In Gold Blood

Gabriel Resources
In the Magazine
Greenpeace activists protest in the yard of Romania's Parliament, against a Canadian company's plan to set up Europe's biggest open-cast gold mine in Romania, in Bucharest December 9, 2013. Bogdan Cristel/Reuters

After more than 15 years of false starts and near misses, the launch of Europe’s biggest gold mine, and the fortunes of the billionaires who are backing it, hangs in the balance.

The mine site is in Transylvania – the legendary home of Dracula – and is owned by Gabriel Resources, the Anglo-Canadian company that has spent more than $550m in project development work with absolutely nothing to show for it. In Europe’s longest-running environmental campaign, it has lost more battles than it has won against a small band of fiercely devoted and savvy anti-mining groups, whose cast of characters have included Hungarian-American hedge fund mogul George Soros and British actor Vanessa Redgrave. They, and a rag-tag army of local residents, farmers, environmentalists and archaeologists, are known as the Rosia Rebels.

Earlier this month, a Romanian parliamentary vote to approve the development of the $1.5-billion project near the village of Rosia Montana (Red Mountain) fell off the agenda as Gabriel threatened to mothball its Romanian operations. The vote was again rescheduled for this week but is again expected to fall by the wayside. Last month Gabriel confirmed it was preparing an international commercial arbitration case that would seek up to $4 billion in damages from the government for its failure to approve the mine. Gabriel will take the position that the government has “moved the goal posts too many times” says Gabriel’s London spokesman, Bobby Morse.

The Romanian prime minister, Victor Ponta, said: “Obviously we will defend ourselves . . . I will fight for the interests of the Romanian state.”

Game over for Gabriel and one of the world’s three biggest undeveloped gold projects? Don’t count on it. There are too many billions of dollars at stake. In the murky, unpredictable world of Romanian back-room politics, a parliamentary approval vote could surface at any time, even if that’s unlikely before the European Union elections later this month and Romania’s presidential poll in November.

But the billionaires who took a big punt on Gabriel have not called it quits. One of the Gabriel investors is Israeli diamond billionaire Beny Steinmetz. In the global mining industry, he is known as the man who can make problems go away. So when he and a couple of other ultra-wealthy investors emerged in 2009 as big shareholders of Gabriel, the company’s then management team was quietly thrilled.

Steinmetz was joined on Gabriel’s shareholder register by gold-loving billionaires Thomas Kaplan, chairman of New York’s Electrum Group, and John Paulson, founder of Paulson & Co, the hedge fund that made a fortune betting against the US subprime mortgage market just before the 2008 financial crisis.

Shortly after Steinmetz invested $67.5m in Gabriel for 9% of the shares, Jonathan Henry, Gabriel’s chief executive officer, an Irishman with a degree in zoology who had developed mines in Malaysia, Indonesia and Burkina Faso, told Canada’s Globe and Mail newspaper: “I hope that they would all have good contacts with the Romanian government and are types that could open doors for us.”

Henry’s optimism proved misguided. Every time the mining project seemed set for government approval, mass protests would break out, legal appeals would succeed in overturning various mining and environmental permits and government ministers nominally in favour of Gabriel’s plan would lose their nerve or vanish on election day.

Not long after Steinmetz bought into Gabriel, his attentions were diverted elsewhere. With the encouragement of – guess who? – the George -Soros-funded Global Witness NGO, dealing with resource-related conflict and corruption, the government of Guinea launched a corruption inquiry into Benny Steinmetz Group Resources and its sensational purchase of one of the world’s richest iron ore deposits. In April, after a two-year probe, the Guinea government announced it would strip BSGR of the mining concession, alleging it was obtained through bribery. A few weeks later, Rio Tinto, the Anglo-Australian mining colossus that had owned half of the concession, accused BSGR and its Guinea mining partner, the Brazilian mining group Vale, of theft of the concession in a scheme that violated American anti-racketeering laws, though Steinmetz denies all the allegations through his London spokesman. He has not been charged in the US, but his former associate, Frederic Cilins, pleaded guilty to obstruction of justice.

Gabriel is probably the last item on Steinmetz’s mind and it’s apparently not high up on the list of priorities of the election-bound Romanian government. In March, four months after the Romanian senate voted down a law that would have given Gabriel’s project special national interest status, giving it fast-track approval status, the company’s Romanian subsidiary, Rosia Montana Gold Corp, suspended (but has not fired) 400 of its Romanian workers, equivalent to 80% of its local workforce.

Henry, the CEO who is fully aware that his arbitration threats have angered the Romanian government, declined to comment. It is not known which investment treaties will be used to build the company’s case for compensation. Morse, the company spokesman, says no final decision has been made on whether to seek damages from the government.

While the gold project seems to be dying, it could get back on track after the November presidential elections. Romania was bailed out by the International Monetary Fund in 2009. Its economy remains weak and the country has one of the European Union’s lowest per capita incomes. The new president will have to pay for his election promises and Gabriel’s Rosia Mine could be a royalty and tax gusher.

That’s why the Rosia Rebels are not letting their guard down. They continue to argue that the sheer destructive size of the mine and its use of cyanide to coax the flecks of gold from the ore will trigger an environmental and social disaster.

“This mine will never get developed,” -promises Stephanie Danielle, the Swiss-French environmental activist who led the successful campaign to block construction of Transylvania’s Dracula Land theme park more than a decade ago and vowed to ensure the same fate for Gabriel’s mine.

