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Gabriel sees a ray of light at Rosia Montana

Gabriel Resources (TSX:GBU) may see a positive development at its delayed Rosia Montana gold-silver deposit in west-central Romania as the government recently highlighted the asset in its new plan to attract foreign investment, with parliament...



Gabriel Resources (TSX:GBU) may see a positive development at its delayed Rosia Montana gold-silver deposit in west-central Romania as the government recently highlighted the asset in its new plan to attract foreign investment, with parliament expected to vote on the project this fall.

In a recent market update, Gabriel says as part of the country’s efforts to revive its economy, Romania’s Prime Minister Victor Ponta aims to secure commitments of €10 billion ($13.5 billion) and create more than 50,000 jobs in five fields by year end. One of those sectors is mineral resources, where Ponta intends to focus on seven resource projects, including Rosia Montana to help reach his targets.

Local media have reported that Ponta said his government would advance the controversial project — awaiting a key environmental permit to begin construction — only if parliament votes in favour of doing so. Ponta estimates a new bill relating to the project will be drafted by the time parliament reconvenes in September.

While Gabriel says it is “highly encouraged” about being included in Romania’s national investment plan, it cautions it’s still in talks with the government regarding Rosia Montana’s ownership structure and the royalty rate on future gold and silver sales.

Currently, the government aims to lift its stake in the project to a maximum of 25%, from 19.31%, and royalty rate on sales to 6% from the existing 4%. (The company currently owns 80.69% of the deposit through its equity stake in Rosia Montana Gold Corp.)

Assuming these changes are made, the government predicts that “the net economic benefit of the project to Romania is up to 78% of the value created by project expenditures and direct benefits, contrary to media statements that Romania expects 78% of project ‘revenues’,” comments John Hayes, a BMO Nesbitt Burns analyst.

Gabriel predicts the project will contribute over US$24 billion (using a US$1,200 per oz gold price) to the country’s gross domestic product through direct and indirect costs. The junior filed an environmental impact assessment (EIA) of the project with the Ministry of Environment in May 2006. But the government suspended the review of the document in late 2007, but resumed it in late 2010, with approval still pending.

“While the permitting process timing remains unclear, BMO Research expects the technical review needed for the EIA approval would be finalized before the project is voted on in the fall,” Hayes adds.

The project shares the same name as the Rosia Montana community, comprising 16 villages in the Golden Quadrilateral district in the south Apuseni Mountains of Transylvania. Gabriel notes the Rosia Montana concession area, affected four of those villages, when it was mined as an open pit operation by a state company until 2006, before closing down.

Gabriel envisions bringing the deposit back into production as an open pit operation that would generate 500,000 oz of gold a year throughout an estimated 16-year life.

It notes after receiving the EIA that it would take another year to obtain the initial construction permits, secure enough funds and obtain the outstanding surface rights to start developing the mine, estimated to take 30 months and roughly US$1.4 billion to construct.

Rosia Montana has reserves of 214.9 million tonnes grading 1.46 g/t Au and 6.88 g/t Ag for 10.1 million oz of gold and 47.6 million oz of silver.

Gabriel closed July 12 at $1.47 within a 52-week range of $1.11–$2.94.

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