Scotia Capital Inc. analyst Trevor Turnbull said the investment firm has suspended its rating on
Gabriel Resources Ltd. (
TSX: T.GBU,
Stock Forum) amid fears that the Romanian government may bow to public pressure by killing the company’s flagship Rosia Montana mine.
“We have suspended our rating because the political situation is so volatile,’’ said Turnbull in an interview with Stockhouse. He previously had a "sector perform" rating on the stock.
Company reports say Rosia Montana is thought to host 10 million ounces of gold and 47.6 million ounces of silver in proven and probable reserves, a cache that has the potential to make it Europe’s largest gold mine.
Gabriel has estimated that the project will contribute over US$24 billion worth of GDP to the Romania economy, and create 900 permanent jobs in the Apuseni Mountain region.
However, investment firms have been revisiting their ratings on
Gabriel in the wake of reports that the Rosia Montana development is being strongly opposed by thousands of people in cities across Romania.
As Stockhouse noted Wednesday, protestors claim that the use of cyanide at the project poses a huge risk to the environment, a danger they say nobody has assessed so far.
Published reports say as many as 8,000, mostly young people, took to the streets of the Romanian capital of Bucharest on September 8, 2013 to protest against the project.
Local authorities also staged a protest in a stadium near Rosia Montana.
According to a Reuters report, Romania Prime Minister Victor Ponta has said legislators are set to reject Gabriel’s 14-year bid to build the mine due to mounting resistance from the public and from political leaders, and that parliament should prepare for an imminent vote.
The company has responded by threatening the Romanian government with a US$4 billion lawsuit, if the project is rejected by the Romanian parliament in a vote expected to be held next week.
“Should the Romania government or Parliament decide to reject this project, then under international investment treaties we do have rights,’’ Gabriel CEO Jonathan Henry told Business News Network during an interview this week.
At current trading levels, Gabriel has a market cap of $357.2 million, based on 384.1 million shares outstanding. The 52-week range is $2.94 and 41 cents.
But given the reports about local opposition, some analysts aren’t optimistic about the prospects of a positive outcome, even though the shares have rebounded from a 60% drop to 65 cents earlier this week, rising 12.5% on Friday to 93 cents.
BMO Capital Markets analyst John Hayes has dropped its rating on the stock to “underperform speculative” from market perform, “which is basically a sell,” according to BMO.
Mike Kozak of Cormack Securities Inc. downgraded his stock rating from buy to market perform this week.
“This is a hot button issue. The situation is just so fluid that we have suspended our rating,’’ said Turnbull. “We are going to wait and see how this shakes out.’’
However, Turnbull said he has no issue with the Rosia Montana project. He also said the use of cyanide is common practise in the gold mining industry.
Still, in light of the opposition in Romania, some Bay Street sources wonder how the company is going to secure funding for a project that is expected to cost over $1 billion to develop.
Gabriel currently has about $63 million in cash.
Meanwhile, given the light trading volumes, analysts say the share price is being driven by retail investors who are moving in and out of the stock in a bid to make a buck.
“This isn’t institutional trading,” a research analyst said.