It’s not surprising that Steinmetz and the other billionaires considered Gabriel the new El Dorado. They are great believers in the enduring value of inflation-proof gold and know that the best gold mines are the biggest ones that can use economies of scale – sheer size – to bring down mining costs and boost profit margins.

They also know that Gabriel’s stock market value would skyrocket to many billions of dollars the moment it nailed the permits that would allow it to start construction. That’s because Gabriel is sitting on a mountain of gold. Its drilling programme indicated that Rosia Montana contains 10.1 million ounces of proven and probable reserves, along with 47.6 million ounces of silver, and another 7 million ounces of “indicated” reserves. The plan is to produce 500,000 ounces of gold a year – worth $650m at today’s price of about $1,300 an ounce – for 16 years.

Rosia Montana’s gold has attracted conquerors, adventurers, crooks and reserve-hungry mining companies for more than 2,000 years. The Roman emperor Trajan’s seizure of the gold deposits in Dacia, roughly modern-day Romania, in the early second century was considered such a coup that he ordered 123 days of celebration. His Dacian conquest is depicted in the spiral reliefs of Trajan’s Column, his 30-metre-tall marble propaganda pillar in Rome. About seven kilometres of the ancient, trapezoid-shaped Roman mining galleries remain in what the Romans called Alburnus Maior. A small portion would be preserved by Gabriel; the vast mining would turn the rest to rubble.

The Rosia Montana area was mined on and off from Roman times until the end of the Communist era, when the new EU environmental standards kicked in, forcing the old, highly polluting operations to close. Historians believe Transylvania produced 55 million ounces of gold between the Dacian era and the mid 1990s. Geologists are convinced the area, including Gabriel’s Rosa Montana mother lode, still contains 30 million to 40 million ounces of gold. Those huge estimates triggered the latest gold rush. While Gabriel is the largest potential mine developer in Transylvania, it has several rivals.

Gabriel itself has a long, gory history. After the fall of the brutal regime of Nicolae Ceausescu – he was executed along with his wife in 1989 – the Rosia Montana properties were somehow transferred from the state to a company controlled by Frank Timis, a wealthy Romanian mining promoter who dabbled in gold plays in Australia, where he picked up three convictions for heroin possession. He surfaced in Toronto, the world’s mining finance centre, favoured by everyone from con men with long-shot mining concessions to the biggest companies in the world.

Convinced that Rosia Montana had world-scale potential, Timis took a publicly listed, but idle, Yukon shell company and renamed it Gabriel Resources. By the late 1990s, Gabriel became the legal owner of about 80% of Timis’s Rosia Montana Gold Corp, a Romanian state-controlled mining company held the rest.

As investors funneled money into the little company, sleepy Rosia Montana was soon crawling with drilling rigs, engineers, surveyors, geologists and hydrologists. Most of the residents of Rosia Montana were bought out to make way for the four-pit mining monster, one that would blow up two mountainsides and fill an entire valley, burying a village, with the mines’ waste rock and sludge. The waste water (what’s known as a tailings pond) would rise from an initial height of 70 metres to 180 metres and eventually hold 215 million tonnes of waste. The upside: the project would create 3,000 jobs over the its lifetime in an area with crushing unemployment.

All the activity caught the attention of Stephanie Roth, the environmental activist who was fresh off her victorious campaign to drive a stake through the heart of the Dracula Land theme park. She set up shop in Rosia Montana itself from 2002 to 2010 and, with a little help from her friends, managed to turn the campaign into an international cause célebre. In the last decade, George Soros’s Romanian foundation fought hard to ensure the permitting process was transparent, respected the often flexible rule of Romanian law and, in his own words, met “the legitimate demands of the opponents of the mine”. Soros was apparently haunted by the infamous cyanide spill, in 2000, at the Baia Mare gold project that turned a long stretch of the Danube river into fish-killing toxic stew (Soros has since distanced himself from the anti-Gabriel campaign).

At one point, Vanessa Redgrave waded in. “Our planet is dying and we have no right to destroy the ecosystem,” she said in 2006. She later dedicated her lifetime achievement award to Alburnus Maior, the local protest group that took the name from Rosia Montana’s Roman name. Roth herself achieved fame when, in 2005, she won the Goldman Environmental Prize for her effort to keep the barbarians stuck at the gate. Calling Gabriel a “modern-day vampire”, she donated two-thirds of her $150,000 prize money to the Save Rosia Montana campaign.

The Rosia Rebels lost some momentum after Roth left Rosia Montana – she now works for a development agency in Berlin – but regrouped last autumn, when the government seemed set to approve the draft law that would have given Gabriel land expropriation rights, among other goodies. The proposed legislation triggered mass protests and the law was rejected, though it could reappear at some point as industry-wide legislation not specifically tailored to Rosia Montana. “Rosia Montana is the greatest campaign ever,” Roth says. “It’s a microcosm of all the injustices that are happening. It embodies all the things we want to change in Romania.”

But Steinmetz and the other gold billionaires are giving no sign that they’re ready to sell out. Will they encourage Gabriel’s management team to take another hit at the approval process after the presidential election? That wouldn’t surprise the Rosia Rebels, who know that the wealthy can afford to be persistent. Roth is not letting her guard down. “I can never really leave Rosia Montana,” she says.

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