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Newmont-Backed Project Faces New Opposition

With thousands of protesters flooding into the capital and other cities over the weekend to protest a huge gold-mining project, you'd think you were in some South American country where local indigenous peoples have sparked opposition to many of the world's leading gold prospects.

But you'd be wrong. This was in Bucharest and thousands of people came out all across Romania to oppose the pending approval of what could become Europe's largest gold mine, the $1.4 billion Rosia Montana, which is estimated to contain 314 tons of gold and 1,500 tons of silver.

Rosia Montana open pit. Source: Gabriel Resources

Gabriel Resources, a Canadian-listed miner that's backed by the likes of both hedge-fund operator John Paulson and gold miner Newmont Mining (NYSE: NEM  ) , has attempted to get the project going for more than a decade. But its plan to use a controversial cyanide extraction process to separate the precious metals from waste materials, along with removing four mountaintops, remains the core of contention.

Romanians have a grim reminder of the risks associated with gold cyanidation, a common, cheap, and effective but ultimately dangerous leaching process. In 2000, the Baia Mare gold mine in northern Romania suffered a catastrophic dam failure that released 100,000 cubic meters of cyanide-contaminated water that wiped out the entire ecosystem of the river, which flowed into the Danube and contaminated the drinking water of three countries.

While documentation of mining at Rosia Montana goes as far back as Roman times in the first century, and though it has been mined almost continuously since, activity stopped in the region several years ago when the resources were depleted or proved too difficult to obtain. Only through modern mining techniques, such as open pit mining, mountaintop removal, and cyanidation can it be economical to mine here again.

Environmental concerns have formed the basis of most of the protests against mining projects lately, particularly those in South America. Barrick Gold (NYSE: ABX  ) faces opposition to its attempt at mining glacial areas in the Andes Mountains, Goldcorp's  (NYSE: GG  )  El Morro copper-gold project had its permits suspended over environmental fears, and Newmont's own Conga project in Peru has been similarly stalled.

Sometimes the opposition comes from the governments themselves, which seek a greater share of a projects' profits in exchange for permission to move ahead. Resource nationalism has run rampant globally as commodities soared in value and the desire for a bigger piece of the pie proved too big of a temptation.

Rio Tinto (NYSE: RIO  ) has watched its Oyu Tolgoi mine in Mongolia come to a standstill after the government wanted to renegotiate its contract and Kinross Gold (NYSE: KGC  ) was forced to abandon its Fruta del Norte gold mining project in Ecuador following passage of a usurious 70% windfall profits tax.

Newmont seems to be encountering a bit of that too in Romania. While the government had been generally supportive of the project -- it's a 20% owner in it after all -- the tide of public opinion against the mine has caused second thoughts, and Gabriel Resources says it will sue the government for $4 billion if it doesn't approve legislation permitting the project to advance. A draft bill that will be voted on in the next few weeks has Romania upping its stake in Rosia Montana to go along with approval.

That vote is what's sparked the latest protests yesterday as opponents chanted, "Your treason is measured in gold!" 

Mining has changed dramatically over the years, and it's no longer the simple prospector with a pick ax and pan seeking the yellow metal. Today's miners unalterably change the landscape, removing mountains, creating lakes of toxic poisons, and leaving ugly scars in their wake. Such methods, while efficient, will lead to even more protests globally, making miners a riskier investment than ever in the process.

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