Roşia Montană nearing legal dissolution

• The Office of the Trade Registry refused to register the share capital increase, which was vital for preventing the dissolution of the company

• Roşia Montană Gold Corporation did not appeal the decision of the appointed judge, which could lead to the dissolution of the company according to the law

The controversial share capital increase of Roşia Montană Gold Corporation (RMGC) decided at the end of last year, which could end up reducing Romania"s stake in the company from 19%, to just 0.6%, was not approved by the Office of the Trade Registry of the Alba county, which prevented its official registered, which opens up the possibility of the dissolution of the company, especially since the officials of RMGC did not appeal the decision within the legal delay.

The goal of the share capital increase of December 2009 was precisely to prevent the dissolution of Roşia Montană Gold Corporation, due to the deterioration of its assets. More specifically, the company"s net assets had dropped since 2008 below the legal limit provided by corporation laws.

BURSA published last week, in an exclusive article, the fact that the share capital increase was the solution that the lawyers and administrators of RMGC proposed to prevent the dissolution of the company, but the unusual method they wanted to use could caused the Romanian state to lose its stake in the company. The shareholders of RMGC had proposed that Gabriel Resources lend Minvest, the company owned by the Romanian state, the funds needed to participate in the share capital increase. The judge of the Office of the Trade Registry did not agree to this solution, claiming it does meet the requirements of the law (read the judge"s reasoning below).

The law requires companies whose net assets fall below the legally required limit of 50% of their share capital, to take the appropriate measures or else be forced into dissolution. The law also specifies that the company has to remedy the situation within one year after the court rules the dissolution of the company.

As the administrators of the company acknowledged the deterioration of the net assets in October 2008, the legal deadline for lowering or boosting the share capital was December 31st 2009.

According to lawyers that BURSA consulted, the decision of the Office of the Trade Registry of the Alba county to deny the registration of the share capital increase takes the problem outside the limit of the law, meaning a resumption in the share capital increase in 2010 would exceed the legal deadline. In order to prevent the decision of the Office of the Trade Registry of the Alba to become definitive, it should have been challenged by means of a supervisory appeal. However, the officials of RMGC did not submit an appeal within the 15 days allowed by the law.

In turn, Roşia Montană Gold Corporation submitted a new request for a share capital increase on January 21st 2009. Lawyers say that the order of the judge of the Office of the Trade Registry of the Alba county to reject the share capital increase prevents RMGC from relitigating the issue and submitting a new request for the increase of the share capital of the company, like the one submitted on January 21st.

In other words, Roşia Montană Gold Corporation is officially on the brink of dissolution.

The head of Minvest Deva, Daniel Andronache, Romania"s representative on the Board of Roşia Montană Gold Corporation, said he had no knowledge of the decision of the judge of the Trade Registry Alba, whereas the minister of the Economy, Adriean Videanu, was not available for comment on this new situation.

Officials of Roşia Montană Gold Corporation did not provide us with any reply before the paper went to print.

If the company actually were to be dissolved, the current shareholders could set up a different company for exploiting the gold deposits in Roşia Montană, but the new company would need to get its license back. The license was initially issued in 1999, to state owned company Minvest Deva, and was one year later transferred to Roşia Montană Gold Corporation.

The statement of Mr. Daniel Andronache, general manager of "Minvest" Deva (controlled by the Ministry of the Economy): "The majority shareholder (ed. note: - Gabriel Resources) has already subscribed the new shares, and in the case of Minvest, it was agreed that Minvest would pay for the subscribed shares using funds lent by Gabriel Resources, which it would later pay back from future dividends".

The statement made by the Minister of the Economy, Adriean Videanu for BURSA, on January 19th 2010: "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".

• Gabriel Resources: "We provided all the funds needed for the capital increase"

Reporter: What was the means of payment that Gabriel Resources and Minvest Deva agreed upon for the payment of the newly subscribed shares as part of the 597 million lei share capital increase performed by RMGC? What is the deadline set by the General Assembly of Shareholders for the shareholders to pay for the subscribed shares?

Gabriel Resources: The Roşia Montană project will be funded in its entirety by Gabriel Resources. The payment of the new shares was made in December 2009, and Gabriel Resources paid the entire amount needed for this operation.

Reporter: Mr. Daniel Andronache, general manager of Minvest and Member of the Board of RMGC, claims that Gabriel Resources already paid for the new shares in December, and Minvest will pay for its shares using future dividends received from RMGC. Is there an agreement or a memorandum between the two parties (Minvest and Gabriel Resources), by which the latter guarantees the payment of dividends and, more importantly, that it will not dilute the stake of Minvest, in case RMGC does not become profitable in the coming years?

Gabriel Resources: The articles of incorporation provides that dividends will be paid according to the stake of each shareholder.

