Romania Might Raise Stake In Rosia Montana If It Adopts Laws Supporting Mining Cos

10.31.2011 By Ioana Tudor

The Romanian Government is in negotiations with Canadian company Gabriel Resources to increase its stake in Rosia Montana Gold Corporation (RMGC) from 19.3% to 22.5%.

Private investors rejected the increase of royalties for mining, as well as sharing control with the state. They also conditioned the increase of the state's stake in RMGC on the adoption of laws supporting mining companies.

A slight increase of the state's participation in the Rosia Montana gold mining project, through which the gold deposit in Rosia Montana was leased to RMGC for exploitation, is the only scenario accepted by Gabriel Resources in negotiations with the Romanian Government.

The stake increase is also conditioned on creating a legislative frame to support mining companies, according to an official document obtained by MEDIAFAX.

Romanian authorities believe that the project will be one of the most significant private direct investments carried out in Romania, worth over $4 billion, and that it will support the country's economy due to its multiplier effect, seen at over $16 billion.

Gabriel Resources owns 80.46% of RMGC's share capital. Romania owns 19.31%, through state-owned mining company Minvest Deva. Royalties on gold extraction currently stand at 4% of the value of production.

The Government has tasked the Economy Ministry with negotiating the contract with Gabriel Resources. The only proposition investors have accepted so far is a slight increase of the state's participation in the project. They rejected the proposition to increase royalties for gold mining.

RMGC general manager Dragos Tanase told MEDIAFAX that "Romania already negotiated more than half of the revenues to be generated by the Rosia Montana gold mining project. We are open for talks with the Government on any aspect of the project. Our plan is to develop a project Romania will be proud of. At this point, I cannot make specific comments on current discussions with the Government. What I can say is we are very happy we can bring maximum benefits to all parties involved, including to the people living in Rosia Montana, who need the jobs this project will create."

The two parties involved in negotiations discussed three scenarios: keeping royalties for gold mining at 4% and the state's stake at 19.3%; keeping royalties on gold extraction at 4% and increasing the state's stake to 25%; increasing royalties to 8%, double compared with the current level, and keeping the state's stake in RMGC at 19.3%.

The document shows investors rejected the third scenario, the only one that states the increase of royalties for mining, considering the "impact it has on the profitability of mining and the risk regarding lack of financing". Therefore, investors have only agreed to a "reasonable" increase of the state's stake.

Investors said they might accept a stake increase of up to 22.5% when the construction permit is issued, provided measures are taken so the mining projects may be implemented in partnership with the state. One of the measures entails the creation of a legal framework supporting mining companies.

Economy Ministry representatives asked for a 30-33% or 25-27% increase of the state's stake, plus a clause stating that decision-making within Rosia Montana Gold Corporation will be equally shared between shareholders. The clause was rejected by investors.

Regarding amendments to the legislation targeting the mining sector, Government representatives said the Executive may not approve laws, such as the Law on mining, as this duty is assigned to the Parliament. Investors said the Government must assume no responsibility, as the matter refers to a clause which contains "suspensive conditions", namely that the investor accepts the increase of the state's stake when measures needed to develop the projects are in effect.

The negotiation team pointed out the Government assumes no responsibility regarding these conditions, and will only support legislative propositions.

According to the document, considering that the major shareholder conditioned the renegotiation of the state's stake "on signing an agreement with the Government," the Executive must analyze the necessity to negotiate the agreement. If negotiations are carried out, it will consider setting up a negotiation team to also be made up of representatives of the ministries of Finance, Environment, Culture, Administration and Interior, and Rural Development.

Alexandru Patrutiu, head of the National Mineral Resources Agency (ANRM), said earlier this month Romania's Government is in negotiations to increase the state's stake in the Rosia Montana Gold Corporation as well as raise royalties for gold mining.

"The Economy Ministry is in negotiations to increase Minvest Deva's participation of 19.3% in the Rosia Montana Gold Corporation, while ANRM is currently talking to gold mining and exploration license holders about raising gold royalties," said Patrutiu.

He added that ANRM has already prepared a normative act raising the royalties, but the price of gold is still fluctuating on international markets, so it will wait for a moment of stabilization.

The mining law of 2003 set a royalty of 2% on these mineral products, raised to 4% in 2009.

In August, the Finance Ministry presented a draft ordinance raising royalties on gold, platinum and silver extraction to 6% of the value of production, from 4%. The new royalty will also be charged to production of coal, metal ores, aluminum and aluminous rocks, radioactive metals, rare earths, precious and semi-precious stones.

The draft ordinance was drawn up after President Traian Basescu, a supporter of the Rosia Montana mining project, said the project must be carried out "but only after a renegotiation of the sharing of benefits."

Rosia Montans Gold Corporation technical manager Cecilia Szentesy said at that time that RMGC representatives are willing to hold talks with Romanian authorities regarding the benefits of the Rosia Montana project, and added Romania's participation is already "competitive," considering that 56% of the project's benefits from taxes, royalties and gold and silver sales remain in Romania.

The 2011 by-laws of the company states that Rosia Montana Gold Corporation may sell in advance the gold and silver it will extract to finance the company's operations, and the state will not receive dividends as long as Minvest Deva, minor shareholder, registers debts to Gabriel Resources, following capital hikes.

In 2009, Gabriel Resources granted a loan of EUR26.55 million to Minvest for capital hike.

The biggest gold deposit in Romania is located in Rosia Montana, Alba county, and is leased to the Rosia Montana Gold Corporation. The deposit is estimated to contain around 300 tons of gold and 1,600 tons of silver.

Billionaires John Paulson, Beny Steinmetz and Thomas Kaplan are some of the significant names behind Gabriel Resources.