Its shares in the company were barely worth RON3 million on Tuesday after dropping more than 60% on the Toronto stock exchange in two day.
In theory, SIF Moldova lost RON9 million of its investment in Gabriel Resources, according to ZF calculations, as the company based in Bacau, eastern Romania, kept its shares and hopes to see them rebound.
“I don’t know exactly how high the potential loss is but my opinion is the price will go up again. We’ll see what happens. I hope we’ll see a thorough debate on this project,” Claudiu Doros, SIF Moldova vice-president, told ZF.
SIF Moldova management says the investment does not pose a risk to its investment portfolio, whose net value was RON1.12 billion at the end of July.
“As far as investors are concerned, the stake is insignificant compared with the portfolio and is not likely to affect the financial performance of our company. We have and still consider the political risk when we decide to invest in such issuers as a way of diversifying and choose medium to low risk, not a speculative approach,” said Costel Ceocea, SIF Moldova chairman.
SIF Moldova started to invest in Gabriel Resources, which owns 80% in the Rosia Montana gold mining project, in the second half of 2010 when the project started being prominently featured on politicians’ agendas.
By the end of 2011, it had already accumulated 230,700 Gabriel Resources shares worth RON5 million. The share price at the time was RON21.6.
Back then SIF Moldova bought shares in other gold mining companies such as Barrick Gold and Newmont Mining, expecting a rise in gold price. Its gold mining stocks were worth RON13.14 million by the end of 2011, about 1.2% of its net asset.
Gold price has been going down since the end of 2011, mining stocks plummeted and SIF Moldova lost about RON6 million on the other gold mining stocks.
“We thought we needed to create a gold portfolio to overperform just in case international markets worsened. We did not expect such a steep decline on those stocks. We hope gold will rebound but it is hard to tell when that happens,” Claudiu Doros explained.
Despite gold price and gold stocks decline, SIF Moldova continued to buy Gabriel Resources in 2012 and in early 2013. In the second quarter of this year when the stock price went down from RON8.2 to RON4.56, SIF Moldova bought a further 900,000 shares (twice more than it already had), for a total of 1.39 million (0.408% of the company’s capital).
What made it double its bet on Rosia Montana?
“When we decided to invest we took several elements into account such as the need for such a mining project in the region, and the approvals granted up to that moment. Politicians were supposed to agree on it. What is happening now proves that when one invests in a project which involves politicians, one takes certain risks,” Doros said.
He added he discussed the investment with the shareholders and most of them agreed to it.
SIF Moldova’s main shareholders are Banca Transilvania (TLV.RO) and the group of investors around Horia Ciorcila, the chairman of this bank, who also have three seats in the SIF’s board of directors, as well as Mihai Rotaru, one of the most powerful investors on the Bucharest Stock Exchange in the last few years.
(English version by Loredana Fratila-Cristescu)