Monday, May 7, 2012

Clouds hang over gold mine plans in Romania

By Mihaela Rodina (AFP)

BUCHAREST — Plans by the Canadian company Gabriel Resources to open a gold mine at Rosia Montana in Romania might be hampered by a centre-left cabinet which is to take office on Monday, analysts say.

"The Rosia Montana project will be reassessed in a transparent way so that decisions are in line with the national interest, environment protection regulations and European legislation," the new government's economic programme says.

Prime minister-designate Victor Ponta has already threatened to block the project once he comes to power.

The Canadian firm which owns 80 percent of the Rosia Montana Gold Corporation -- the Romanian state holds the balance -- plans to extract 300 tonnes of gold and 1,600 tonnes of silver over 16 years in Rosia Montana, a village thought to lie on Europe's largest gold deposits.

"I expect Ponta will change his stand on this major investment once he takes office," financial analyst Ionel Blanculescu told AFP.

"But there will be no decision on Rosia Montana until the general elections due in November," he added, explaining that the topic was too sensitive.

Gabriel Resources chief executive Jonathan Henry said Romania had a lot to gain from the mine.

"We have over $30 billion of economic benefits that come out of this project and remain in Romania," Henry told AFP in an interview.

"This equates to somewhere between 70 and 90 percent of the total benefits."

The figure is seven times higher than the amount initially promised by Gabriel Resources, but Henry stressed that this was the result of the investment's multiplying effect and contingent on gold prices going up.

"This is an exaggeration," said Afrodita Iorgulescu, a professor at the Academy of Economic Studies and head of an opposition group.

"The multiplying effect in mining is not the same as in other industries, such as machine building."

Nearly 15 years after it first embarked on a project that is estimated to cost $1.7 billion, Gabriel Resources is still waiting for a key environmental permit.

And a recent court ruling invalidated a zoning plan, placing another obstacle in the way of the permit process.

Outgoing environment minister Attila Korodi said the review by a technical commission should be suspended until a new certificate was obtained.

But Henry did not share his view: "The advice I received is that we have all of the requisite licences and permits in place to continue with the commission review."

He admitted however that the fall of the centre-right government, considered more favourable to the mine, had complicated things.

"Our shareholders see far more risks in investment in Romania now than they did previously and that reflects in the share price," which has plummeted over the last few days, Henry said.

"We need to make sure the new government understands fully what this project means to Romania," he added.

Opponents including environmentalists, archaeologists, historians and international organisations say that the open-cast mine, which would use 12,000 tonnes of cyanide a year in a leaching process, threatens the environment and Roman-era mining galleries.

They also argue that the project would lead to the partial destruction of four mountains surrounding the village and damage part of the galleries, unique in Europe.

But Henry insisted that the plan would meet the highest Romanian and European standards.

The Gabriel Resources CEO stressed that his company would also respect a Romanian demand to lower cyanide levels in the tailings pond to below three milligrams per litre (mg/litre), compared with a 10 mg/litre EU limit or up to five mg/litre in a cup of coffee.

He said the firm had already spent more than $450 milllion in exploration, engineering, feasibility, environmental study and employment.

Some $25 million alone has gone since 2009 to the company's communication strategy.

"This was not cheap," he said. But apparently it paid off, as the project's approval rating surged from 15 to over 50 percent, he said.

Rights groups however say the campaign has blocked all debate on the topic in the media, with journalists under pressure from the investor.

Responding to calls for a renegotiation of the deal so that Romania gets a bigger share of the profits, Henry said the firm was open to dialogue on equity participation and royalty rates.

But he stressed: "The current 4.0-percent royalty rate is extremely competitive. Pushing it to 8.0 percent, as the outgoing cabinet had planned to do in December, would make the country uncompetitive."

Although the permit process is dragging on, Gabriel Resources does not intend to throw in the towel.

"Our licence expires in June 2019. Our shareholders would be disappointed if nothing happened until 2019 but we can renew the licence for five years," he said.

"All we ask is a fair hearing so the true facts are understood."

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