Gabriel takes one step forward, two steps back

Just when Gabriel Resources (TSX: GBU; US-OTC: GBRRF) looked to be getting new traction on developing the Rosia Montana gold mine in Romania, a spate of protests appears to have turned the country’s prime minister against the project.

After announcing that the government had approved a draft legislation paving the way to develop a mine, the long-troubled project was thrown back into uncertainty by new comments from Prime Minister Victor Ponta.

Ponta was reportedly swayed by protestors in the nation’s capital and will now look to halt parliamentary debate of the draft legislation, which requires parliament’s approval to pass, with the aim of stopping Gabriel’s mine development entirely.

Gabriel says it is seeking confirmation of the comments.

The company’s stock was hammered by the news. After finishing August in the $1.70 range, its stock fell to 41¢ on Sept. 9. At press time it managed a slight recovery, trading for 87¢.

The plunge came just a day after 2,500 people took to the streets of Bucharest angered by the government declaring the project a “special national interest” in the draft legislation — a classification meant to speed-up development.

The latest setback is just one of many in the company’s 14-year odyssey to get the permits to build Europe’s largest gold mine.

Activists around the world contend the project would hurt historical buildings and damage the environment, despite Gabriel taking on great costs to outline a project that is built to high environmental standards and preserves the area’s cultural heritage.

And while much of the latest protests centered on the proposed use of cyanide during extraction, there could also be a good dose of resource nationalism involved, as the idea of a Toronto-based company taking ore out of Romanian ground could be hard to swallow for many in the former communist country.

But the prime minister’s comments are an astonishing about-face, as it was only on Aug. 27 that the government approved the draft legislation, and recent polls showed growing support for the project in a country desperate for economic development.

But Ponta said he would look for other ways to find jobs in the area.

If the draft bill is rejected, Gabriel would likely have to turn to a lawsuit against the government for breach of international investment treaties.

Some details of the draft legislation include giving the government a larger share of the project and a higher royalty.

On the equity interest side, Gabriel would transfer 5.69% of its share in the joint venture (JV) that controls the project to the Romanian state. The state is a minority shareholder, and the transfer would result in the project being held 75% by Gabriel and 25% by the state.

As for the mining royalty, it would increase to 6% of revenues from the current 4%, and the state would have the option of taking payment in the form of gold bullion.

The legislation also touched upon other aspects of the development.

It outlined how Gabriel and the JV would preserve cultural heritage, ensure environmental protection and eliminate historical pollution, and that it would declare the project as being one of public utility and overriding national public interest.

Gabriel says the project would create 2,300 jobs in the construction phase, 900 in the operational phase and deliver considerable cash flows into the government coffers.

Rosia Montana has measured and indicated resources of 512.7 million tonnes grading 1.04 grams gold and 5 grams silver, for 17.14 million contained oz. gold and 81.12 million oz. silver.