In the wake of a tumultuous past few months for
A Gabriel director since November, Hushovd was appointed chairman in late March, replacing Frank Timis, who remains a non-executive director. (Hushovd worked at Falconbridge from 1974 to 2002, including a 6-year stint as president, until he was squeezed out during Noranda’s creeping takeover.)
In mid-April, less than three weeks after Hushovd’s appointment, four key officers resigned: Robin Hickson, president and chief operating officer (who had only been with the company since July); Andrew Kaczmarek, vice-president and general manager of Rosia Montana; Bruce Marsh, vice-president of environmental and regulatory affairs; and Michael Steyn, vice-president of community development, who will stay on until August.
Hushovd is vague about what prompted the sudden departures: “They have not been fired or anything like that. Their reasons are somewhat different, but it’s their own personal decisions. It’s not the [Rosia Montana] project that made them leave.
“The key issue is to make sure we don’t lose momentum, that we more or less keep to our timetable. I’m prepared to spend whatever time it takes to make sure that that happens.”
He says that while Gabriel will replace some of the departed officers, the company will also “readjust the organization to what it should be” for the next phase of Rosia Montana’s development.
None of the Romanian personnel has resigned, and Gabriel is seeking someone to take charge of operations there.
A basic engineering study, completed in February, estimated that Rosia Montana’s initial capital costs could rise to US$437 million, or 71% higher than projected a year earlier (T.N.M., March 24-30/03). Gabriel’s share price responded to this news by falling to below $3 from the $4 range. It fell further to around $2.35 following news of the resignations. Meanwhile, the company’s market capitalization has withered to about C$272 million at presstime from C$533 million at the start of the year, based on 114.7 million outstanding shares.
The latest study confirms the ambitious scale of Rosia Montana: ore will be mined from four pits at a throughput rate of 13.3 million tonnes per year, resulting in an average of 533,000 oz. gold annually. The total production cost is pegged at US$221 per oz.; the mine life, at 16.4 years.
Using a conventional mill and a carbon-in-leach recovery, the mine would exploit a reserve of 218 million tonnes grading 1.52 grams gold per tonne and 7.5 grams silver per tonne, equivalent to 10.6 million oz. gold and 52.3 million oz. silver. Mining will begin at the Cetate and Cirnic deposits, then shift to Orlea and Jig.
The title to the Rosia Montana project is held by Romanian-based Rosia Montana Gold, in which state-owned Minvest holds a 19.3% carried interest, Gabriel has 80% (and funds all development costs), and three Romanian companies own the remaining 0.7%.
Going forward
“We should be ready to build a mine next year,” says Hushovd. “When people see this project going forward, that’s going to be reflected in the stock price.”
However, before construction can begin, Gabriel must hire an engineering, procurement and contracting manager to finish the engineering work (which is only 25% complete). Other priorities include obtaining environmental approvals, relocating the village of Rosia Montana, and raising more money.
To assist in the environmental studies, the company has lined up international consultants and is trying to pin down Romanian experts.
“The Romanian part of the organization is thin and needs to be strengthened,” says Hushovd.
For several years, a number of non-governmental organizations have been complaining loudly that the project will harm the environment. For this reason, Gabriel welcomes the ongoing review by a Romanian parliamentary committee, which will table a report in the next month.
Hushovd says the committee “will elevate the debate from a very unprofessional level into more of a debate based on fact and realities.
“Some of these NGOs claim that this is a pristine area and that we are coming in to destroy it, but there has been mining here for over two thousand years, and there have been acid run-off and problematic old workings in the area. Part of this project will involve cleaning up the old area that already has been polluted.”
Resettlement
Gabriel intends to accelerate resettlement of the village, which sits in the middle the four proposed pits.
“We owe it to the people in the area to push this project forward as soon as possible and clear up any worries they might have,” says Hushovd. “My view is that either there’s going to be a new mine development, or the village is going to disappear anyway, because there won’t be any work for people.” (He notes that a government-owned company that has a small mine in the area is losing money.)
Gabriel now has binding agreements for the purchase 465 properties in the area, up from 202 in January. In all, it needs to acquire 2,064 properties over the mine’s lifespan.
Although all the properties have been surveyed, only 928 have proper legal title confirmed by the Romanian courts. Hushovd says establishing legal title is complicated and complex, partly because various past deals were made without proper records. The process is also slow: about 700 property-owners are currently wending their way through the courts. However, the Romanian government has told Hushovd it will speed up the process, possibly by hiring more judges to handle the cases.
Roughly 15-20% of the property-owners have opted for new houses, while the rest have accepted a cash payout. Simon Lawrence, Gabriel’s vice-president of corporate development, predicts that, in the long run, about 40% will ask for a new house instead of cash.
“The overall support we have in the village is strong,” Lawrence says. “They realize this is an opportunity to improve their lifestyles and their well-being.”
Hushovd agrees: “There’s more to a project than just making money for shareholders . . . It’s going to be good for the local area and good for the country.”
Gabriel’s budget at Rosia Montana this year is US$70 million, of which about half is earmarked for relocation payments and new housing. Another large chunk will finance the engineering study, with the remainder set aside for permitting, exploration and corporate costs.
In late April, Gabriel had US$26 million in cash, and Chief Financial Officer Paul Martin says an additional US$35-40 million is required to meet 2003 costs. Toward this end, Gabriel is considering three options: a share issue, which is less and less appealing given the falling share price; debt financing; and securing a joint-venture partner.
Rothschilds is still Gabriel’s debt advisor on the project, and has identified four unnamed banks as lead arrangers.
Gabriel has set aside US$2.5 million for exploration in 2003, with infill drilling currently under way. There is still considerable potential to expand the reserve base, since the main deposits are open in every direction.
Everyone who has visited the Rosia Montana project thinks there may be up to 20 million oz. of reserves, says Hushovd, “but there is a big difference between believing that that’s the case and having the drill core to prove it.”
The task of expanding the reserve base will be made much easier once the village is moved and exploration there can increase.
“Geologically, there’s no reason why those four pits won’t join up,” says Lawrence, noting that tunnels in the area between the pits already show gold mineralization. “Joining them would have a huge impact on the economics of the project.”
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