A new management team at
The title to the Rosia Montana project is held by Romanian-based Rosia Montana Gold Corp. (RMGC), in which Gabriel has an 80% interest (and funds all development costs), state-owned miner Minvest holds 19.3%, and three Romanian companies own the remaining 0.7%.
The scope of the proposed project has not changed much since
Ore would be processed in a conventional mill with a standard carbon-in-leach finish that would generate recovery rates of 82% for gold and 58% for silver.
The anticipated 16.4-year mine life could easily be extended by adding to the reserve base in two ways: dropping the lower cutoff grade and thus enlarging the pits, and upgrading and adding to the substantial resource base through additional drilling.
A year ago, reserves stood at 218 million tonnes grading 1.52 grams gold per tonne and 7.5 grams silver per tonne, equivalent to 10.6 million contained ounces gold and 52.3 million oz. silver. These calculations used a variable 0.6-gram gold cutoff grade and prices of US$300 and US$4.50 per oz. gold and silver, respectively.
In December 2003, owing to successful drilling at the Orlea and Igre-Tarina deposits, Gabriel boosted its measured and indicated resource (including reserves) to 352 million tonnes grading 1.3 grams gold and 4 grams silver, or a whopping 14.6 million oz. gold and 67.3 million oz. silver.
Sitting in the inferred category were another 48 million tonnes grading 1 gram gold and 4 grams silver, or 1.5 million and 6 million oz. gold and silver, respectively.
Back at Gabriel’s head office in Toronto, a major shake up in management occurred in the fall of 2002 when Gabriel’s board, preparing to seek senior project debt, commissioned an independent investigation into the history of Chairman Vasile Frank Timis in relation to Gabriel’s interest in RMGC.
The prominent role in the company played by Timis, an emigre from Ceaucescu’s Romania, had been both a blessing and a curse. On the one hand, he founded Gabriel in 1997, secured its participation in the development of Rosia Montana, and helped fund and advance the project during a terrible bear market for gold. On the downside were his convictions in Australia in 1990 and 1994 on two counts of heroin possession (in sufficient quantity that it was deemed likely to be for sale). The convictions made Gabriel an easy target for those trying to attack its credibility as a positive force in Romania.
The board concluded that the “prior conduct of Mr. Timis has not had any material adverse effect on the company and, in particular, the validity of its interest in the project.”
But that was not the end of it: In January 2003, a second independent investigation was commissioned by the board after Gabriel President and CEO Robin Hickson (who had only been with the company since July 2002, replacing Clifford Davis) made allegations of improper corporate governance and management practices, including alleged illegal and unethical conduct by Gabriel and RMGC.
In particular, Hickson sought Timis’s removal as chairman and a commitment from the board that Gabriel would conduct its business in a legal and ethical fashion.
In a similar fashion, the board concluded that Gabriel’s “business and affairs have been and are being conducted in accordance with applicable laws in all material respects and that the allegations of illegalities are unfounded.”
Gabriel spent $1.1 million on the two investigations and associated outside legal advice.
Enter Hushovd
In late March 2003, Oyvind Hushovd (formerly president of Falconbridge) assumed the role of Gabriel chairman after serving on Gabriel’s board since November 2002.
Timis simultaneously resigned as chairman and, soon afterwards, withdrew from the board of directors and moved into an advisory role. He remains a significant Gabriel shareholder, but at less than 10%.
Within weeks of Hushovd’s appointment, four key officers simultaneously tendered their resignations, all citing “personal reasons” for their decisions. The departing officers were: Hickson; Andrew Kaczmarek, vice-president and general manager of the Rosia Montana project; Bruce Marsh, vice-president of environmental and regulatory affairs; and Michael Steyn, vice-president of community development (who has since rejoined the company in that capacity).
Later, Chief Financial Officer Paul Martin resigned but then also rejoined the company.
In June 2003, Gabriel added three new independent directors: former Rio Algom President Michael Parrett, Quest Ventures President Murray Sinclair, Jr., and former Falco executive Michael Young.
Although Gabriel remained without a president, Hushovd effectively balanced the responsibilities of chairman, CEO and president: his base salary of $500,000 per year plus performance bonuses in the form of shares was a result of the savings incurred by cutting off Timis’s US$250,000-per-year consulting fee and halting payment of Hickson’s US$330,000 annual salary.
Meanwhile, during the summer, Gabriel had to shelve a bought deal of 10 million shares priced at $2.80 apiece as shares dove below $2 from $4. The dip was a result of several factors: the management turnover; much higher-than-expected projected capital costs; and negative comments from Romania’s prime minister about the environmental aspects of the Rosia Montana project.
(A revised offering of 15 million shares at $3.05 apiece was finally completed in September. Shares were trading at $3.50 at presstime, with about 130 million shares outstanding.)
