Will Ancient Ghosts Scare Away This Gold Miner?

Every once in awhile local papers publish sensational stories about some excavation project halted because a historical artifact was found, bringing the work to a screeching halt. Well, global-mining operations get tripped up by ghosts of the past, too.

Gold miner Anglo American stalled out in the mountains of Brazil more than 300 miles from Rio de Janeiro until it could secure the safety of an archaeological site at Minas-Rio iron ore project. Revett Minerals also ran into problems at Chicago Peak in Montana where local Indian tribes are seeking to have its copper-and-silver project added to the National Register of Historic Places because of the area's historic and cultural properties. More recently, Rio Tinto (NYSE: RIO  )  ran into headwinds over its plans to develop Apache Leap in Utash into a copper mine because of the historical significance surrounding the site where Apache warriors leaped to their deaths rather than be captured by U.S. cavalry. 

It could be that for all the advance work and money Canadian gold miner Gabriel Resources has put into what is potentially Europe's largest gold deposit, Rosia Montana will come to naught because the area has ancient mining roots that extend all the way back to first century Romans.

Located in the Carpathian Mountains of Romania, Rosia Montana is estimated to contain an estimated 17.1 million ounces of gold and 81.1 million ounces of silver. Gabriel, which is backed by investors, including Newmont Mining (NYSE: NEM  ) , John Paulson, and Seth Klarman, has been trying for more than a decade to get the approvals necessary to exploit the resources, spending in excess of a half-million dollars thus far, but seemingly for naught: Opposition has grown to its plans to use a controversial cyanide extraction process to separate the precious metals from waste materials, along with removing four mountaintops.

While the miner received another setback last month after the Romanian parliament ruled against its proposal as angry protesters gathered in the streets of Bucharest, the ultimate fate may rest with a United Nations historical committee and its willingness to declare the region one of cultural or natural significance. While Rosia Montana does have a history extending back to mines worked by the early Romans, it's an area that has been continuously mined for nearly 2,000 years, with work only stopping in 2006. Gabriel Resources is merely seeking to restart what was temporarily paused.

But a controversial report commissioned by the government and kept hidden until it was leaked last month could kill Rosia Montana for good. It says that the ancient site is worthy of inclusion on the UNESCO World Heritage List -- a compilation of nearly 1,000 properties that have cultural and natural significance -- as its works are "the most extensive and most important underground Roman gold mine known anywhere." The report added fuel to the opposition's fire and its publication helped lead the Parliament to vote against it.

As costs continue to mount at Rosia Montana, it may prove a more daunting obstacle to Gabriel Resources than the ghosts from the distant past. Last month it estimated the project would cost $1.5 billion to develop, which is $100 million more than it estimated a year ago and 71% more than it figured before that.

There are plenty of reasons to suspect the project won't be added to the UNESCO site, including experts who say it runs counter to the agency's own guidelines for inclusion, but runaway costs of a project can grind one to a halt in nothing flat. Vale suspended a $6 billion potash project earlier this year after costs are said to have ballooned 86% to $11 billion. Last month Barrick Gold indefinitely suspended its Pascua-Lama gold mine in part because its costs have escaped its value to pursue.

The longer Gabriel Resources has to fight the Roman legions, the greater the possibility it ends up just surrendering on its own.

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