Romania has witnessed massive protests against the Canadian gold mine project for almost four weeks now. About 15,000 Romanians gathered in Bucharest, the capital of the country, to voice their disapproval of a new mining project by Gabriel Resources Ltd. (TSE:GBU). The principal reason behind this resistance is an environmental concern; the mining project will disrupt four mountains and three surrounding villages in the area of Rosia Montana.

Seth Klarman Striking Out In Gold And Limestone Mining

Largest protests since 1990s

Romania has a population of 21.3 million and is currently witnessing the largest protests since the 1990s. The Rosia Montana gold mine was given “national interest status,” according to a draft law last month, and has quickly become the cause of some serious national pain. The Romanian parliament will give a final vote on the project in November, whereas a 21-member special committee’s report on the proposed mine will be ready by October 20 and will then be debated before the final decision. Meanwhile, Gabriel Resources Ltd. (TSE:GBU), which has waited 14 long years to receive a permit for this lucrative gold mine, is in equal if not greater pain. The Rosia Montana Gold Corporation, which is a joint venture company, is Gabriel’s principal asset where it holds an 80 percent share.

Gabriel Resources downgraded

In the past few weeks, Gabriel has received multiple downgrades and price cuts from analysts. Most recently, Scotiabank cut price targets from C$3.00 to C$2.50, BMO Capital Markets has downgraded it to Underperform, Cormark has also downgraded from Buy to Market perform. While analysts saw the formation of a special committee to review the details of the project as a positive, the sentiment is low since the draft law has been rejected unanimously by standing committees of parliament on two previous occasions.

Seth Klarman has no luck in mining gold or limestone

As we have mentioned in previous posts, two bigwigs of the U.S. hedge fund industry have major stakes in the Canadian company. John Paulson’s Paulson & Co. is the largest backer with a 16 percent holding in the outstanding shares of Gabriel Resources Ltd. (TSE:GBU). Seth Klarman’s Baupost Group has a 12.6 percent stake in the company. Shares of Gabriel are down 65 percent YTD.

While both investors stand to lose if the Rosia Montana project is voted down, in the case of Seth Klarman there is an acute sense of deja vu. Less than a year ago, Seth Klarman was up against an angry group of environmental activists in Canada, where once again a company backed by Baupost Group wanted to mine a much less valuable material, limestone. Highland Companies used to have high hopes of building a mega-quarry, potentially the second largest limestone mine in North America, in Melancthon Township, Ontario. Once again, Seth Klarman was bested by environmental groups that came out in droves to protest against the destruction of thousands of acres of farmland. In the end, Highland and Seth Klarman lost the battle and had to settle for growing potatoes in the fields. This year, Highland Companies sold the once highly valuable farmland to another company, which pledged solemnly that they will always use the farmland to grow potatoes and thus ended Baupost’s dream of limestone and mega-quarries.

Fears of cyanide spill

This time, the protests are much bigger and from the looks of it, there is nothing to indicate that parliament will vote in favor of the Rosia Montana project. The Romanian gold mine project has also raised concerns about heavy metals and cyanide poisoning. The proposed plan will use 12,000 tons of cyanide per year to mine. Protesters and critics of the mine contest that 1.8 billion euros in revenues for Romania over 16 years is not only selling Romania’s assets cheaply but is also risking too much for a short-term gain. The Rosia Montana area is also an archeological site, and if the open mine project does take place, 95 percent of the historical sites will be destroyed.