Cold winds blow in Romania for Gabriel

Gabriel Resources (GBU-T, GBRRF-O) is slashing jobs and ending its land acquisition program at Europe’s largest undeveloped gold project as it becomes clearer that the current government has little interest in letting its Rosia Montana gold project go forward.

The best hope now for the project is that the ruling coalition — which Gabriel accuses of not playing by the rules in its suspension of the environmental impact assessment (EIA) process — will be ousted in or before elections next November.

“We need a government that will follow the rule of law,” says Gabriel spokesperson Kathy Sipos. “There are a lot of political games being played and we need to ride out these waves.”

The current ruling coalition is composed of the Liberal party and an ethnic Hungarian party — ethnic Hungarians make up roughly 7% of the total Romanian population — and controls about 23% of the seats in parliament.

Sipos says the Democratic party of the country, which recently won an election to choose the Romanian representative for the European Union, has expressed support for the project.

Still, however fragile the current government’s hold on power is, it has been strong enough to thwart Gabriel, and in the process, deter other resource investors.

“Our project is the bellwether for future foreign investment in the country and by not having it go forward, they’re really cutting off the mining industry in the country,” Sipos says.

With an exploration project of its own in Romania — the Rovina gold-copper property — that’s a sentiment that Carpathian Gold’s (CPN-T, CPNFF-O) chief executive Dino Titaro agrees with.

“In terms of the market, the perception is you cannot mine in Romania, and that is a strong market conception right now and it’s making it a very difficult period for Gabriel and ourselves,” Titaro says.

Although Carpathian hasn’t yet had to go through the permitting processes that have stopped Gabriel since it is still in the exploration stage, Titaro explains that the company has nonetheless seen its share price fall by over 110% — from $1.16 in early September to a recent close of 55.

In that same period, Gabriel’s shares fell more than $2 — from $3.59 at the beginning of September to just $1.49 three months later.

The dire situation has left Gabriel to continue minimal operations with a skeleton staff. It had to cut roughly two-thirds of the 325 full-time jobs at the project. The company has also stopped its land acquisition program after buying 73% of the properties in the project area.

“Provided the rule of law comes back into play,” Sipos says, “there’s no question in our minds that this mine will get built and we look forward to hiring these people back.”

Gabriel has also filed a lawsuit against the Ministry of Environment with the Bucharest Court of Appeal in an effort to restart the EIA process. The company’s lawyers have told Gabriel that a decision from the court could come in three to four months, but that timeframe isn’t assured.

For the EIA process to go forward, the Ministry of Environment has to reconvene the technical advisory committee carrying out the review.

But even if Gabriel wins its court case, it still may have to contend with a complete ban of cyanide in the country — something that would make the mine uneconomic. A bill calling for a cyanide ban, sponsored by a senator from the ethnic Hungarian party, is making its way through parliament and some politicians are pushing for a ban to extend to all of the European Union.

To be successful, it would have to reverse conclusions found in a 6-year EU study on mine waste. The Council of Europe and the European Parliament issued a mine waste directive for the use of cyanide that Rosia Montana would fall well within — the Council called for a cyanide limit of 50 parts per million (ppm) while Gabriel says its tailings dam would come in at 10 ppm.

Sipos says those pushing for the outright ban currently have 50 of the 390 votes they would need to pass it.

But fears of environmental damage as a result of a cyanide leak are only part of the opposition to the project. Hungarians consider the area Rosia Montana sits in to be rightfully theirs, hence the opposition to the project from the ethnic Hungarian party within Romania. And others complain that drilling at the mine would destroy ancient Roman mine sites in the region.

Such sites may, however, be in more jeopardy now, since along with the job cuts, Gabriel says it will have to cut its archaeological rescue program aimed at preserving such historic workings.

Gabriel, which has spent roughly $300 million developing the project, says it will continue its educational and youth partnership programs. The company still has roughly $177 million in the bank — enough, Sipos says, to give it staying power.

“We’re OK on the financial side,” she says, “we’re not planning on going away.”

Gabriel has an 80% stake in Rosia Montana, with the government holding 19%. The project has roughly 350 million tonnes of ore in the measured and indicated categories with an average grade of 1.3 grams gold per tonne for 14.6 million oz. gold and 65 million oz. silver.