“The Biggest Gold Mine in Europe Will Reopen in 2012”

By Travis Johnson, Stock Gumshoe, November 17, 2009

That’s how we’re introduced to this new teaser ad letter from Dr. Stephen Leeb …

“The Biggest Gold Mine in Europe Will Reopen in 2012, But You Can Get Your Stake In The Profits Today…

“Since last July, shares in one of the world’s most promising junior gold miners have shot more than 200% higher. But even at these prices, the stock is dirt cheap compared to it’s potential growth over the next two years.

“The reason: A few years back, this Canadian company bought the richest gold mine in Europe—one that the Roman Empire used to operate, but had since been shut down. Not surprisingly, mining methods have improved a lot since Roman times, and the remaining 10.1 million ounces of gold left in the deposit can now be mined profitably.”

Ah, the Roman Empire’s gold mines! That’s good stuff — not quite as sexy as the Pharaoh’s gold that we were teased with a couple years back (that was Centamin Egypt, by the way, still an interesting story and one that just started mining this year at their massive gold resource near the Red Sea), but a similar kind of pitch — ancient gold mines given new life by modern geologists.

So who is Dr. Leeb talking about, inquires Master Gumshoe? Well, if you want the answer from him you’ll need to pony up the $997 for a subscription to Leeb’s Real World Investing. If you just want the name of the company and a bit of background, well, join along with me and we’ll see what we can find …

We get some more clues, of course …

Production costs of $270 an ounce.

47.6 million ounces of silver in that same mine — and silver’s going up even more dramatically than gold right now.

“Yet, despite the gains the stock has made in the past year or so, it’s still selling as if all its gold was only worth $100 an ounce. The reason for this undervaluation is that the company had some problems dealing with the local government in the past—which wanted strong assurances that the project would be environmentally sound.

“However, upcoming elections are likely to install a new government on the promise of job creation. With unemployment booming in the area and the large number of workers the mine will employ, the project is almost certain to get approved.

“The company has attracted the attention of one of the world’s largest gold miners, as well as some of the savviest institutional investors around— which is a strong vote of confidence. I expect this could be one of the most profitable enterprises of the next three years.

“However, if you want to participate in this incredible opportunity, you will have to get in soon. Once the government gives its stamp of approval, the prices could make another huge leap forward—and you want to be in on that ride.”

So who is this wee miner sitting on a pile of old Roman gold?

Gabriel Resources (GBU in Toronto, GBRRF on the pink sheets — click here for a free instant analysis of GBU)

The clues are all exact matches, save one: we can remind ourselves that Dr. Leeb’s PhD was in psychology, not in math, because when a stock doubles from $1.60 to $3.20 that’s a 100% gain, not 200% (it is up 200% since the trough late in 2008 … but most other junior gold stocks are, too). But otherwise, this is an exact match for all the numbers about Gabriel’s main asset, the old Rosia Montana mine in Romania.

The reserves numbers and estimated cash costs are straight from Gabriel’s website:

“The Rosia Montana Project, owned through a joint venture with the Romanian Government, contains reserves of 10.1 million ounces of gold and 47.6 million ounces of silver. Currently, measured and indicated resources stand at 14.6 million ounces of gold and 64.9 million ounces of silver in addition to inferred resources of 1.2 million ounces of gold and 3 million ounces of silver. The deposit remains open in several directions. The estimated cost to complete the development of the Project – including interest, financing and corporate costs – is US$1 billion, consisting of capital costs of US$876 million and interest, financing and corporate costs of US$124 million. The Project is estimated to produce 626,000 ounces of gold annually during its first five years of operation at an estimated total cash cost of US$272 per ounce, and an average of 500,000 ounces per year over its 16 year mine life averaging US$335 per ounce.”

And Gabriel’s share price has been on the move up lately, in part because of the interest of a big new investor, Beny Steinmetz, whose BSG Capital Markets subscribed to 30 million new shares in a private placement just a few days ago. Steinmetz is a billionaire from an Israeli diamond family who has expanded into several different mining ventures in recent years.

The Rosia Montana project has been a gold mine for thousands of years, from Roman occupation until just a few years ago, when it was shut down as part of Romania’s entry into the EU. It apparently still has huge reserves available for modern mining techniques — as well as kilometers of ancient underground tunnels, and rivers of red toxic runoff to keep everything exciting.

Restarting mining at Rosia Montana has been a hugely controversial project, which is why Gabriel hasn’t often carried the share price that you’d expect for a gold mine with 10 million ounces of booked reserves. There has been significant environmental opposition, since gold mining is, as we all know, a hideous and nasty enterprise, but the company has seemingly overcome much of that opposition — in part because the site is already a toxic dump from generations of cyanide leaching, and it would be nice to at least get someone actively involved there who was responsible for cleaning it up.

I have no particular insight into whether or not Gabriel’s mine will go ahead as they hope — it is a massive project, including the creation of a new town and resettlement of the inhabitants, and it is in an area where employment was historically dependent on the mine, so there is both support and opposition locally, and a lot of outside groups (both for and against) in the Romanian government and in the EU who have taken it on as an environmental, economic, and cultural issue. One of the opposition groups has a pretty clear website if you’d like to try to get a picture of both sides.

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