Hero To Zero: How Gabriel Resources Lost All The Gold Of The Roşia Montană Project

The Romanian government announced on Friday its victory in an arbitration trial initiated by Gabriel Resources (TSXV: GBU) regarding the stalled project to build Europe’s largest open-cast gold mine in Roșia Montană, a town in western Romania.

Gabriel Resources had lodged a claim seeking compensation of at least $4.4 billion from Romania in 2015 through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The claim was based on losses incurred due to the failure of the proposed gold mine project.

The Romanian government, which had a 20% stake in the venture, withdrew its support for the project officially in 2014 following widespread protests across the country opposing it.

Initially anticipating an unfavorable ruling, the government welcomed the outcome. Socialist Prime Minister Marcel Ciolacu’s cabinet expressed gratitude for the verdict, stating, “The Romanian government salutes this decision and thanks everyone involved in defending the interests of the Romanian state.”

The tribunal ruled in a two-to-one majority against Gabriel’s claims, marking a significant blow to the company’s efforts. Additionally, the Romanian Government has been awarded approximately US$10 million in legal fees and expenses incurred during the defense of the arbitration. The decision is binding on both parties.

Expressing deep dissatisfaction with the majority decision, Anna El-Erian, Chair of Gabriel Resources, labeled it as “deeply flawed.”

“As recognized by the dissenting arbitrator, the Romanian Government’s sustained political interference with Gabriel’s contractual rights prevented the development of a flagship mining project owned in partnership with the State. We will take time to evaluate our options, but hasten to record our sincere appreciation to our shareholders for their unwavering support and patience throughout this prolonged process,” El-Erian noted.

The primary focus of the company had been on the exploration and advancement of the Roșia Montană gold and silver project. On the prospects of the project, the company has seen its shares surge more than 100% year-to-date, trading at $0.87 as of last closing bell, giving it a market capitalization of more than $900 million.

That value is basically expected to be erased once the company unhalts from trading and investors are able to run for the exits.

Roșia Montană

Positioned within the South Apuseni Mountains of Transylvania, Romania, the Roșia Montană project boasts one of Europe’s largest untapped gold reserves, according to the firm. The area holds historical significance as a longstanding and productive mining region, with a mining tradition dating back over 2,000 years, even before the Roman era.

The exploitation license for the Roșia Montană Project is held by Roșia Montană Gold Corporation S.A., a Romanian entity in which Gabriel Resources holds an 80.69% equity stake. The remaining 19.31% ownership interest is retained by Minvest Roșia Montană S.A., a state-owned mining company in Romania.

The remaining gold and silver in Roșia Montană was stated to be 10.1 million ounces of gold and 47.6 million ounces of proven and probable reserves, while measured and indicated resources include 17.1 million ounces of gold and 81.1 million ounces of silver. Earlier discussions within the government had contemplated resuming gold extraction plans for the region.

The company said it has committed more than US$760 million towards the development of the Roşia Montană Project and the delineation of two highly prospective mineral deposits rich in gold, silver, and porphyry copper-gold. These deposits are situated in the Bucium concession area, adjacent to Roșia Montană.

However, UNESCO’s designation of Roșia Montană as a protected World Heritage Site in 2021 underscored the significance of preserving its ancient Roman gold mining heritage, casting doubt on future mining endeavors.

Gabriel vs. Romania

Gabriel Resources had obtained concession rights to the Roșia Montană area in 1999, sparking a lengthy legal and public battle against civil rights and environmental groups. These groups argued that the project would devastate ancient Roman mine galleries, jeopardize local villages, and pose environmental hazards. The proposed mining operations involved the use of cyanides and the excavation of four quarries, which would have obliterated four mountain summits and displaced residents from three out of sixteen villages within the Roșia Montană municipality.

The company, along with its wholly-owned subsidiary, initiated arbitration proceedings in July 2015 before the ICSID against the Romanian State. This action sought compensation for Romania’s alleged violation of bilateral investment protection treaties with Canada and the United Kingdom.

The original arbitral tribunal was formed on June 21, 2016. The current members include Prof. Pierre Tercier (Switzerland), Horacio Grigera Naón (Argentina), and Prof. Zachary Douglas (Australia and Switzerland).

The majority decision in the recently-concluded award dismissed the firm’s claims of Romania’s breach of obligations under the treaties. Grigera Naón dissented from this decision, disagreeing with the rationale provided.

Before Friday’s decision, Ciolacu pondered the possibility of Romania resurrecting plans to extract the gold reserves from the region. However, this was complicated by UNESCO’s decision to include Roșia Montană as a protected World Heritage Site.

Romanian President Klaus Iohannis meanwhile praises the country’s triumph in the Roşia Montană trial and extends congratulations to the teams of specialists who contributed to advocating for our nation’s interests.

“After many years of challenges and debates, both political and legal, we are now at the moment of truth: Romania wins the trial for Roşia Montană, without penalties or compensation, fighting and succeeding in protecting the national heritage,” Iohannis wrote on Facebook, translated to English.

However, President of the Right-Wing Alliance, Ludovic Orban, accuses Ciolacu of betraying Romania’s interests and “deliberately manipulating the stock market” through statements made regarding Roșia Montană, asserting that it is “outrageous” that the prime minister took credit for the country’s success in this process.

He believes that “this trial was won because not all politicians in Romania, not all journalists in Romania were on the payroll of Roșia Montana Gold Corporation.”

“I’m launching an accusation, in addition to the accusation of betraying Romania’s interests made by Ciolacu, I accuse Ciolacu of deliberately manipulating the stock market. The price of… shares, the company listed on the Toronto Stock Exchange, the price of shares during this entire period of statements and campaign that was launched by the public statements of Marcel Ciolacu, that price doubled, it increased from 0.45 to 0.87, almost doubled,” Orban said.

Cătălin Drulă, president of Save Romania Union, also announced that his party has notified the Canadian authorities “for stock market manipulation” by Ciolacu and demanded his resignation.

The company said it is reviewing the tribunal’s decision with its legal advisors to assess its options, which may include contesting the decision through the annulment process outlined in the ICSID Convention.

Information for this story was found via Reuters, G4 Media, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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