Toronto's Gabriel Resources ‘has risen from the dead in Transylvania'-Hallgarten

Analysts Jonathan Barbato and Christopher Ecclestone noted that the project has become somewhat of a cause célèbre for some rather well-heeled groups.  ...Some supporters of the company see a bogeyman in George Soros.

We will contrast the generally well-off NGOs with the couple thousand or perhaps even 3,500 residents of Rosia Montana that live in poverty and suffer from chronic unemployment that has made local lifestyles appeal medieval, they asserted.

Gabriel Resources hopes to generate 1,200 jobs during construction of the Rosia Montana gold-silver project and 600 jobs during the life of the mine.  Management claims the project will generate another 6,000 jobs through various multiplier effects.

Thus far, the project claims a total measured and indicated resource that contains 14.6 million ounces of gold and 64.9 million ounces of silver.

An updated capital cost for Rosia Montana, which now stands at US$638 million, is expected to be issued shortly. However, the headline capital cost does not include sustaining capital of a further $278 million, Hallgarten noted. The problem we have with this number is that, despite the gold price run-up (which we believe is sustainable), projects that are much worthier, in safer jurisdictions with lower capital costs and fewer ornery locals are having trouble raising much smaller sums.

Nevertheless, Barbato and Ecclestone said the project could be funded by other means including development bank finance. However, they noted, funding mines owned by foreigners has been touchy even when the mine is not controversial. Multilateral bankers are nothing if not solicitous in covering their own posteriors.

Gabriel's project may be a ‘bridge too far' for this source of the least discriminating capital.

While mining finance houses financing might normally be considered, Hallgarten's analysis suggests, By all accounts this group have pulled their horns in and even weaseled their way out of fairly rock-solid financing commitments they made before the plunge in copper and the global economy.

This leaves the company with equity financing. Frankly if we were the management of the company we would be jumping on the current price upsurge and flinging stock out the door by trying to raise in the order of $100mn, which would probably be the upper limit of what is doable with the current market capitalization, they added.

However, there is a key caveat which is that no-one is going to be fooled that $100mn would be even vaguely enough to get this project more than part way down the goat-track to production, they stressed. The sum is a mere bagatelle compared to the total project cost. And even whispers of such a financing would be enough to sink the stock price faster than the Lusitania (which took 17 minutes to go down).

Frankly we suspect the company cannot viably raise money through any of the above means in its own right and that current valuations represent hopes by investors that a global gold major will come along and relieve the company of the mine, take over the company or JV for a massive (more than 50%) proportion of the mine project.

Hallgarten's analysis noted, We can see easily where investors might conjure up the idea that Gabriel or its mine might prove a tasty morsel for the likes of Barrick, especially considering former Barrick Executive Vice President Alan Hill is now Gabriel's CEO.

However, Hallgarten is not happy with the presence of several Apex Silver people on the board of the good ship Gabriel, declaring, Everyone in the mining community knows the fate of Apex Silver. The Colorado-based Apex Silver recently declared bankruptcy.

In their analysis, the analysts asked, what is better: a producing bird in the hand versus Gabriel's sitting elusively at the very top branches of a very thorny bush.

At CAD$2.74 per share, the current risks outweigh the upside given the lofty valuations, Hallgarten advised. We feel that Gabriel could retest the $2 mark if it announces additional financing in size. Despite this a retreat in the relatively short term could give shorters an interesting profit, thus we are adding a Short position in GBU to our model portfolio with a CAD$2.10 target price.