On the ground in Romania, Gabriel found a new point man in seasoned engineer Richard Hill, who was hired in July 2003 to be Gabriel’s vice-president of operations and RMGC’s managing director. Hill was previously the general manager of Australian Magnesium and a manager of international projects for Normandy Mining.
Hill immediately got to work building up Gabriel’s Romanian management team, which had been weak. He has since overseen the establishment and reorganization of several departments in Romania: public and press relations; community relations; permitting and compliance management; and finance and administration. Departments soon to be added include human resources and production.
Speaking at a presentation in Toronto, Hill said “fundamentally, we’ve moved to establish Romanian management because they are important in understanding the Romanian psyche. But they all have international experience in Western companies, so we’re not building a Romanian company per se; we’re building a modern Western company operating in Romania.”
He said communism in Romania from 1947 to 1989 had wrought terrible social and economic damage on the country.
“Romania is not North America, it’s not Australia, it’s not even Chile. Even after fifteen years, the hangover of old ways needs to be kept in mind when contemplating the development of a project of such promise and size as Rosia Montana.”
Roman conquest
The village of Rosia Montana has a history of gold mining that dates back at least to the conquest of the area in 106 AD by Roman troops under Emperor Trajan.
Gold mining continues to the present day in the form of two small, money-losing open pits at Cetate (gold) and Rosia Poieni (gold and copper), which are owned and operated by Deva-based Minvest. At Cetate, Minvest mines about 200,000 tonnes per year, producing 11,000 oz. gold annually. The company employs about 700 people at its Rosia Montana unit.
(Minvest, one of six state-owned mining companies in Romania, operates four mines in the Golden Quadrilateral. Between 1995 and 2000, Minvest closed 18 mines and two processing plants, and slashed its workforce by 65% to 12,600.)
As well, there is some subsistence agriculture in and around the villages of the Rosia Montana area, but soil is scarce on the hilltops.
“When you hear that Rosia Montana is an agricultural area, don’t believe it,” said Hill. “Although there are a few farms, the whole valley has relied on gold mining for pretty well the past two-thousand years.”
“Geographically and emotionally, Romania is really much more part of Europe than [it is of] the East,” he added. “Going forward, Romanians see it as important that they become part of the European Union, while, at the same time, the EU is very cautious about letting in new members that don’t have a functioning market economy.”
To help ensure Romania is successful in its bid to enter the EU (possibly in 2007), RMGC is taking the extra step of making all aspects of Rosia Montana compliant with both Romanian and EU regulations.
Hill pointed out that, as Romania restructures its economy in preparation for entering the EU, the government will have to stop funding heavily subsidized operations such as Cetate and Rosia Poieni. In that context, he said, the Rosia Montana project is “really the only prospect available in the village, and anyone who might tell you different is having you on. There’s very high unemployment in the area, and those who have an opportunity already tend to leave the village.”
Hill described the existing housing as “tatty” and the general area as “pretty degraded.
“The Rosia Montana stream runs at a pH of about 2, the infrastructure is all broken down and you’re lucky if you get running water in the village of Rosia Montana one day in three.”
Resettlement
There are two central dilemmas: about 2,000 people in Rosia Montana and a few neighbouring villages need to be moved; and environmentalists and other groups continue to voice their opposition to the project.
Resettlement and relocation have been slow by Western standards, owing to the complexities of title verification in a rural society where private property was outlawed for more than four decades.
RMGC has so far bought 38% of the 2,000 or so properties it needs to acquire, divided roughly equally between residential and business properties.
The compensation rate for the basic house structure is 4.6 million lei per sq. metre, plus 995,000 to 3 million lei depending on the quality of the dwelling (1 million Romanian lei currently equals about US$31, and the average annual income per household in the area is 59 million lei).
At last count, the company had surveyed about 95% of the required properties and verified the titles of 62%.
“The process of title verification has been very time-consuming indeed,” commented Hill. “It’s quite a complex jigsaw, but it is getting better.”
For instance, RMGC’s numerous Romanian lawyers have at times had to pore over handwritten, Hungarian-language title documents that date back to before the First World War, when Transylvania was part of the Austro-Hungarian empire.
Furthermore, single properties may require up to 15 court hearings before a title verification is completed, though the government has created some incentives to help speed up the court system.
Another delaying factor is that, even when a title has been verified, RMGC waits until a single individual has had all his titles verified before striking a single deal on all the properties.
Expropriation remains a sensitive topic for many Romanians, owing to the forced evictions of peasants during the communist era. As a result, RMGC considers expropriation a last resort, to be used only when no amicable agreement can be reached.
Generally, those who were first in selling their properties to RMGC opted to take the cash and move out of town (or “relocate,” in planning jargon). Commented Hill: “What we’ve stripped off the tree so far is the low-hanging fruit.”