Reporter: On the other hand, officials in the Ministry of the Economy claim that the funds needed for the capital increase may need to be obtained by having Minvest take out a loan, which would also be guaranteed by Gabriel Resources, which will then pay back its loan using the dividends received from RMGC. In what capacity will Gabriel Resources serve as surety for a state owned company and what will be the object of this guarantee?

Gabriel Resources: We do not confirm this information.

Reporter: Why was the stake of Minvest diluted from 33%, to just 19%, in 2000, after the exploitation and development permit was transferred from Minvest to RMGC?

Gabriel Resources: That is what the shareholders decided at the time, after a feasibility study.

(Note: The answers from Gabriel Resources were received from the Press Office of "Roşia Montană Gold Corporation" on January 21st, 2010.)

• The grounds of the judge"s decision to deny the share capital increase (December 29th, 2009)

"(...) The increase of the company"s share capital through the contributions of shareholders in the form of loan conversion was requested by means of the decision of the Board of Administration of SC Roşia Montană Gold Corporation SA of December 16th, 2009, based on the decision of the General Extraordinary Assembly of Shareholders of October 16th, 2009.

Even though the law allows the company to borrow funds from another company or from one of its corporate or individual shareholders the following legal requirements have to be met:

1) According to article 210, paragraph (2) of the Law 31/1990, the newly issued shares will be released by including legal reserves, as well as of shares premiums or profits, or by converting liquid and payable receivables into stock.

2) The liquidity and payable nature of receivables resulting from a contract depends on the terms of the contract in question. Receivables are certain if their existence stems from the contract or from other documents issued by the debtor (orders etc.) A receivable is liquid when its amount is either set through a contract or can be determined by means of the contract or of other deeds issued by the debtor. The enforceability of the claim comes from its maturity, which is usually set in the contract.

3) Borrowers which take out a loan for a term greater than one year from foreign individuals or corporations must notify Romania"s National Bank of such contracts, according to Regulation 17/2002. This notification entails the recording of the loan in the Private Foreign Debt Registry.

Given the aforementioned conditions, the court makes the following observations:

1) From the two loan contracts concluded on data de December 16th, 2009 between:

- Gabriel Resources Limited (Gabriel Jersey) and the National Copper and Gold Mining Company Minvest Deva SA, both as shareholders of SC Roşia Montană Gold Corporation SA and

- Gabriel Resources Limited (Gabriel Jersey) and Foricon SA, both as shareholders of SC Roşia Montană Gold Corporation SA it does not result:

a) the certain, liquid and enforceable nature of the receivables:

- Neither of the two loan contracts state that Minvest SA and Foricon SA as shareholders of SC Roşia Montană Gold Corporation SA lent the money needed for the share capital increase

- The two loan contracts were concluded between two shareholders, with neither contract containing any proof that the amount mentioned in the loan contracts was lent by the two shareholders to Roşia Montană Gold Corporation SA, but instead containing only a mention that the amount in question was be used for the share capital increase

- There is no loan contract concluded between Minvest SA, and Foricon SA, respectively, and Roşia Montană Gold Corporation SA from which it would ensue that the two shareholders are creditors of Roşia Montană Gold Corporation and that they are entitled to receive stocks in return for their receivables

- The amounts required for the share capital increase by issuing new shares are not recorded in the accounting statements as loans taken out by Roşia Montană Gold Corporation SA.

2) According to the decision of the General Extraordinary Assembly of October 16th, 2009, the share capital increase was decided by majority shareholder Gabriel Resources Limited, with the other shareholders being against it, meaning it can be inferred that the two shareholders did not agree to have the amounts they borrowed be used for the share capital increase, since they are not recorded as loans in any of the financial statements submitted to the Trade Registry.

3) The brief which was submitted does not include the documents required by the Law 31/1990, revised by Order 2594/C/16.10.2008 which are needed for the recording of the share capital increase." n

• Chronology of this affair

October 2008

The administrators of Roşia Montană Gold Corporation recognize the deterioration of the company"s net assets below the legally required limit and summon a general meeting of shareholders in order to decide whether the company should be disbanded or continue its operations;

December 2008

The shareholders of the company decide it should continue to operate and empower its administrators to come up with a solution to increase the company"s net assets;

September 2009

The board of the company suggests a capital increase. In October 2009, the shareholders approve the issuing of 597 million lei in new shares (USD 202 million). The representative of the Romanian state owned company Minvest on the board votes against the capital increase;

December 2009

On the deadline of December 16th 2009, Minvest subscribes the new shares, but does not pay its quota of 115 million lei. Gabriel Resources Ltd pays for its shares while at the same time covering the 115 million that the Romanian state was supposed to pay.