As much as I am a fan of democratic movements, and the recent Rosia Montana protests have shown that social media and young people can come together to protest for the greater good, I always have a slight amount of skepticism left in me. I do believe that history has taught us two things: 1) people can be manipulated, especially larger masses and 2) in most cases public uprisings hide interests that have nothing to do with the ‘greater good’.
One recent article has caught my attention, according to which the shares of Gabriel Resources (the 80.69% owner of the Rosia Montana Gold Corporation) have plummeted since the protests began 10 days ago. This might seem logical, as why would anyone buy shares in a company that has caused public protests and might not get the promised licenses to do what it is meant to do (mining). The old demand-offer rule of economics. If there is no demand for something, the price of the product falls.
However, there is another good rule of economics. ‘Buy when the price is low!’ Now you see, if I for example would like to become a significant shareholder in a company, I would by when the shares are low. The value of a company’s shares at any given point is the result of highly volatile factors. It fluctuates due to environmental, political etc. changes. The stock exchange value of a company reflects future potential. The future is bright, the price goes up. The future is grim, the price goes down.
Now over the years, many have come up with different devices and tricks to lower a company’s shares, buy them when they are at its lowest and then wait until they bounce back and sell them off again. One such technique (already invented by a Dutch guy at the turn of the 16-17th century) is ‘short selling’. This generally occurs inside a company, from an existing shareholder. What we might be witnessing in the Gabriel Resources case is an outsider wanting to get into the company.
I checked the numbers on Gabriel Resources. It is a Canadian company, listed on the Toronto stock exchange. Its market capitalization (the actual market value = the price of a share x the number of outstanding shares) on 11 September 2013 is approximately 250 million dollars, while the price of shares has dropped from 1.46 dollars/share to 0.72 dollars/share. Now that my dear friends is a significant drop and it has been the lowest share price in ages. So who ever would like to buy the shares, should buy it now.
I also checked the ownership of the company, and as of 31 July 2013 it is as follows: 16% Paulson & Co., 16 % Electrum Global Holdings, 16% BSG capital, 13% Newmont, 13% Baupost Group and 26% are free (public) floating shares. As you can see none of the shareholders are too big, but the 26% free floating ones are the ones which are currently on the market (can be bought on the stock exchange). So whoever wants to become a shareholder is smart enough to buy now, and if they buy up the 26%, then they are the biggest shareholder in the company. A bigger stake of the equity means a bigger share in the proceeds and profits of the company (dividends).
So the conspiracy theory is this: it is known that some affluent and influential business men out there have been funding for some years protests against Gabriel Resource’s mining operations in Romania. But business men are business men. They don’t do things for free! And I would be surprised to see that some of these business men, through companies they control, all of a sudden become shareholders in Gabriel Resources. The shares went down due to the protests, so it is optimal time to buy them up.
You could ask ‘So? Why would anyone ruin the image of a company to buy it up and then this company will not be able to mine for gold.’ Two reasons. 1) If you buy up the 26% of public shares at this point of time you spend 65 million dollars. But if Gabriel Resources launches investment arbitration proceedings against Romania, Romania might just have to pay 4 billion dollars in damages (and Romania has lost some cases till now) 2) Let’s not forget that Gabriel Resources also owns the company Rom Aur and also has concessions in the Bucium area (south-east of Rosia Montana), which can be traded for mineral rights in the Baisoara area.
If that investor buys up those 26% of shares at this low share price, but the company gets 4 billion dollars in damages, whoever that investor is, becomes a rich man. And he will only have to pay a team of lawyers to defend the company and not pay the high costs that come with mining operations.