The next batch of sellers will be more likely to “resettle” — more or less swap their property for one in either of the two new towns that RMGC has agreed to build from the ground up: a new village replacing Rosia Montana, to be built nearby at Piatra Alba; and a new village to be built beside Alba Iulia, 80 km away. In all, about 1,000 people may be resettled.
RMGC will soon begin building an access road to the 1.9-sq.-km site at Piatra Alba. Shortly thereafter, the company can start putting in the houses and other public facilites. Said Hill: “Once that process starts happening, seeing will be believing.”
Also, while RMGC is not buying businesses in the affected area, it is offering compensation packages to 33 qualified business owners, who can choose one of three options: a US$3,000 lump sum; the business’s turnover in 2001 plus 20%; or five times the business’s gross profits in 2001 plus 20%.
RMGC plans to make small-business loans and is chipping in a maximum of US$1,000 per family to assist members in acquiring new job-related skills or improve on existing ones.
All told, RMGC expects its resettlement and relocation plan to cost more than US$60 million.
Hill said RMGC has made a big effort over the past six months to improve its image: “The project’s had a tortuous history. Our job is to create the impression and the reality that this is a great development. Then government will follow when they’re comfortable we’re moving in the right direction.”
The next major step will be environmental approval, which may take less than a year. Construction is to begin in the second quarter of 2005, assuming Gabriel makes good progress acquiring the rest of the properties.
There will be local elections in June, as well as national and presidential elections on Nov. 28. Any second round in the presidential election would take place in December so that by Christmastime the country’s political situation will be much clearer.
Nationally, Gabriel has the support of the national trade union that represents all miners in the country but not of the far-right, nationalist Greater Romania Party, which opposes the control of mineral assets by foreigners. The party polled second place to the ex-communist Social Democrats in the 2000 elections but is not expected to win control of the government or presidency this year.
In terms of non-governmental organizations (NGOs), there are two in the local area: Pro Rosia, which supports the project, and Albernus Maior, which Hill described as “uniformly and aggressively negative” toward it.
Named after the Roman-era town that was founded at Rosia Montana, Albernus Maior has been well-funded and organized since its founding in 2000, and promotes its messages at its web site, www.rosiamontana.org.
(“Not even if they physically forced me would I move,” Albernus Maior’s president, Eugen David, a Rosia Montana local, recently told John Nadler of the Ottawa Citizen.)
“The reality is, Albernus Maior has successfully done quite a good job of filling up the available media space,” said Hill. “What we’ve been trying to do in the last six months is push them out of that space and fill it with our own story, because it’s a very good one. The process is slow, but we’re going to keep chipping away at it.”
As part of this effort, RMGC counters with its own web site at www.rosiamontanagoldcorp.com.
There are few NGOs on a national level in Romania, yet the “European landscape in regards to the NGOs is very important,” says Hill.
One of the most important NGOs in Europe opposing Rosia Montana is the Regional Environmental Centre for Central and Eastern Europe, based in Budapest. Others include the World Wildlife Fund and Greenpeace.
In particular, the Hungarians, because of their proximity and the fact that the Danube flows past their front doorstep, are sensitive about large mining projects using cyanide.
Especially fresh in Hungarian minds is a cyanide spill that occurred in 2000 at the Baia Mare gold mine, operated in northern Romania by Australian junior Esmeralda Exploration and the Romanian government. Cyanide from an overflowing tailings dam found its way into the Lupes and Somes Rivers and eventually, much-diluted, into the Tisza and the Danube.
RMGC has taken note of this cyanide sensitivity among Europeans and added a US$4-million, cyanide-destruction circuit to its process-plant design. This circuit will use the SO2/air process to eliminate any concerns associated with discharging cyanide into the tailings-containment area. Also to be added is a US$4-million plant to treat acid-rock drainage.
As a result of making sure the project meets World Bank guidelines, EU directives, and Romanian laws and regulations, Gabriel is confident Rosia Montana will be “one of the most environmentally friendly mines in Europe.”
(The strength of the environmental movement should not be underestimated in Romania: a couple of years ago, various environmentalists, including the Prince of Wales, helped kill a proposal to build a US$30-million Dracula theme park in the medieval Transylvanian town of Sighisoara, where Vlad II, “the Impaler” (1431-76), the Wallachian prince and inspiration for Bram Stoker’s Dracula, had lived.)
Hill said the Romanian media are “a difficult scene — with some media, you can guarantee that their coverage of us will be uniformly negative, and you have to wonder why that is.”
He said RMGC’s overall approach is to “challenge some of the myths and replace rumour and innuendo with fact. In time, we hope our opponents will understand that we are a responsible company that takes its social responsibilities seriously.”
EU delegation
Even the European parliament got into the action at Rosia Montana by sending a small delegation on a fact-finding tour in December 2003. While remaining studiously neutral on whether or not the project is a good idea, the delegation did note that it is “controversial” and “arouses strong opposition as well as support within Romania.”
