Gabriel Resources: Foreign Direct Investment in Romania

It is year-end 2013 and management at Gabriel Resources, a Canadian junior mining corporation, is attempting to handle investor relations and political tensions surrounding its Rosia Montana mine project in Romania. Recently, the Romanian Parliament voted overwhelmingly against granting the final permit for the gold and silver mine until a more thorough environmental and legal framework is established. Although the company promises that its project will bring significant financial benefits to the state and needed infrastructure improvements and employment in the region, both national and international civilian and non-governmental organizations have protested vociferously against a development that they see harming not only the fragile geographic ecosystem but also historical artifacts that have been a major tourist draw. The draft bill was set to allow the company to begin work on developing the potentially lucrative mine, which has been 15 years in the making and has not yet generated any revenues. Investors are worried and the company’s share price is sinking. How can the company calm shareholder panic and negative stock price movement? What can it do to persuade the Romanian government and people to support the mine? Spreadsheet for students is available, see 7B14N025.

<ul><li>To assess (qualitatively) the level of political risk surrounding the Rosia Montana mine project.</li><li>To consider the impact of government/politics in relation to foreign investment.</li><li>To explore and learn about the mining industry and the valuation of a mine project using net present value in considering the impacts of certain sensitivity adjustments on the overall bottom line.</li><li>To explore and learn about foreign direct investment in developing or politically unstable countries.</li><li>To discuss investor relations and various alternatives that can be used to prevent negative stock price movement.</li></ul>

• Valuation
• political risk
• Romania