Can Rosia Montana overcome the hurdles?

Gabriel Resources is committed to responsible mining and sustainable development in the communities in which it operates. It is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project. “2007 has been a frustrating year, we started off making tremendous progress until September when the permitting process was suspended,” said Alan R. Hill, President and CEO. “I can assure you that we have a strategy in place and we are as committed as ever to developing the Rosia Montana Project and ensuring that the long term benefits it will bring to Romania and all stakeholders are realized.”
The project has long faced opposition from a group of foreign funded NGOs, certain Romanian organisations and some members of the Hungarian Government. Over the past nine months, however, the nature and magnitude of the opposition has changed. Nine months ago, Romania’s current minority government opposed a draft parliamentary “private members bill” to institute a ban on cyanide use in mining, arguing the merits of mining conducted to high EU standards. Eight weeks later, the government reversed its position – changing its view to support the bill to ban cyanide in the mining industry, without explanation. On Wednesday March 5, 2008, the industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, postponed voting on the issue. Once the industry commission votes and files its report, the proposed bill can be introduced into Parliament.
Last September, the Romanian Minister of Environment and Sustainable Development (MESD), who had often expressed his opposition to the project even as he pledged to support the legal review process, unilaterally suspended the Technical Assessment Committee (TAC) meetings, asserting a linkage between a minor procedural certificate and the EIA process that lacks any basis in law. The company is focused on doing everything within its power to restart the permitting process – and to that end has filed a law suit against the Ministry of the Environment to restart the EIA process.
In light of the suspension of the EIA process, management conducted a thorough review of all activities associated with the development of the project, with a goal of reducing expenditures to ensure the company remains financially strong, while maintaining all existing licenses and permits in good standing and working to restart the permitting process. As a result, in December 2007, the Company announced plans to retrench staff, to suspend engineering as well as procurement of long-lead-time equipment and surface rights acquisition, along with most other activities.
Romania became a full member of the European Union on January 1, 2007. Open disputes between the presidential and parliamentary branches of government now dominate the political agenda, causing gridlock and delay. A new minority government comprised of the Liberal and UDMR parties was formed last April, representing approximately 23% of the Parliament, under the Prime Minister with tacit support from the opposition party. Romania’s UDMR party – representing Hungarian ethnic minorities and espouses a platform for autonomy for the Transylvania region in which the Rosia Montana Project is located – holds four ministries, including the Ministry of the Environment and Sustainable Development.
A censure motion to bring down the government was filed in late September 2007 by the Social Democrat Party (PSD). For the motion to succeed, it required 50% of the Parliament and Senate plus one vote, or a total of 232 votes. The motion failed by 12 votes, as 20 members of the PSD party abstained or voted against their own party’s censure motion.
While management is making every effort – legal and political – to restart the EIA review process, it is becoming increasingly likely that a change in government will be required to restart the permitting process. The prospect for political change is real, as 2008 brings both local and national elections. With a change in government the company expects that the abuse of process it has seen will be replaced by a fair and open review process.
On September 12, 2007 the company received a letter from the Romanian MESD indicating that the review process for the EIA for the Rosia Montana Project had been suspended. MESD based its unilateral administrative action on a court challenge by Alburnus Maior, an NGO opposing the project, to the validity of an urbanism certificate wholly unrelated to the EIA process.
During September 2007, the company filed an Administrative Complaint against the MESD regarding its decision to suspend the TAC review process. The MESD responded to the Administrative Complaint on October 19, 2007. The 14-page response failed completely to address the grounds of complaint. As a result, the company filed a lawsuit against the MESD in November 2007, with the first hearing taking place on February 20, 2008.
Significant progress had been made in 2007 until the MESD’s decision. The TAC held meetings on June 26, July 10, July 19 and August 9. The topic of those meetings included a general overview of the project, the technologies used, and our plans for dealing with waste material and potential project impacts. Those topics are covered under the first four chapters of our EIA and represent the bulk of the EIA. The TAC meetings had been very constructive with a thorough technical analysis of the project.
MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee in the spring have now received their necessary permits, our permits alone await final signature by the MESD.

The company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. Unless the permits are granted, the company expects to file a lawsuit in March 2008 against the MESD.
The suspension of the EIA process has stalled most of the other permits and approvals.

As a result of the suspension of the EIA review process, and in order to align the Company’s activity to the pace of the approval process, management met with the community to discuss a full shut down of the home purchase program. As a result, on February 1, 2008, the program was suspended indefinitely.
Construction of the Alba Iulia resettlement site began in July 2007. Infrastructure is expected to be completed in the second quarter of 2008, while construction of new homes began in October 2007. It is expected to take approximately 18 months to complete the approximately 130 homes at the Alba Iulia resettlement site. Construction at Alba Iulia site will continue despite the MESD’s decision to halt the EIA process.
During the third quarter of 2007, the access road to the Piatra Alba resettlement site was completed and handed over to the local administration and tenders for construction for phase one of the new village were received. Final construction permits are expected to be issued during the first half of 2008.
As of February 2008, the company owns or has options on approximately 77% of the homes in the industrial zone, protected area and the buffer zone. Once it completes the agreements for institutional properties, its ownership will rise to approximately 85% of the three zones of the project, further demonstrating the strong local support for the project.

Ultimately, the company’s ability to obtain construction permits is predicated on securing 100%of the surface rights in the industrial zone.
An NGO commenced legal action in the Alba Court of Appeal in 2004 and obtained an annulment with respect to archaeological discharge certificate no. 4. After a successful appeal to the Romanian Supreme Court and a retrial of the matter on its merits in the Brasov Court of Appeal, a second annulment of archaeological discharge certificate no. 4 was ordered by the Brashov Court of Appeal. Gabriel has appealed this second annulment to the Bucharest Supreme Court. It is not possible to estimate how long it will take for this case to proceed through the Bucharest Supreme Court. If archaeological discharge certificate no. 4 is ultimately annulled, then Gabriel will reapply for a new discharge certificate.

The opposition has also challenged the issuance of archaeological discharge certificate no. 5 on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts. 
The company is using all means at its disposal to get the TAC process back on track, even as it continues to evaluate the implications associated with a prolonged delay. Once the TAC process recommences, and in the absence of any other extraordinary events, Gabriel anticipates that it would take at least six months to:

– Complete the EIA approval process
– Complete the purchase of the outstanding properties
– Receive all other permits and approvals, including initial construction permits
– Update the control estimate and complete the financing plan.

Construction of the mine would then take approximately 24 months. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.