The surprise is that Romania asked to be paid in gold if it wants.
News was out today that the Romanian government approved draft legislation – including a new ownership agreement – over the Rosia Montana gold project, which holds about 10 million ounces gold in reserves and is largely owned by Canadian junior Gabriel Resources. In the context of the past few years for the project – under a cloud of uncertainty – the working legislation marks something of a breakthrough.
The major terms are not totally unexpected. That much was made clear by markets today. Gabriel agreed to give up 5.7 percent more of the project to the Romanian government without any cash payment (eventually bringing state ownership to 25 percent) and had to swallow a more onerous royalty regime, up from a four percent royalty on revenue to six percent. Yet, despite harsher financial terms, Gabriel’s shareprice rose modestly (up two percent) on heavy volume.
Under other circumstances a shareprice might fall when a government negotiates, for free, a bigger project stake. But here the added royalty and ownership giveaway paled in comparison to the potential gain – the greater chance of moving the project forward.
The draft legislation covers a lot of points. In simple terms, according to a Gabriel press release, the legislation, which includes the new ownership agreement, appears intent on paving the project’s road to development. In doing so, it affirms the Romanian government’s support for the project, which the government now sees as an economic booster.
Still, the legislation must go to a vote and get environmental permits. The timing of the legislative vote is not set in stone, but in an email to Mineweb, Gabriel’s President and CEO Jonathan Henry put, tentatively, 45 days as a minimum.
But back to that surprising term: One completely new aspect of the agreement between Gabriel and the Romanian government is over payment of the royalty. Romania can opt to be paid in gold bullion, which could be a fair amount of gold in the end, with total delivery measured in tonnes not ounces.
The six percent royalty is on gross revenue. Romania can take the equivalent value in gold. As a Gabriel spokesperson put it, “essentially they can request six percent of the value of our production.” In other words, essentially six percent of gold production.
It could – emphasis on could – mean Romania hauls in some 15 tonnes of gold, life of mine. That, in turn, amounts to about 15 percent of Romania’s official gold reserves, which are just over 100 tonnes. The assumption here is that Gabriel’s projected 7.9 million ounces gold – life of mine over 16 years – see the light of day.
The stipulation also underscores Romania’s outsized attraction to gold. Gold already makes up about 10 percent of Romania’s foreign exchange reserves and, with 104 tonnes of the yellow stuff, Romania sits at 35th in the World Gold Council rankings. That is especially notable for a country with a population of 20 million – 83rd in the world – and an IMF GDP ranking of 56th.