end next year, be continued to keep sales of hybrids and electric vehicles going.

“The sense of crisis we have is unprecedented,” said Nissan Chief Operating Officer Toshiyuki Shiga.

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For the second week in a row, the Chinese aren’t coming.

China Cargo has canceled its scheduled Monday freight flight to Lambert-St. Louis International Airport, airport officials said Friday, a move that raises serious concerns about the viability of Lambert’s fledgling cargo hub project.

Last month the airline landed its first Shanghai-to-St. Louis cargo flight to great fanfare, then ran a second on Oct. 19. But now it has canceled the regularly scheduled Monday flight for the second consecutive week.

Lambert officials said they have not been told exactly why, but suspect there are two reasons: one local, one global.

Both cancellations have come since the collapse of the so-called Aerotropolis tax credits, a $60 million program to subsidize air exports from Missouri. It was intended to make cargo flights from Lambert cheaper than from competing cargo hubs like Chicago-O’Hare, but it died in the Legislature last week.

“We believe there is some correlation” between the tax credit demise and the canceled flights, said airport director Rhonda Hamm-Niebruegge.

But perhaps a bigger factor is the global economy.

Demand for air cargo has been weaker than expected this year, and while there’s typically a fall rush ahead of the holidays, this fall it isn’t panning out. International freight flown by Asian-based carriers was down 6.5 percent in September compared with last year, according to the Association of Asia Pacific Airlines quick payday loan. And Chinese aviation officials this week slashed their cargo forecast for the rest of 2011.

“It’s not isolated to St. Louis,” Hamm-Niebruegge said. “The air cargo market out of China is softer than expected and the impact is being felt across the world.”

Still, the timing is tough for St. Louis.

Lambert and local business leaders have been talking with the Chinese for four years and call the hub project a potential game-changer for the region’s economy. They had hoped to start with three flights a week but said they would build from one after the Aerotropolis bill fell apart. Meanwhile, Gov. Jay Nixon spent the week in China on a long-planned trade trip and was set to meet with aviation officials there.

It’s unclear how that meeting went. Nixon canceled a conference call Wednesday with reporters because of scheduling conflicts, and his spokesman hasn’t answered questions about the aviation meeting.

Nor is it clear what happens next. China Cargo has a two-year lease on a building and ramp space at Lambert, at a cost of $14,549 a month, but that doesn’t mean they have to fly planes. As of Friday, Lambert had gotten no word on when the next flight would land.

“It’s going to be a week-to-week thing at this point,” said airport spokesman Jeff Lea.

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Thailand’s flood crisis deepened Tuesday after floodwaters breached barriers protecting Bangkok’s second airport, effectively forcing a halt to commercial flights there after airlines using it suspended operations.

It was not immediately clear how much water had entered Don Muang airport. But the news was sure to further erode the credibility of a government that has repeatedly sent mixed signals about its ability to defend the heart of an increasingly anxious capital from the worst floods to hit Thailand in nearly 60 years.

Bangkok’s Suvarnabhumi Airport, the country’s main international gateway, has yet to be affected by flooding and flights there were operating normally. Most of the city has been spared inundation so far.

Budget airline Nok Air suspended operations at Don Muang until Nov. 1 “because water has entered the north side of the airport already,” the company’s CEO Patee Sarasin told The Associated Press. He said all airborne aircraft would be diverted to Suvarnabhumi.

The only other main carrier using Don Muang, Orient Thai Airlines, also said it was suspending flights and would transfer domestic operations to Suvarnabhumi.

An airport official confirmed water had crept inside the airport compound, but he said runways were unaffected. An Associated Press reporter at the airport was not immediately allowed to inspect the area where water had entered.

Don Muang has come to symbolize the gravity of Thailand’s catastrophic floods, which have swamped a third of the country’s provinces and killed 366 people over three months. It houses the government’s emergency Flood Relief Operations Center, and one of its terminals is home to thousands of people who have been forced to flee their homes.

Floodwaters have been pouring into the Don Muang district, located on Bangkok’s northernmost outskirts, for several days payday loans. The waist-high water has entered homes and blocked streets running to the airport.

Don Muang is among seven of the capital’s 50 districts that the government has declared at risk. Those zones, located in the north and northwest, are all experiencing minor flooding.

The latest to be added to the list was the northwestern district of Bang Phlat. Late Monday, Gov. Suhumbhand Paribatra warned residents there to move their belongings to higher ground after water from the Chao Phraya River crept in through a subway construction site.

Also Tuesday, Prime Minister Yingluck Shinawatra’s administration declared Oct. 27-31 public holidays in affected areas, including Bangkok, government spokesman Thitima Chaisaeng said.

Last week, Yingluck ordered key floodgates opened to help drain runoff through urban canals to the sea, but there is great concern that rising tides in the Gulf of Thailand this weekend could slow critical outflows and flood the city.

