Gabriel Resources sees progress on Romanian gold project

Since its launch in the late 1990s, Toronto-listed Gabriel Resources Ltd. has had no fewer than six CEOs, each of whom vowed to turn Romania's Rosia Montana deposit into Europe's biggest gold mine. They all failed.

Boss No. 7, Jonathan Henry, believes he will be the one to break the extraordinary run of bad luck and bad strategy. So far the effort has seen the company spend $500-million (U.S.) with little to show for it beyond a mining museum in Romania's Transylvania region and a small army of dedicated opponents, ranging from film stars to local farmers, who want to see the project killed off.

Mr. Henry, the chief executive officer of African gold miner Avocet Mining until he landed at Gabriel last year, thinks the project finally has momentum, and not just because gold has tripled in price to nearly $1,800 an ounce since early 2007.

Eager to take advantage of such high-flying prices, gold miners around the world are pushing into politically risky or sensitive areas and often must overcome deep opposition to building new mines. After years of waffling and bouts of resistance, the Romanian government, including President Traian Basescu, is now openly endorsing the Gabriel project. Bucharest recently awarded the company an "archeological discharge" permit for its enormous Carnic open pit at Rosia Montana, meaning the government is satisfied that the important archeological structures will be protected in that particular area.

As official resistance melts away, Mr. Henry is expecting mine construction to start 12 to 18 months after the company receives the crucial environmental impact assessment (EIA) report; he is "hopeful" the environmental permit will land by the end of the year. "I'm cautiously optimistic," he said in recent interview. "If the Romanian government did not want this project, we'd know by now."

The $1-billion development project would create one of the biggest new gold mines in the world. The development is so big that it will surround the village of Rosia Montana with a sea of rubble, eradicate four or five historic churches, destroy some of the ancient Roman mining galleries that were worked in the second and third centuries, and force the relocation of some 2,000 residents, many of whom have already been bought out. Rosia Montana, with 10 million ounces, is considered a world-class reserve. Gabriel plans to produce on average 500,000 ounces a year at a cash cost, according to CIBC, of $400 an ounce.

But while Gabriel's development plans are moving forward, new snags are already popping up. One is the Romanian government's request to lower the amount of cyanide that will be dumped into the gold mine's vast tailings pond (the reservoir that will hold the leftover guck, some of it toxic, produced by the mining process).

Another issue is the government's request for a revised profit-sharing deal, one that could see Gabriel's Romanian subsidiary, Rosia Montana Gold Corp. (which is almost 20 per cent owned by the government), potentially pay higher taxes, royalties or dividends on the project's estimated 16-year lifespan.

Any tweaks in the government's favour could, of course, reduce shareholders' returns. "Recent statements from senior Romanian politicians suggest that they need to show the country is getting a better deal, especially since they are imposing austerity measures on the economy," Mr. Henry said. "We anticipate going to the table."

Still, Gabriel's executives and their shareholders are in a buoyant mood. Gabriel shares, given up for dead in 2007 and 2008, when the government suspended Gabriel's environmental review, are up by a third in the last year, though well off their peak of $8.65 (Canadian), giving the company a market value of about $2.3-billion.

The company is triggering analysts' interest. CIBC World Markets initiated Gabriel coverage this month with an "overweight" rating on the shares, though it highlighted the investment's high risks, notably the lack of two key permits and persistent local opposition to the project.

Opponents of the project, collectively known as the Rosia Rebels, argue that the mine will be an environmental, heritage and social disaster. Some of Gabriel's founders, among then Stephen G. Roman, the son of the late Slovak-Canadian uranium titan Stephen B., think the project, had it been scaled back, would not have run into so much ferocious resistance.

Gold miners are always looking for ways to boost their reserves and have been on the prowl in Transylvania – an endorsement of the region's potential to produce golden riches.

Toronto's Barrick Gold Corp., which considered buying Gabriel a decade ago, has an exploration partnership in Transylvania with Valhalla Resources Ltd.. Last month, Barrick indicated just how serious it is about Transylvania by nabbing 9 per cent of Carpathian Gold, one of the three Toronto-listed companies active in the region (the other is European Goldfields).

Gabriel itself has a roster of big-name investors who obviously think the Rosia Montana mine will go ahead. They include Barrick rival Newmont Mining Corp. and New York hedge fund powerhouse Paulson & Co.

The industry does not expect Gabriel to keep its independence if the mine construction approvals are awarded. In an interview last year, Barrick chairman Peter Munk said the gold companies operating in Romania "will be incorporated as some point into larger-producing gold companies, ones that are well financed and have relationships with international financial institutions."

Mr. Henry is not necessarily guarding Gabriel's independence. "Any big gold companies that need to add to their reserves need to look at Romania," he said. "It has to be the go-to place."