Like many who practice a perverse form of ancestor worship, the delegation wondered about the impact of the project on the “remarkable industrial archeological heritage of the Rosia Montana area, with its set of Roman and other mine galleries . . .”
The delegation noted that while a special, 13-member joint commission of the Romanian parliament had come out in favour of Rosia Montana in a draft report (there were only three dissenting votes), the Romanian Academy of Science adopted a “severely critical” study of the project in May 2003.
“The delegation was able to see for itself that the village of Rosia Montana was seriously polarized on the issue,” wrote the delegation in its summary notes. “This also applied to the two parliamentarians from the Apuseni Mountains who were members of the special committee . . . and the local politicians, . . . with the mayor of Rosia Montana being in favour (after having initially opposed the project) and other local mayors being more hostile.”
The delegation listed some of the concerns of the project’s opponents, including:
— dissatisfaction with the “relatively short duration” of the project and the “unsustainable” jobs it will produce;
— fear over the use of cyanide;
— uneasiness over the stability of the proposed 180-metre-high tailings dam, which would be only a few kilometres upstream from the main local centre of Abrud; and
— the contention that too few of the profits will go to the Romanian government.
“Not everybody supports this project; that’s absolutely true,” concurred Hushovd. “There is definitely a cost in terms of emotion: yes, you have to sacrifice; some people have to move; and you have to move some graveyards, and so on.”
Best argument
He said the best argument for building the mine is the employment it will create: about 500 new jobs in direct mining activities, peaking at 2,000 during the construction phase.
“Unless the Rosia Montana project is realized, the valley will die within a couple of years, because there is simply no alternative source of income.”
Most importantly, Hushovd said, Rosia Montana will be an “activity that can stand on its own two feet. It’s actually going to be a positive contributor to the [government’s] budget, as opposed to the mining they have seen so far, which has been basically a drag on the budget.”
Regarding the French archeologists from Toulouse whose work Gabriel is funding, Hushovd said “people think we’re doing this because we’re looking for all these artifacts, but that’s not the point — this [area] has been mined for two-thousand years, so whatever artifacts were there would have been picked up.” Instead, the object of the exercise is to “try to find out, on a scientific basis, how this was mined over a period of time and to learn what was actually done here. Today, it’s just bits and pieces of many centuries of work.”
Gabriel has agreed to preserve in situ a circular funerary structure identified in 2002. The structure is situated away from the areas required for mining and processing.
Following the approval of the National Archaeological Commission in December 2002, the Romanian minister of culture issued an archeological discharge certificate to RMGC for the balance of the project’s initial pits, plant site and associated infrastructure, as well as the area in the Corna Valley required for the tailings facility.
Hushovd said it is crucial that the project’s reserves be expanded and that that is why Gabriel is putting such emphasis on its ongoing drilling.
“It wouldn’t take much to extend the current envisaged mine life by another five to ten years, but it would have an enormous impact on the economics of the project,” said Hushovd. For instance, he expects the current capital cost of US$41 per reserve ounce to fall to around the US$35-per-oz. range as new reserves are added.
Gabriel’s geological consultant, Julian Barnes, says Rosia Montana has a “robust resource on a global scale” and that he has “sufficient data on the deposit to put you to sleep every night for the rest of you life.”
He emphasized that there is a significant increase in contained gold and silver when cutoff grades are reduced. For instance, dropping the cutoff from 0.6 to 0.4 gram gold increases the global resource by an astounding 2.9 million oz. gold and 17.9 million oz. silver in 582 million tonnes grading 1.02 grams gold and 5 grams silver — equivalent to 19 million contained ounces gold and 91.2 contained ounces silver.
“The final size of Rosia Montana is still to be determined,” concludes Barnes. “It’s a work in progress, and I don’t think I’d be exaggerating to say it will definitely increase.”
Conceptually at least, Gabriel remains a prime takeover target for a gold major in that the junior is one of the few to hold an asset large enough make a significant addition to a major’s production profile.
While many majors have come to Rosia Montana to kick the tires, the lack of a serious suitor in the past six years is a strong indication that more of the project’s social issues will need to be resolved before Gabriel shareholders can cash in a sweet takeover premium.
Shareholders are also aware that a recent survey by NGO Transparency International found that Romania is widely perceived to be one of the most corrupt countries in the world.
I’m a trial member when I search best JR silver mining companies why is the first article I get is Gabriel Mining article dated 2004. So outdated what is it even pulling up, no help at all!
Hi Richard, thanks for your feedback on the search function. Currently the search is based mostly on a match to headlines we have published, so I’d recommend you search for “silver junior” to find headlines with those key words. “Best” isn’t a word that we use a lot in our headlines because we don’t do stock recommendations, just news, commentary and analysis. I hope that helps.