Late Monday, the flood relief center said water levels in the worst-hit parts of the country _ the submerged provinces north of Bangkok _ were stable or subsiding. But the massive runoff was still bearing down on the city as it flowed south toward the Gulf of Thailand.

While neighborhoods just across Bangkok’s boundaries are underwater, most of Bangkok is dry and has not been directly affected by deluge.

Anxious Bangkokians, though, have been raiding stores to stock up on emergency supplies, and many have been protecting homes and businesses with sandbags. Some have even erected sealed cement barriers across shop-fronts.

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The finance chiefs from the euro’s 17 countries hunkered down Friday to overcome differences over how to strengthen a bailout fund, which is key to preventing the currency union’s debt troubles from spinning out of control.

Giving the euro440 billion ($607 billion) European Financial Stability Facility much more firepower is considered essential before the eurozone can deal with its two other main problems: cutting Greece’s massive debts and forcing weak banks to boost their capital buffers to shore up their defenses against worsening market turmoil.

“Once we have the option for the leveraging (of the EFSF) then _ building on that _ we can develop all other points,” said Austrian Finance Minister Maria Fekter, as the arrived for the meeting in Brussels.

Markets appeared to be giving Europe the benefit of the doubt, trading substantially higher Friday even though a wide-ranging plan to deal with the crippling debt crisis won’t be in time for Sunday’s summit of EU leaders. A second meeting on Wednesday has been scheduled.

“Considering the importance of the discussions and there potential impact upon the European economy, global capital markets and the future of the EU itself a delay of a few days is neither here nor there in the overall scheme of things,” said Gary Jenkins, an analyst at Evolution Securities. “However the suggestions that they are still far apart on how to make best use of the EFSF is of some concern.”

Governments have ruled out increasing their financial commitments, but they acknowledge that with some euro140 billion already going to Ireland, Portugal and Greece, the EFSF isn’t big enough to both help recapitalize weak banks and keep big economies like Italy and Spain from being dragged into the crisis.

A failure to agree on the best way of maximizing the fund’s impact between Germany and France forced European leaders to call another crisis summit for Wednesday _ on top of the two-day talks between finance ministers and a first summit of EU leaders this weekend.

Austria’s Fekter said up to seven technical options for giving the EFSF more leverage were currently on the table and both she and German finance minister Wolfgang Schaeuble ruled out the possibility that the fund will be able to tap into the vast resources of the European Central Bank. That proposal is still being pushed by France, which sees ECB help as the best way of giving the EFSF the necessary force.

A high-ranking German official, who declined to be named, said that a combination of two options had crystallized as the most likely solution.

The first would involve the bailout fund acting as an insurer for bond issues from wobbly countries like Italy. That would essentially compensate investors against a first round of losses and help to support their bonds and keep the borrowing costs from rising too far.

In addition, the International Monetary Fund _ which has already provided about a third of the bailout cash for Greece, Ireland and Portugal _ would supply other stragglers with precautionary credit lines to make sure they have a ready access to cheap money.

Last weekend, at a meeting in Paris, the finance chiefs from the Group of 20 leading economies, opened the door for a larger role by the IMF, but only if the eurozone first does its part.

IMF Managing Director Christine Lagarde, who joined the ministers in Brussels Friday, said that her institution would do everything it could to help Europe.

“We will find solutions,” she said, without going into details.

Europe’s leaders have already told their counterparts in the G-20 that they will have a plan ready to present to them at their next meeting in Cannes, France, in early November.

But Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said the announcement to delay all decisions until the next summit on Wednesday looked “disastrous” to the outside world. He also canceled a press conference that had originally been scheduled for after Friday’s meeting, indicating that hopes were low of having clear results to present.

There appeared to be some progress on finding a solution on Greece, which has been paralyzed for much of this week. Sporadic outbreaks of violence during a two-day general strike against the government’s austerity program claimed the life of one person on Thursday.

The German official said the aim was to bring Greece’s debt down to about 120 percent of economic output, from more than 180 percent it is set to reach next year. That would most likely involve the banks taking a bigger hit on their Greek bond holdings, hence the need for a widespread recapitalization plan.

In nearly identical statements Thursday night, German Chancellor Angela Merkel and French President Nicolas Sarkozy asked Greece to immediately enter into discussions with private creditors on bringing its debt down to a sustainable level.

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Kirin Holdings Co. says that a Brazilian court has revoked an injunction blocking the company’s $2.5 billion takeover of Brazilian beer producer Schincariol.

The ruling in Sao Paulo paves the way for the Japanese beer maker to assume control of Schincariol and gain a valuable foothold in the rapidly growing Brazilian market.

In August, Kirin announced a $2.5 billion deal to buy the 50.45 percent stake owned by brothers Alexandre and Adriano Schincariol. Minority shareholders _ their cousins _ opposed the transaction and successfully requested an injunction.

Kirin, Japan’s No. 2 brewer, appealed the decision.

Schincariol is Brazil’s second-largest beer producer, known for brands such as Nova Schin, Devassa and Bem Loura.

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