Investment firms have been dropping their ratings on
Gabriel Resources Ltd. (
TSX: T.GBU,
Stock Forum) in the wake of reports that its flagship Rosia Montana mine 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 also 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 their own show of force in a stadium near Rosia Montana.
A report by Reuters news service says 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 $318.8 million, based on 384.1 million shares outstanding. The 52-week range is $2.94 and 41 cents.
But given the reports of local opposition to what would be Europe’s largest gold mine, some analysts aren’t optimistic about the prospects of a positive outcome, even though the shares rose 9.3% on Thursday to 82 cents.
The stock has clawed by some lost value after plunging by almost 60% earlier this week.
BMO Capital Markets analyst John Hayes, for example, has dropped his 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 very risky. The project is essentially stalled. Without government support it can’t move forward,’’ said one research analyst, who asked not to be named.
In light of the opposition in Romania, 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.
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.
Regulatory filings show that Paulson & Co. Inc. of New York controls roughly 16% of the shares outstanding.
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. Earlier this month, Gabriel said development of the site would combat extreme poverty in the Apuseni Mountains by creating 2,300 jobs during the construction phase, and 900 when the mine is in operation.
The company has estimated that the project will contribute over US$24 billion of GDP to the Romania economy, an estimate that is based on a gold price of US$1,200 an ounce. Gold is trading at US$1,324 an ounce this week.