Gabriel may seek billions in arbitration over stalled Romanian mine

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The Toronto mining company whose 15-year effort to open Europe's biggest gold project has gone nowhere is preparing an international arbitration case against the Romanian government that would seek billions of dollars in damages.

Gabriel Resources is making plans for the case, which probably would be heard in Vienna in the second half of the year, as it starts to wind down its activities in Romania's Transylvania region to conserve cash. About 400 employees, or 80 per cent, of Gabriel's Romanian subsidiary, Rosia Montana Gold Corp. (RMGC), have been suspended at three-quarters pay. The company has said it may fire them in May "if there is no progress in the advancement of the project."

Gabriel, which is listed on the Toronto stock exchange but run from London, is not expecting a breakthrough any time soon. The Romanian parliament's chamber of deputies is scheduled to vote on a bill that would give special legal status to the $1.5-billion (U.S.) project, allowing it to go ahead, on May 7.

But the company does not expect the vote to go in its favour, partly because public opposition to the mine and its cyanide-based extraction technology remains strong. Timing is also an issue. Since it's the last item on that day's agenda, there is a good chance the parliamentary session will end before reaching the RMGC vote.

Gabriel threatened to sue the Romanian government last September for up to $4-billion "for multiple breaches of investment treaties." At the same time, Gabriel's Irish CEO, Jonathan Henry, the company's sixth boss since the mid-1990s, warned that the government's failure to approve the project would damage all of Romania. "Our case is very strong and we will make it very public that Romania's effort to attract foreign investment will suffer greatly," he said.

His comments triggered an anti-Gabriel backlash across Romania, after which Gabriel appeared to tone down its threats to go after the government. In a statement issued on Sept. 11, Gabriel chairman Keith Hulley said, "We will acknowledge any decision taken by the Romanian government or Parliament concerning Rosia Montana."

The preparations for the arbitration case indicate that Gabriel's threat is still very much alive. The company will give no details of its strategy, however, and has not said which investment treaties it would use to support its case. "We cannot comment on any aspects of any international arbitration case we might take against Romania," Gabriel spokesman Bobby Morse said on Wednesday.

International commercial arbitration in general, and arbitration cases against governments in particular, are becoming increasingly popular, to the point they are gaining favour over traditional courtroom litigation. The rise of bilateral investment treaties has triggered a surge in arbitration case against governments, which are handled through the World Bank's arbitration court, known as ICSID – International Centre for Settlement of Investment Disputes.

International commercial arbitration cases are adjudicated behind closed doors, tend to be shorter than courtroom litigation and produce final decisions that cannot be appealed, though they are not necessarily cheaper.

Khan Resources is one Canadian company using international arbitration. It is using arbitration in Paris to try to regain control of a Mongolian uranium project that it claims was illegally expropriated by the Mongolian government.

The Rosia Montana project has been held up by well-organized and well-funded protesters, ranging from local farmers who do not want their properties seized to make way for the enormous mine, to billionaires such as George Soros and celebrities such as Vanessa Redgrave, since the 1990s. Gabriel has spend $550-million on project development and legal work with nothing to show for it, and has gone through five CEOs in 20 years, each of who was convinced the project was on the verge of a breakthrough.

Mr. Henry is the sixth CEO. His efforts to engage the community and highlight the economic benefits of the mine have failed to break the deadlock. In November, the Romanian senate rejected the draft law that would have declared that the project was of "extraordinary public interest."

The project has gold reserves of 17.1-million ounces and 81.1-million ounces of silver.

Environmental and farming groups have attacked it for its use of cyanide and its enormous size. The four-pit mine would blow up two mountainsides, displace about 2,000 villagers and fill an entire valley with waste-rock and cyanide-laced sludge. The tailing pond alone would cover nearly 300 hectares and would rise from an initial height of 70 metres to 180 metres.