Precious Metals Summit re-cap part II: Gabriel gathers mommentum

The trials and tribulations of Gabriel Resources (GBU-T) and its Rosia Montana project have been well documented over the years.

Indeed tapping the incredible mineral wealth of the project has been a cumbersome process for the company as NGO’s and shifting moods in the halls of government have persisted in stalling the development of the world class deposits.

But with the arrival of Jonathon Henry as chief executive in the summer of 2010, the company has been gathering some positive momentum, and the issuance of the key environmental permit the company needs to forge ahead may not be as far away as some investors believe.

“It’s all about permitting right now and to get it done we must show the Romanian government how good this project is for both them and for the people,” Henry told an audience at the Precious Metals Summit in Vail, Colorado. “I have to say that over the last little while I believe they are getting that message.”

His confidence in the change in attitude in both government offices and amongst the general populace leads him to believe that the issuance of the permit could come in three to six months time.

If that happens, Rosia Montana and the area around it are likely set to become known as one of Europe’s most important mining districts.

Evidence for that can be found in the project’s proven and probable reserves of 215 million tonnes grading 1.46 grams gold and 6.88 grams silver for 10.1 million oz. of gold and 47.6 million oz. of silver.

Those reserves are part of a larger measured and indicated resource of 350 million tonnes grading 1.3 grams gold and 6.0 grams silver for 14.6 million oz. of gold and 64.9 million oz. of silver.

Those numbers come out of a 2009 technical report, and while they show Rosia Montana to be a world class project, Henry says there are many more easy ounces to be had.

“This project isn’t a 15 million ounce project, it’s a 30 million ounce project,” he says. “And that’s because the cut-off grade can be lowered from the 0.6 grams gold and 10.50 grams silver used in the last estimate. And that estimate used a gold price of just US$735 per oz.”

As it stands now, the company has conceived a mine that would cost $1 billion to build and would turn out 500,000 oz. of gold per year with cash costs of US$335 per oz. and an initial16-year mine life. Henry believes, however, that the mine life will go up to 25 years by the time all is said and done

Such low cash costs put the project into the lowest quartile of gold development projects and will help it to generate free cash flows of roughly $500 million a year over 16 years.

A future mine would be made up of four open pits, for which the company already has archeological discharge permits for three.

Henry says it hasn’t pushed to get the clearance on the fourth pit because it wouldn’t be mined until the ninth year of production.

Mining would consist of a straightforward truck and shovel operation with ore being processed in a standard CIL facility that would extract gold recoveries of 80% and silver recoveries of 60%.

But, Henry says, a lot of work can be done on those recovery numbers as the metallurgical work comes out of a report from back in 2005.

“I believe we can improve recoveries with Nelson concentrators, and we’re doing better on the gravity circuit,” he says. “We’re looking at that internally.”

But while all of the metrics point to a robust project investors have been slow to warm to the story because of uncertainty on the permitting front.

Such market opinion comes in spite of the fact that the company has undeniably been generating positive momentum of late.

There were the aforementioned archeological discharge permits that were issued in July of this year, there’s been a measured improvement in public opinion regarding the project (only 19% of the Romanian public approved of the project in 2008 and now that number is above 50%), and perhaps most importantly of all, there is a renewed willingness on the part of the government to get the project into production.

Henry credits the last change to the Romanian government coming in as a shareholder in the project.

“Previously it was thought of as a foreign company developing a mine,” he explains. “The Romanian-ization of this project is the reason why we have been successful of late.”

The Romanian government has a 20% stake in the project, with Gabriel retaining the remaining 80%.

There is also little doubt that such an improved impression of the project is being supported by the current economic conditions in the country.

Henry points out that in order to join the European Union (EU) Romania was forced to shut down most of its unregulated mines. The situation resulted in the laying off of a substantial amount of people with mining experience.

Indeed the unemployment rate in the Rosia Montana area rings in at a staggering 80% and given such circumstances, more and more people are coming to see mining as way to help kick-start the Romanian economy.

That doesn’t mean that it’s all smooth sailing from here on out, however.

“There’s talk about increasing the royalty and a re-negotiation of our contract,” Henry concedes. “It’s not easy but the important thing is that the government wants to make this mine happen and that in-and-of-itself represents a sea change. “

A mine at the site would also represent the first time modern mining techniques were used in Romania and Henry says the company plans to build a model mine for all of Europe.

To do that it will use best techniques as outlined by EU guidelines, or better. The tailings dam for instance, is being designed to meet higher standards than what the EU calls for.

Other key efforts being pursued to promote a sustainable development are evident in the work it has done to re-invigorate heritage buildings in the nearby community and its commitment to plant four hectares of forest for every hectare that is taken down for mine construction.

In all, Henry says, Gabriel has already spent $500 million on developing the project.