Friday, September 14, 2007

Gabriel suffers Romania setback

Grant Surridge And Peter Koven

Financial Post
Friday, September 14, 2007

Despite a "terrible" setback, analysts and company executives at Gabriel Resources Ltd. agree the Toronto-based miner will eventually get environmental approval for its Rosia Montana gold project in Romania.

Yesterday, Romania's Ministry of Environment halted a review of Gabriel's environmental assessment following opposition by non-governmental organizations, who are claiming one of Gabriel's documents is invalid.

The NGO challenge is a familiar situation that other mining companies are facing in areas as diverse as Latin America and Southeast Asia.

"It's terrible news, and it's very unfortunate," Gabriel's chief financial officer Richard Young said in a telephone interview from Romania. "This is a setback. We don't know whether it's a week, two weeks, a month or longer."

He added that the company remains confident yesterday's decision will be overturned, and that Gabriel will receive a construction permit for the mine.

But Haytham Hodaly, an analyst at Salman Partners, said this may not be the end of the company's problems.

"This specific one is just a delay. But if they're getting delayed on a simple submission like this, chances are they'll have more problems [from NGOs] going forward," he said.

Gabriel shares plunged as much as 44% at the start of trading yesterday. But they rose through the morning as the shock wore off and investors became more confident that the mine will eventually go forward. The stock ended the day at $2.80, down 21%.

The government suspended the review process following a court challenge led by two groups: a local NGO called Alburnus Maior, and Open Society Institute, a non-profit organization funded by controversial American activist George Soros. Mr. Young said that most of the opposition to Rosia Montana is from groups outside of Romania.

The groups allege that a document called the urbanism certificate, required to obtain the construction permit, is not valid.

Gabriel says that's incorrect, and that the document has nothing to do with the environmental review. The company says the certificate is simply an information document that lists other documents needed in order to get a construction permit.

Rosia Montana has been controversial since it was proposed in the late 1990s.

Locals and European environmental groups vehemently criticized the proposed open-pit gold mine, saying it would damage one of the world's most promising archeological sites and ruin the local environment. Gabriel argued it would create jobs and pump more than $2-billion into a country that receives little foreign investment.

Analysts said yesterday that they expect the project to eventually go forward, but the timing is highly uncertain. Gabriel is now expecting to pour gold in the first quarter of 2010.

"I think it will eventually clear, but it will take a lot longer than they expect," Mr. Hodaly said. "Every time they file for a permit, whether it's for construction or explosives or development, there could be an appeal on every single one."

Brian Christie, an analyst at National Bank Financial, rates the stock a "sector perform" with a target of $5.25 a share. "However, with the further delay in the project, we see our [net asset value] and target coming down," he wrote in a note to clients.

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