Gabriel's bought deal buys the farm
By: Tim Wood
Posted: 2003/07/11 Fri 17:40 EDT / © Mineweb 1997-2003
NEW YORK -- Fresh government opposition to Gabriel Resources [GBU] Rosia Montana project in Romania has scuppered a two day old $20 million bought deal priced at C$2.80 per share. Gabriel today (Friday) announced that the arrangement with RBC Capital Markets has been converted into a “managed deal.”
The proposed offering was dead in the water as soon as Romanian Prime Minister, Adrian Nastase, reiterated personal objections to the project despite favourable findings by a parliamentary committee. The committee released a positive ad hoc report on Monday at which time Gabriel confirmed that it was proceeding with construction of the mine.
Gabriel’s stock price was immediately bid up, facilitating the offer. However, Nastase early on Thursday declared his dissatisfaction with the report, putting the stock into a dive before trade was halted at C$2.52, a loss of nearly one fifth on the day. Trade resumed on Friday at 12h30 priced at a mere C$2.11 before rebounding to C$2.30.
Nastase made the comments during a biannual luncheon with foreign journalists, during which he was asked his opinion of the report. He responded that he had read the report and did not “like it”. It is curious that the prime minister would be so intent on micromanaging the project and it may suggest that other factors are in play.
Romania has two great sensitivities since the overthrow of the Ceaucescu regime – orphans and the environment, both of which require delicate politics. Consequently, Nastase may be employing a public strategy of passing the ultimate decision for Rosia Montana into a bureaucratic channel where compliance and legality will be the sole determinants.
RBC was due to buy the entire allotment of 10 million shares for resale to other investors. Now it will merely offer to sell the units for Gabriel at the best price it can receive.
Gabriel’s stock price has been deteriorating after it became apparent earlier this year that it would require more money that expected even as capital requirements rose; delays aggravated by activist opposition to the project.
The firm has $17 million in cash, down from $35 million at the start of the year. It cannot postpone this fund raising without delaying mine construction with a critical phase about to start. Two further fund raisings are expected this year with total funding requirements of $50 million for 2003.
Face value
At face value, Nastase appears to be have already decided in favour of environmental and social activists who say the impact of the proposed mine would be too negative irrespective of compliance and economic contribution. The mine site is hardly pristine after decades of state mining mismanagement capped by the Baia Mare disaster that spilled toxic effluent into the Tisza and Danube rivers.
Romania’s parliament is due to ponder the committee report this September and it will become clearer then whether Nastase’s populism is opportunist or genuine.
An indicator may be his pre-emption of the committee report in early June when he called the project "environmentally risky" – a phrase that played well in Romania’s media. It seems improbable that Nastase could have developed an informed opinion so early, and his subsequent deference to the ministry of the environment – at the very time that Gabriel is about to launch its own environmental impact assessment – which would allow him to wave the project through whilst confirming to supporters that he demonstrated the necessary concern and vigilance.
That would be positive for Gabriel; however, the ad hoc processes heighten risk. Pressure is mounting for a public referendum to poll the views of local residents. Activists have taken note of the successful obstruction of Meridian Gold’s [MDG] Esquel gold project in Argentina that was opposed by four fifths of the residents of the nearby town, and that eventually led the provincial governor to halt development.
Sources say Gabriel would easily win a local referendum since the majority of residents do support mine development although several are holding out for more money. That contrasts with statements by the leading opposition group, Alburnus Major, which claims to represent most of the families in the village.
It has been an incredibly turbulent year for Gabriel with high profile management shuffles including the resignation of founding shareholder Frank Timis who has been a lightning rod for criticism, not least because of youthful drug convictions and suspicion about his Romanian power broking after its anti-Communist revolution.
Gabriel remains resolute, if disconsolate. "Gabriel believes the development of the Project is good for Romania and its economy and Gabriel's development plans for the Project are environmentally sound," said Oyvind Hushovd, chairman and chief executive, in a statement.
