Gabriel soars on Newmont subscription (September 06, 2004)

Shares in Gabriel Resources (GBU-T) increased by as much as 54%, to $2, on Aug. 30, after the company announced a $24.8-million private-placement deal with Newmont Mining (NEM-N).

Under the deal, Newmont’s Canadian subsidiary would purchase 15 million units of Gabriel at a $1.65 apiece. A unit consists of one share accompanied by one purchase warrant. Each warrant is good for an additional share at $2 until the end of 2005.

The new shares would give the world’s biggest gold producer a 10.2% stake in the junior; fully exercised, the warrants would boost Newmont’s stake to 18.6%. The placement is expected to close by Sept. 13, subject to regulatory approval.

Newmont is allowed to participate for up to 20% in any of Gabriel’s financings over the next five years, as long as it maintains at least a 10% stake in the company. Also, Newmont has agreed to help develop and finance the delayed Rosia Montana gold-silver project in Romania.

In May, Gabriel said construction at Rosia Montana would be delayed by about a year, owing to delays in the resettlement and relocation of the Rosia Montana village and in the construction of new town sites. Environmental permitting was also slow.

Proceeds from the placement will be used to develop the 80%-owned project in the Golden Quadrilateral area of Romania’s Transylvania region, where the company has applied to the Alba County Council for an “urbanism” certificate. Approval would set in motion the environmental permitting procedure, with submission of an already-completed technical memorandum. Thereafter, the company would move to complete an environmental impact assessment for review and public consultation.

In mid-August, Gabriel said permitting for construction of the resettlement sites at Piatra Alba and Alba Iulia was ongoing. At Piatra Alba, zoning and land ownership was being established; at Alba Iulia, Gabriel still needs to acquire one more property; archeological clearance is expected in the fourth quarter.

Rosia Montana has long been a target of protest, and recently came under fire again when a group protestors marched 140 km from the city of Cluj to the site, visiting 20 villages along the way. The group says the project endangers the area’s environment and historical monuments. Gabriel counters that the operation will employ a cyanide-destruction circuit plus a plant to treat any acid-rock drainage.

The company is reviewing its land needs now that fundamental engineering for the mine and plant are complete. In late June, the project’s exploitation license was amended to to accommodate some technical changes, including elimination of the gravity circuit (which the company figures amounts to about 1.9% of recovery) and the addition of extra leach retention capacity. The changes are expected to boost silver recovery to around 64.5% from 58.1%, while gold recovery is projected to slip slightly to about 80%.

Gabriel will next focus on developing the resettlement sites and completing the archeological program. Further engineering work will be put on hold until permitting is advanced.

The US$437-million project is expected to produce 533,000 oz. gold annually at a total production cost of US$221 per oz. over a mine life of 16.4 years. Ultimately, the operation would comprise four pits: Cetate, Cirnic, Orlea and Jig.

At the end of 2003, measured and indicated resources (including reserves) at the Orlea and Igre-Tarina deposits were pegged at 352 million tonnes grading 1.3 grams gold and 4 grams silver. Another 48 million tonnes running 1 gram gold and 4 grams silver are classified as inferred resources.