Mining a rich seam of distrust

Will Gabriel Resources be able to advance the controversial Rosia Montana project in Romania?

With voting for Romanian parliamentary elections recently over, Canadian miner Gabriel Resources and the supporters of its controversial gold project, Rosia Montana, wait with baited breath. The company hopes the solid parliamentary majority for the ruling coalition delivered by Romanians on December 9^th will provide the political stability to kick-start what could be Europe’s largest gold mine, stalled for over a decade.

A golden future for Romania?

Following a recent visit to Romania, Critical Resource takes a quick look at the Rosia Montana project using the basic structure of LicenseSecure^TM – a rigorous approach for assessing and responsibly managing a resource project’s ‘socio-political license to operate’.¹

Overall, in recent years the company has worked actively to tackle a difficult legacy from the past and – by seeking to advance a best-practice approach to sustainable development in many areas – to shift stakeholder attitudes in a more positive direction. However, our rapid analysis suggests the company can (and may need to) do more in two critical areas:  finding responsible ways to more effectively reframe the national debate around the project; and supporting initiatives to tackle concerns over how fiscal revenues from the mine are spent.

Current stakeholder attitudes

• Gabriel says a majority of local residents are supportive of the project. The company already employs around 500 local people, and has pledged to provide around 3,000 direct jobs over the project’s lifetime – a popular position in a former mining region now plagued by high levels of poverty and unemployment. To test the level of this support, the local government conducted a non-binding local referendum on the project’s future in conjunction with the nationwide elections. The result was encouraging for Gabriel, with over 78% of the registered voters of the Rosia Montana commune voting in favour of the project, alongside over 62% in the wider region. However turnout for the referendum was below 50%, leading opponents to attack the legitimacy of the result.

• The company hopes this formal signal of support for the mine from those most directly affected by it will help to overcome the project’s main detractors. Rosia Montana continues to be the focus of NGO criticism, at the local, national and international level. NGOs have focused on championing the cause of local residents opposed to the project, and highlighting potential harm the project poses to the local environment through the planned use of cyanide. The arguments against the mine have also been given considerable weight by influential supporters in the international media and in key European Union institutions.

• In recent months, political turmoil at the national level has also not favoured the company’s cause. In late 2011, it appeared that Gabriel had come close to receiving the environmental permit for the project after drawn-out negotiations. However widespread public opposition to austerity measures, and the seemingly weak hold of political parties, has seen governments topple in quick succession and negotiations grind to a halt. Throughout this instability, the project had again emerged as a major issue between political rivals.

• More broadly, however, widespread public distrust of politicians and the political process has cast a long shadow over Rosia Montana. Corruption in public institutions has become an issue of increasing popular concern. In this context, what would appear to be one of the company’s most convincing arguments – that the project promises a huge increase in government revenues over the life of the mine – serves only to fuel to popular suspicion.

Post-election: potential issues

• Now that Romania’s ruling coalition has been returned with a solid majority, the company hopes this could provide the regulatory stability to allow for the project to be approved on its merits. Surely, supporters argue, a government keen to revive a struggling economy and create jobs would not stop a major investment that promises to employ several thousand people to and leave Romania around $30 billion better off? Combined with the results of the local referendum, the case for development should be even stronger.

• However, there are three reasons why the project’s supporters should remain cautious. First, despite Victor Ponta’s ruling coalition securing almost 60% of the popular vote, the national political situation remains in a worrying state of flux. It is far from clear whether the current president will consent to fulfil his constitutional role and confirm Ponta, his bitter political rival, as prime minister. Even if he does, an enduring constitutional battle may continue to distract the government, potentially leading to on-going difficulty in securing key permits.

• Second, the government still may not be fully supportive of the project. Its treatment of the resource industry more generally has been mixed, and Victor Ponta himself openly criticised the project on environmental grounds whilst in opposition. His government’s recent decision to revisit an environmental permit for Eldorado Gold’s Certej gold project, and to impose a moratorium on shale gas exploration also show the potential for a broader worrying trend for Gabriel.

• Third, even if the government chooses to grant the necessary permits, criticism of the project by its opponents will not simply fade away. In the past, Rosia Montana’s NGO critics have proven unwavering in the environmental and other concerns they raise, and resourceful in their efforts to delay the project. At the national level, opposing the project has long proved a useful means of attacking the incumbent government, and it seems likely to remain an opposition ‘easy-win’ for some time to come.

Management approach

• Since first acquiring the license in 1999, the company has spent hundreds of millions of dollars under a succession of CEOs in attempts to get the project started. In the eyes of some, the company is struggling with a legacy of decisions made without sufficient appreciation of stakeholder concerns. By its nature, a large-scale gold mine which uses cyanide will likely raise concerns from environmental groups, whatever the strength of safeguards put in place (cyanide is used in the majority of the world’s gold mines). Notwithstanding all this, the current Gabriel Resources team – consisting almost entirely of Romanian nationals from the nearby region – appears committed to a best-practice approach to developing the project.

• In particular, Gabriel is developing a range of measures across key areas such as local employment, resettlement, environmental remediation, and cultural education and restoration. For example, work is being undertaken to tackle the significant environmental pollution from historic mine workings in the area, which will ramp up if the project progresses. Gabriel has also been conducting a concerted communications campaign to raise awareness of the project and its potential benefits, and to attempt to counter suspicions surrounding the mine. Although there are ways to further strengthen the approach – and, if and when the project moves ahead, strong management of environmental risks will be critical – the Gabriel team certainly appear dedicated to the project’s sustainable development (many have been with the project for almost a decade).

Critical Resource comment:

• Given the scale of the challenges facing Rosia Montana at the local, national and international levels, and the level of historic distrust, Gabriel should consider some more proactive measures. In addition to advancing current best-practice, sustainable development efforts, we suggest attention be focused on two additional key areas. These measures, though difficult to implement, may be needed to redefine the project so that it is no longer seen as a tool for political point-scoring, and to build support by addressing central stakeholder concerns.

• First, Gabriel should identify responsible ways to more effectively reframe the national debate around the project, going beyond existing local and national engagement efforts. Designing a formal dialogue process which draws in all key parties, independently facilitated by respected Romanian figures, could help to remove the project from its current position at the heart of Romania’s combative party politics, allowing the merits and risks to be debated in a more informed and sober manner. Such a formalised process – akin to dialogue tables used at resource projects in Peru², the US and elsewhere – may surface more criticism and debate about the project initially. But it may be the only way to develop a stable long-term consensus over the project’s future.

• Second, Gabriel should support initiatives to tackle concerns over potential public corruption in how tax revenues from the mine will be spent. As mentioned, suspicion that these revenues will be mismanaged, fair or not, is one of the drivers of opposition to the project. Support for Romania joining and implementing the Extractive Industries Transparency Initiative, and a commitment to declare all payments made to the government may help in this. Going further, as other resource firms have done in other countries, Gabriel could partner with academic institutions or other respected third parties to help build the Romanian government’s capacity and systems for managing the revenues. One option here would be to support investigation into the design of an independent trust fund for the revenues – likely a complex, high-profile undertaking, but the sort of initiative that may be needed to restore public trust.