Investors in Gabriel Resources (GBU-T) were hit by post-Christmas sticker shock after the government of Romania announced that it would be doubling royalties on gold production in the country.
A government release on Dec. 27 said the country would increase royalties on gold and other precious metals to 8% from 4% of production value. On top of that, the cost of water for the miner could also rise as the government said companies using water for mining would now pay €6 per 1,000 liters, up from the current rate of €4 per 1,000 liters.
The government says such changes would bring another US$85 million into government coffers next year alone.
Gabriel says it is currently in talks with government to see if the changes will affect the company as it was already in the advanced stages of negotiations with the government over ownership restructuring. Gabriel currently has an 80% stake in the project with the Romanian government holding the remaining 20% but the company says it is in the midst of negotiating a new ownership structure.
The controversial Rosia Montana gold project received a key endorsement from the government this past summer when it was issued its archeological discharge permits. Other positives for the project have been growing public approval (it is now at 50% compared to just 19% three years ago) and President Traian Basescu’s public endorsement of the project in August.
However the royalty and water price issues flush out, the key component to Gabriel’s success in the country remains the environmental permit that has yet to be issued. The company has said repeatedly that it is confident that the permit will be issued in the near future.
Gabriel estimates that it will cost $1 billion to build a mine at Rosia Montana that would turn out 500,000 oz. gold per year, with cash costs of US$335 per oz. and an initial 16-year mine life.
The projected cash costs put the project into the lowest quartile of gold development projects, and would help it generate free cash flows of $500 million a year over 16 years.
Such large cash flows would be extracted out of proven and probable reserves of 215 million tonnes grading 1.46 grams gold and 6.88 grams silver, for 10.1 million oz. gold and 47.6 million oz. silver.
Those reserves are part of a larger measured and indicated resource of 350 million tonnes grading 1.3 grams gold and 6 grams silver, for 14.6 million oz. gold and 64.9 million oz. silver.
New of the royalty change sent Gabriel shares down as much as 9% to $5.55 in early trading on Dec. 29, but by market close its shares had recovered somewhat and were trading for $5.99 on 185,000 shares traded.
Be the first to comment on "New royalties scare Gabriel investors"