SEATTLE (ResourceInvestor.com) -- European Minerals Corp. [TSX:EPM; AIM:EUM] announced on Friday plans to take over Lero Gold Corp. [TSX-V:LER] in a stock transaction valued at about C$60 million. EPM investors celebrated a $25 million Lero loan that will enable EPM to meet its first interest payment on its debt financing for Varvarinskoye.

Under the agreement announced Friday, Lero shareholders will receive one common share of European Minerals for each share of Lero, representing a value of C$0.98 per share, a 9% premium based on Lero’s 20-day average. Once the deal closes, European Minerals shareholders will own 81% of the combined company, while Lero investors will hold 19%.

Lero also said it is raising C$40 million in a bought deal financing, which will be used primarily to fund a $25-million loan to European Minerals. Canaccord Adams is the sole underwriter and bookrunner in the transaction, and has the option to increase the offering equal to proceeds of C$20 million.

EPM has US$61 million outstanding from debt financing for its Varvarinskoye Project with Investec and Nedbank. The company is scheduled to make two debt repayments this year, totalling $32 million, comprising $16 million at the end of June and $16 million at the end of December.

In a research note on April 16, Canaccord Adams estimated quarterly outgoings before debt repayment to be $24 million, which includes that cost of operating Varvarinskoye at $15 million, administrative costs and interest charges at $3 million and the margin requirement on the company’s hedge book at $6 million per quarter. (In December 2005, the company sold 443,000 ounces of gold forward at a flat price of $574.25/oz.)

Prior to today’s deal, the company had available funds of just $32 million, comprised of $25 million cash, $4 million as a result of successful litigation and $3 million from four shipments of ore containing 3,300 ounces of gold. So with further delays at Varvarinskoye, the company was in discussions with the banks to push out the debt repayment schedule and to roll over the hedge deliveries.

On March 31, the company announced that commercial production would be delayed until the end of Q3 2008. EPM cited delays in the crusher achieving design capacity, replacing undersized electric motors on the mill discharge pumps, achieving design capacity through the high grade ball mill, a fire in the cyclone cluster and unusually bad weather in February and March.

Varvarinskoye is expected to produce 149,000 ounces of gold and 26 million pounds of copper annually in its first three years of production. Over the 17-year mine life, average annual production is expected to average 120,000 ounces gold and 13 million pounds of copper. At full production, the operation could generate revenues of around $50 million per quarter.

Canaccord previously said securing the funding required to cover its cash outflows for the remainder of this year, and for the remainder of this quarter in particular, was the key hurdle for the company.

“Requirements for cash over the next three months likely to result in fundraising,” said the investment firm. “We expect that the company will face a cash squeeze in the current quarter and consider that it is likely to need to raise of the order of US$30 million by the end of the quarter at the latest.”

However, the company just recently completed a private placement in December, issuing a total of 17,496,875 common shares at a price of C$1.28 per share (62 pence per share) for aggregate gross proceeds of C$22,396,000 (£10,848,063). Lero’s equity financing announced today will raise almost twice that at a lower price per share.

In addition to much-needed cash, Lero brings to the table the Taldybulak Talas gold copper deposit in Kyrgyzstan and 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.

Lero also brings in familiar management with Chairman Dr. Sergey Kurzin, who originally found Varvarinskoye for European Minerals over a decade ago when EPM was called Kazminco. Kurzin will join the board of European Minerals as Executive Chairman.

“The benefits of the strategic fit between Lero and European Minerals is something that I look forward to bringing to fruition for all shareholders,” he said.

At the next meeting of shareholders following the closing of the acquisition, the name of European Minerals will be changed to Orsu Metals Corporation. Shares in European Minerals will continue to be listed on the TSX.

On the TSX Friday, shares in European Minerals rose 16 cents or 20% to 96 cents, before easing back to 91 cents. Lero fell 9 cents or 9.5% to 85 cents on the TSX Venture Exchange.