St. LOUIS (ResourceInvestor.com) -- Gabriel Resources Ltd. [TSX:GBU] has opted to scale back activities at the company’s 80%-owned Rosia Montana project in Romania until the Ministry of Environment recommences the review of the Environmental Impact Assessment Study (EIA), previously scheduled for receipt in summer 2007 - the most important element to proceed with development.
"There is no point in continuing with engineering, procurement of long-lead-time equipment, and full staffing given that most of the permitting activities have been stopped," said Gabriel Resources CEO Alan Hill in a statement.
This announcement follows last week’s decision by the Romania's Brasov regional Court of Appeal to annul archaeological discharge certificate no. 4/2004, also mandatory to begin work at the Rosia Montana project. The ruling is revocable and may be appealed before the Supreme Court, but the company is reviewing its options at present.
As a result of today’s decision, however, two-thirds of 325 full-time jobs will be cut. Kathy Sipos, investor relations representative for Gabriel, told RI that all work that can be done minus the environmental permitting has been done. She said the company will re-employ the workers once the government gets back on track.
The Environmental Impact Assessment was submitted to the Romanian Government in June 2006, but the Romanian Ministry of Environment decided in mid-September 2007 to suspend the review process for the company’s EIA based on opposition from environmentalist groups.
Alburnus Maior and George Soros’ Open Society Institute legally challenged Gabriel’s request for an urbanism certificate needed to apply for a construction permit. Gabriel responded in a press release that the urbanism certificate is not a permit or approval and cannot be legally challenged according to Romanian law.
On Sept. 21, Gabriel filed an Administrative Complaint with the government of Romania to no avail. The government refused to change its position so the company filed a lawsuit against the Ministry of Environment with the Bucharest Court of Appeal on Nov. 16.
Sipos said the company will have to wait for either a favourable court ruling or a change in the government to recommence activities. She indicated that a change in the government may come sooner, and Gabriel can then withdraw its lawsuit.
Romanian parliamentarians rejected a motion of No Confidence to bring down the government in early October. The motion was tabled by the main opposition party, the Social Democrats (PSD), until after the European Union elections. Sipos said another motion could come in late November or in December when the 2008 budget is decided. Romanian elections are scheduled for Nov. 2008.
With Romania now a part of the EU, Gabriel maintains that the project will be the first permitted under the European Union's new, more stringent, environmental laws. The company plans to help to remediate past damage from 2000 years of uncontrolled mining, leaving the region's rivers and soil actually cleaner than before.
Even still, Hungary and well-funded environmental groups have opposed the development, arguing that the use of cyanide to extract gold from the open pit mine would be hazardous, citing the cyanide spill in 2000 at Romania's Baia Mare gold mine that polluted the Tisza and Danube Rivers.
To date, the company has spent over US$300 million on the development of the Rosia Montana project. Gabriel CFO Richard Young said the company is “prepared to ride this out until the permitting process recommences.”
The project contains reserves of 10.1 million ounces of gold and 47.6 million ounces of silver. Measured and indicated resources stand at 14.6 million ounces of gold and 64.9 million ounces of silver, in addition to inferred resources of 1.2 million ounces of gold and 3 million ounces of silver. The deposit remains open in several directions, according to the company.
According to the feasibility study, the capital cost for the project is expected to be US$638 million and forecast average annual production is expected to be 635,000 ounces of gold at a total cost of US$181 per ounce for the first five years.
The company's shares slipped Tuesday morning by two cents to C$1.38 on the TSX, down from $5.70 a year ago and representing a current market value of $352 million. The stock hit a recent low of $1.27 last Wednesday.
