Exclusive: Majority shareholder of "Roşia Montană" buys most of Romania"s stake in the company

• Gabriel Resources also subscribed the shares owned by the state as part of the capital increase of Roşia Montană Gold Corporation

• The Ministry of the Economy, Minvest and Gabriel Resources each have their version on the capital increase of the Roşia Montană project

Further details on the capitalization of Roşia Montană Gold Corporation (RMGC) reveal an operation which is unprecedented in twenty years of transition to capitalism: a private shareholder lends the Romanian state the money it needs to subscribe in a share capital increase.

However, this aid from the private investor comes with many strings attached, being nothing more than a concealed buyout of the stake owned by the Romanian government in one of its most controversial businesses: the exploitation of the gold deposits located in Roşia Montană (one of the largest unexploited gold deposits in the world - 300 tons of gold).

Each party has their own version of things, but one thing is for sure: the Government failed to come up with the money needed to keep its stake in the "Roşia Montană" project intact, but surprisingly, Gabriel Resources stepped in to provide it with the needed funds. It"s hard to tell how it all got here and what the terms of this "aid" are, since each party has its own version of the facts.

Adriean Videanu, the Minister of the Economy, which manages the stake of the State in the Roşia Montană project, says that due diligence was performed to make sure that Romania"s stake in the business doesn"t get diluted, in spite of the fact that the State owned company which is a shareholder in the project did not pay the money needed to subscribe the newly issued shares (115 million lei out of the 597 million that the newly issued shares are worth).

"National Company Minvest Deva" (which is controlled by the Ministry of the Economy) made the commitment of to participate in the capital increase of RMGC, in order to maintain its 19.3% stake.

However, Minvest failed to pay for the subscribed shares since it lacks the necessary funds. The Government just stood by and watched. Apparently this initiated a major effort from private investors, lawyers and government officials who got together to save Romania"s stake in the project.

At least this is the official version.

Unofficially, it"s a whole different ballgame. Because the whole operation looks more like the Romanian state is actually selling its stake to the private investors instead of doing its best to preserve it.

Once this operation is over, the Romanian state will essentially no longer amount to anything in the company, and its share of the company"s profits could become virtually zero.

Minister Adriean Videanu said that in his opinion, the formula that Romania and the Canadian investor agreed upon lowers the risk that Romania"s interests in this business are affected: "In order to participate in the capital increase we would have to take out a loan. The majority shareholder, Gabriel Resources, will guarantee the loan on behalf of the minority shareholder, Minvest Deva. The loan will be paid back to Gabriel Resources out of the dividends received by the state owned Romanian shareholder. As a result, the 19% stake of the Romanian state in the project will remain intact after the capital increase, because it will be in the interest of the majority shareholder (ed. note: Gabriel Resources) to provide Minvest Deva with the resources it needs to pay back the loan".

Since Adriean Videanu is an experienced businessman, it"s difficult to understand why he would consider that this loan would be enough to preserve the stake the State owns in RMGC.

What guarantee does the state have that one year from now, Gabriel Resources won"t choose to stop paying any more dividends, choosing to buy the Romanian state out of the company in return for the 115 million it lent to it in the first place?

With the almost 115 million lei, Gabriel Resources could easily secure a 99% stake in the "Roşia Montană" business. Meaning, for almost 27 million Euros, Gabriel Resources would secure subsequent revenues in the hundred of millions of Euros, if not billions, (the company"s profits for the coming years are difficult to predict, even if actual exploitation of the gold deposit were to begin, since it will all depend on which way the price of gold goes).

Perhaps it would have been easier for the Government, which in this particular case is represented by Mr. Videanu, to openly say that it can freeze the project at any time if the private investor made any attempt to take over Romania"s stake in the project.

But minister Videanu claims that the investor will be directly interested in paying dividends to the Romanian state, (with the dividend ratio currently at 19%) in order to recover the amount it lent.

One would be inclined to logically think that the state would theoretically be just as interested in beginning exploitation as quickly as possible so it can receive its dividends, which it would then use to pay back the loan it received from Gabriel Resources.

Which actually involves the Government in a conflict of interest, since the Government is the party which supposed to impartially evaluate the impact of the project, especially when it comes to its effects on the environment, and therefore decide on whether or not it would grant it the needed licenses.

As long as it included this project in its governing program, the Government could have definitely come up with the money needed to protect its stake in the project (which is low enough as it is).

Looking back at the past, Romania already accepted a dilution of its stake in Roşia Montană Gold Corporation ten years ago, as part of another capital increase which was performed at the time.

At the time, the stake of Minvest was reduced from 33% to 19%. This time, Minvest"s stake could be cut from 19% to just 0.6%.

The other shareholder in the company, Gabriel Resources, does not confirm the statements made by Minister Videanu, (as can be seen hereinafter).

The head of Minvest Deva has another version on how the State will keep its stake in the business.

Meaning, one operation, three players, three diverging opinions. Which serves to illustrate the Government"s bizarre disregard for a business that it put among the priorities of its governing program.

Just when it seemed the government wanted to openly get involved in supporting this project, it leaves the door open for its removal from it. Without getting anything in return.