Interview with Andrew PRELEA, President & Executive Director Vast Resources Romania, about doing business in mining industry and real estate and how to think right at the right time, considering the many cultural mentality differences of our times.
Mr. Prelea, you’ve started your professional experience in Australia that was successfully shaped in Romania. How was it all this journey of yours by comparing the business environment of the two countries from two different continents?
It was a difficult transition from one business culture to another. In Australia we have a different set of rules and regulations for business, but it is a closed market for opportunity, but an easier environment once you are in the system.
Romania however was and still is a wonderful market for new opportunities and despite having the difficulties of a new market with regulations that need to be understood and constantly reinterpreted, this is a country ready to boom.
When you make business, how do you think it? Like an Australian or more like a Romanian?
Business is business wherever you decide to work. However, I take the experience I have from Australia and the UK and analyze the model to see if it fits within the norm. If it does, it is analyzed to see if it fits in culturally in Romania, as Romania has cultural differences compared to the Anglo-Saxon mentality and not all that works in those markets will work here.
To answer to your question, I think like both. To succeed in Romania, I have to think like a Romanian and apply my international experience to the local market, not the other way around. I made the mistake in my early days here thinking only like an Australian and not considering the cultural differences and it was a very expensive lesson.
You decided to invest in the domestic mining in a time when this ‘sensitive’ industry is dominated by bankruptcies, unemployment, illegal exploitation a.s.o. Why that? Even you have mentioned in an interview that the Romanian authorities want insistently to bring this industry to bankrupt, referring especially to the one from the west part of the country.
In times of difficulty and hardship is the best time to invest in new opportunities. There is little competition, there are lower costs to start-up and you can reinforce your position for the time when the markets reopen, this is the “first mover advantage”.
Once you have proven your ability to open a new market, or reopen an old one, even in times of resistance, you not only prove to the sceptics that there is an opportunity, but also to the financial markets that you, your company and the country are worth investing in. This creates even greater opportunity.
Romania has hundreds of years of history in the sector, we have communities all around the country that were once mono-industrial cities that employed tens of thousands of people directly and indirectly. This is the perfect sector to fight for, not only for us as a business, but for us as a nation.
~ ‘With mining you have virtually no sales risk
because there is always a buyer!’ ~
Your company announced ambitious investment plans in Romanian mining. What do you intend to do with the production of the two mines that you own locally? Exporting eventually?
Unfortunately once the mining activities stopped in 2006/2007, all of the peripheral activities closed as well, so we do not have smelting facilities left in Romania to add value to the resources. This is why we are currently exporting to Holland.
In time, as the industry grows, there will be opportunities to open smelting facilities back here and we will be able to sell on the local market again. Once this happens, will see an employment increase in these associated industries.
Are you interested in investing in other mines in Romania? What about your intentions for Remin Baia Mare?
We are looking at other mining investment opportunities as we have a long term approach to Romania and our business here. There are vast opportunities here in the sector. Remin still remains the target of our company and we are still focused on finding a way to reopen Remin within the current legislation.
Also, you have a lot of experience in property development. In this context, in another interview a few years ago, you said that you regret not risking more in the real estate investments in Romania. So, which is the more profitable domain – real estate or mining?
They are different businesses, but share a similar risk profile. Both require intense upfront capital, both have development periods, but with mining you have virtually no sales risk because there is always a buyer.
From this perspective the mining sector is a little better, however, they both have their risks and rewards.
Unfortunately the real estate market, for residential, still faces liquidity issues for development funding, but I think this will change soon and we will see the markets improving.
Unfortunately, the mining industry in Romania is related to the negative publicity made through projects such as Rosia Montana or businessmen like Frank Timis. What are Vast Resources strengths in this respect?
Rosia Montana is a sensitive issue for all people who want to raise money for Romanian mining, but there is a lot of history in that project that is unique once you understand the background.
We have managed to work with our investors in order to make them understand that Rosia Montana does not represent all mining opportunities in Romania. Every country has its problem child in this sector and not all children are the same.
We hope that the Rosia Montana problems will be resolved in time, one way or the other, for all parties involved, as it will help market perception for Romania.
What we have tried to achieve for Romania with our Manaila project, is that Romania is an investment destination for the sector and that there are good natural resources here, not only in the ground, but the human resources as well.
Once we have the Baita issues resolved and the mine is operational again, we will see that the mining sector will turn its attention back to Romania as an investment destination.
According to your data, what would be the economic benefits for the Romanian state, following the exploitation of Baita Plai and Manaila mines?
The forecasts for combined projects show that the revenue to the State in Royalties, corporate taxes, and salary taxes exceed USD 10 million per year.
This is based on the 15 year model for Baita and a 5 year model for Manaila. However we believe that both mines can be extended for a further 10 years each which will bring greater benefits to the State budget.
The mining sector can be a wonderful source of income to the state, but you also have to remember that generally every direct mining job creates another 5-10 indirect jobs. Add the revenues to the State budget that will be generated and you will see the financial benefit to the country.