Tuesday, March 10, 2009

Gabriel Resources –Romania’s new regime and how it may affect Rosia Montana

by Sam Kiri

Political wrangling is never good for business. Political wrangling surrounding mining projects be in Africa or in the US, is particularly bad for business. In the midst of Europe in Romania, which has over a century of mining history and is in dire needs for foreign investment, political wrangling has caused unnecessary delays for an attractive project. Changing political winds in Romania may prove to be a happy development for Toronto listed Gabriel Resources (TSX: GBU).

Located in west-central Romania in a historic mining district known as the Golden Quadrilateral, the Rosia Montana deposits are surrounded by a spatially extensive zone of intense hydrothermal alteration. The mineralized intrusives and breccia pipes are topographic highs making them ideal for large scale open pit mining with low strip ratio. These deposits collectively represent a major world-class, under-developed resource, arguably the largest in Europe.

The deposit has been mined since Roman occupation and the area is no stranger to mining projects. GBU has of course followed rigorous Canadian mining and environmental standards. Other notable measures include the construction of the Alba Iulia resettlement site with 123 homes including the necessary infrastructure. The resettlement site and homes are expected to be completed and transferred to their new owners during the first two quarters of 2009.

Despite these measures taken by GBU, the Romanian Ministry of Environment and Sustainable Development (MESD) unilaterally suspended the Technical Assessment Committee (TAC) meetings in September 2007, asserting a linkage between a minor procedural certificate and the EIA process that lacks any basis in law. This was in response to opposition from usual do-gooders in foreign funded NGO’s, certain Romanian organizations and some members of the Hungarian Government. The decision stalled the Project's Environmental Impact Assessment (the EIA).

While seeking necessary legal redress to get the project on track GBU continued other activities such as the construction of resettlement sites, numerous social projects as well placing orders for long-lead time equipment. In fact, a total of $23.2 million was spent on development projects during the quarter, while $75.8 million was spent during 2008. Admirably, MESD actions have failed to dampen spirits of GBU management!

Now the question arises, why are we discussing an apparently stalled project? Well, matters are changing in Romania following the National Elections in November 2008. The new coalition government that was formed shortly afterwards comprises the two major parties that formed the opposition in the previous government. One of the main parties in the previous government, which happens to like do-gooder NGO’s with a penchant to bash mining projects is now in the opposition!

Perhaps it is appropriate to explain the composition of the current coalition government vis-à-vis the previous one. The new government comprises the Democrat-Liberal Party ("PDL") and the Social Democrat Party ("PSD"), the two largest parties in the country, and enjoys over 70 percent of the electoral seats in the new Parliament. This starkly contrasts with the position of the government which enjoyed a miserly 23 percent of the Parliament. Romania’s UDMR party which held the Ministry of the Environment and Sustainable Development at that time is now in the opposition.

GBU has always stayed well-clear of political parties and has not formed any alliances of any sort. After all, the company is in the business of mining and not equipped to bounce through vagaries of local politics. The company, as per their mandate from investors, have followed all local and Canadian laws, mining standards and practices. GBU is merely a victim of local politics.

However, GBU is aware of Romania’s dire financial needs and thankfully so is the new coalition. The company has maintained cordial relationships with both PDL and PSD. Mindful of its numerous benefits to the local economy and the populace, the local mayor, other social organisations in the area as well as many politicians have expressed their support for Rosia Montana. It appears all set to restart the TAC process under the new regime.

In anticipation of an imminent revival of the permitting process, GBU has ambitious plans in place for Rosia Montana. Once the process restarts and in the absence of any other extraordinary events, legal or otherwise, GBU intends to complete the EIA approval process, the purchase of the outstanding properties, receive all other permits including initial construction permits and complete the financing during the first 6 months. Once construction of the mine begins it is expected to take approximately 24 months to complete.

Readers might notice we have discussed little about Rosia Montana itself. Well, GBU has become a play on Romanian politics rather than a gold play. Happily however, Romanian politics appear to be moving in the right direction. At last, the country has a government with a clear 70% majority as opposed to an outfit with 23% parliamentary seats! GBU story it appears is unfolding well at the moment.

What about Rosia Montana itself? The project has a proven reserve of 112.455 million tonnes grading 1.63 g/t gold (5.893 million Oz contained gold) and 9.0 g/t silver (32.54 million Oz contained silver). Rosia Montana also has a probable reserve of 102.476 million tonnes grading 1.27 g/t gold (4.184 Oz contained gold) and 4.6 g/t silver (4.184 million Oz contained silver). The Project is estimated to produce 626,000 ounces of gold annually during its first five years of operation and an average of 511,000 ounces per year over its 16 year mine life. The estimated total cash cost to produce gold over the first five years is estimated at US$272 per ounce and is expected to average US$335 per ounce over the life of the Project. Rosia Montana has an extremely attractive strip ratio of 1.

Proactive Investors have discussed Politics and their impact on natural resources projects in the past including highly controversial issues such as the Sakhalin II acquisition, Kovykta acquisition, Kazakhstan oil contract review, DRC Mining contract review and Venezuela’s political shenanigans and their effect on oil and gas contracts. GBU’s Rosia Montana is just another example of how local politics could throw a spanner into the work. Unlike many others though, Rosia Montana appears to be heading towards a happy ending.

About Gabriel Resources

Gabriel Resources is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project.

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