Gabriel soars on Newmont subscription (August 30, 2004)

Shares in Gabriel Resources (GBU-T) shot up as much as 54% to $2 in mid-afternoon trading in Toronto on Aug. 30, after the company announced a $24.8-million private placement deal with Newmont Mining (NEM-N).

Under the deal, Newmont’s Canadian subsidiary would purchase some 15 million units of Gabriel at a $1.65 apiece. Each unit includes one share accompanied by one purchase warrant, with each warrant good for an additional share at $2 each until the end of 2005.

The new shares would give the world’s biggest gold producer a 10.2% stake in the junior; fully exercised, the warrants would boost Newmont’s stake to 18.6%. The placement is expected to close by Sept. 13, subject to regulatory approval.

Also under the deal, Newmont is allowed to participate for up to 20% in any of Gabriel’s financings over the next five years, as long as it maintains at least a 10% stake in the company. Perhaps even more importantly, Newmont has agreed to lend a hand in the development, permitting and financing of the delayed Rosia Montana gold-silver project in Romania.

In May, Gabriel said construction at Rosia Montana would be delayed by about a year, as resettlement and relocation of the Rosia Montana village and construction of new town sites was taking longer than expected. Environmental permitting was also proving slow.

Net proceeds from the placement will go toward continued development of the 80%-owned project in the Golden Quadrilateral area of Romania’s Transylvania region, where the company has applied to the Alba County Council for an “urbanism” certificate; approval would set in motion the environmental permitting procedure, with submission of an already completed technical memorandum. Thereafter, the company would move to finalize an ongoing environmental impact assessment (EIA) for review and public consultation.

In mid-August, Gabriel said that permitting for construction of the resettlement sites at Piatra Alba and Alba Iulia was ongoing. At Piatra Alba, zoning and land ownership was being established; at Alba Iulia, Gabriel still needs to acquire one more property; archaeological clearance is expected sometime in the fourth quarter.

Rosia Montana, which has long been a target of protest, came under fire again earlier this week, with a group protestors marching some 140 km from the city of Cluj to Rosia Montana, visiting 20 villages along the way, reports Associated Press. The group fears the project will endanger the area’s environment and historical monuments. Gabriel counters that the operation will employ a cyanide-destruction circuit plus a plant to treat any acid-rock drainage.

The company is also currently reviewing its land needs now that fundamental engineering for the mine and plant are complete. In late June, the project’s exploitation license was reduced to better reflect the project’s smaller footprint and to accommodate some technical changes, including elimination of the gravity circuit (which the company figures amounts to about 1.9% of recovery) and adding additional leach retention capacity. The changes are expected to boost silver recovery to around 64.5% from 58.1%, while gold recovery is projected to slip slightly to about 80%.

Looking ahead, Gabriel plans to focus its attention on completion of the EIA, development of the resettlement sites, and completion of the current archaeological discharge program; further detailed engineering will be put on hold until permitting is more advanced. Clarification of legal titles to all properties that must be acquired to allow for construction continues.

The US$437 million project is expected to produce an average of 533,000 oz. gold annually at a total production cost of US$221 per oz., over 16.4 years. Ultimately, the operation would comprise four neighbouring pits — Cetate, Cirnic, Orlea and Jig.

At the end of 2003, measured and indicated resources (including reserves) at the Orlea and Igre-Tarina deposits came to 352 million tonnes grading 1.3 grams gold and 4 grams silver. Another 48 million tonnes running 1 gram gold and 4 grams silver are classified as inferred resources.