Gabriel Resources Ltd: Fourth Quarter and
Year-End Report
Gabriel Resources Ltd.
("Gabriel" or the "Company") (TSX: GBU) -
Highlights
-- Technical Analysis Committee
("TAC") recommenced its review of the Rosia
Montana Environmental Impact
Assessment ("EIA")
-- First formal TAC meeting was held on
September 22, 2010
-- Romanian lower courts rejected legal
challenges to Urbanism Certificates
issued for the Rosia Montana
project in 2004 and 2010
-- Restoration of historical town centre
continues
Jonathan Henry, Gabriel's President
and Chief Executive Officer stated:
"We were very encouraged by the
recommencement of the TAC review process in September. Our team is in the
process of addressing all the questions posed by the Romanian authorities and
looking forward to fully demonstrating that the Rosia Montana project has been
designed in a technologically sound, safe and environmentally responsible
fashion".
"The continuation of the EIA
process is an important step in the development of Rosia Montana, which should
deliver much-needed economic development and employment to the region as well
as to Romania. The Rosia Montana project will also remediate ongoing
environmental degradation within the footprint of the project caused by prior
un-remediated mining activities" Jonathan Henry added.
About Gabriel Resources/ Rosia
Montana Gold Corporation
Gabriel is a Canadian-based resource
company engaged in the exploration and development of mineral properties in
Romania and is presently in the permitting stage and preparing to develop its
80.46%- owned Rosia Montana gold project (the "Project"). Gabriel is
committed to responsible mining and sustainable development in the communities
in which it operates. Rosia Montana is expected to bring US$19 billion to
Romania as direct and indirect investment according to recent estimates from
British- based Oxford Policy Management. The project will generate thousands of
jobs while observing all Romanian and European environmental laws and also
helping preserve important historic buildings as well as local cultural
heritage. For more information please visit the Company's websites at www.gabrielresources.com and www.rmgc.ro.
Financial Performance
-- Third quarter net income was $14.6
million, or $0.04 per share,
primarily reflecting foreign
exchange gains of $10.2 million and $6.9
million Romanian income tax
recovery. Year-to-date net loss was $13.6
million, or $0.04 per share.
-- A total of $9.1 million was spent on
development projects during the
third quarter, increasing
the year-to-date amount to $26.3 million.
Liquidity and Capital Resources
-- Cash, cash equivalents and short-term
investments at September 30, 2010
totaled $131.3 million.
-- The budget for the fourth quarter of
2010 is estimated at $20 million
including expenditures and
commitments to maintain the value of the
Company's investment in the
Project.
-- The capital cost to complete the
development of the Project - including
interest, financing and
corporate costs - is estimated at approximately
US$1 billion. Once the EIA
approval is granted, the Company will re-
examine its alternatives to
finance the development of the Project in
the most optimal fashion.
Political Environment
-- Throughout the third quarter of 2010,
the Romanian Government continued
to deal with the challenges
of the global economic slowdown, focusing on
implementing austerity
measures intended to reduce Romania's budget
deficit and comply with the
requirements of the International Monetary
Fund emergency aid
programme.
-- The Company is continuing to reach out
to various stakeholders of the
Project. These efforts are
designed to address comprehensively the
issues and concerns related
to the development of the Project. Continued
strong local and regional
support for Rosia Montana is believed to be
the direct result of these
efforts. The Company's communication program
is fact-based and focused on
explaining the Project's economic and
environmental benefits.
Environmental/Permitting
-- In July 2010, the members of the TAC
were provided with the
documentation submitted
originally to the Ministry of the Environment in
2004 and 2006; the first
formal TAC meeting was held on September 22,
2010. The process is
on-going.
-- The Company is moving forward with the
amended Industrial Zone
Urbanization Plan, having
completed the public participation phase of
the process.
Management's Discussion and Analysis
This Management's Discussion and
Analysis ("MD&A") provides a discussion and analysis of the
financial condition and results of operations to enable a reader to assess
material changes in the financial condition and results of operations as at and
for the three-and-nine months ended September 30, 2010 and 2009. The MD&A
should be read in conjunction with the unaudited consolidated financial statements
and notes thereto ("Statements") of Gabriel Resources Ltd.
("Gabriel" or the "Company") as at and for the
three-and-nine months ended September 30, 2010 and 2009, as well as the audited
consolidated financial statements of the Company as at and for the year ended
December 31, 2009 and notes thereto. The Company's consolidated financial
statements have been prepared in accordance with Canadian Generally Accepted
Accounting Principles ("Canadian GAAP").
All amounts included in the MD&A
are in Canadian Dollars, unless otherwise specified. This report is dated as of
November 2, 2010, and the Company's public filings, including its most recent
Annual Information Form, can be reviewed on the SEDAR website (www.sedar.com).
Overview
Gabriel is a Canadian-based resource
company engaged in the exploration and development of mineral properties in
Romania and is presently in the permitting stage and preparing to develop its
80.46%-owned Rosia Montana gold project (the "Project"). Minvest S.A.
("Minvest"), a Romanian state owned mining company, and one other
private Romanian company, hold a 19.54% interest in Rosia Montana Gold
Corporation ("RMGC"), the beneficial owner of the Project, and
Gabriel holds the pre-emptive right to acquire the 19.54% minority interest.
Gabriel is committed to responsible mining and sustainable development in the
communities in which it operates. RMGC will be required to pay 4% net smelter
royalty on all production from the Project to the Romanian Government.
The Company's mission is to create
value for all stakeholders from responsible mining. Gabriel's vision is to
build the Project and to be a catalyst for sustainable economic, environmental,
cultural and community development. As the Company develops the world-class
Rosia Montana project, it will strive to set high standards through good
governance, responsible engineering, open and transparent communications, and
operations and reclamation based on best available techniques - all in the
service of value creation and sustainable development. Whether the issue is
corporate governance, community development, environmental responsibility or
operational practices, the Company pledges to do it right.
Key Issues
Political Situation
Throughout the third quarter of
2010, the Romanian Government continued to grapple with the challenges of the
global economic downturn, focusing on implementing austerity measures intended
to reduce Romania's budget deficit and comply with the requirements of the
International Monetary Fund ("IMF") emergency aid programme. In late
October, opposition parties in the Romanian Parliament tabled a non-confidence
motion against the Government in response to public-sector wage cuts and an
increase in the country's value-added tax - steps the Government considered to
be in keeping with the IMF recovery programme. The vote failed, leaving the
coalition government in place.
Against the background of the
Government's effort to encourage economic development, the Project continues to
receive support from members of the local and regional political leadership. On
September 17, 2010, the Ministry of Environment and Forestry ("MOE")
recommenced the Technical Analysis Committee ("TAC") review of the
Rosia Montana Environmental Impact Assessment ("EIA"), which had been
suspended since the fall of 2007, and the project is now receiving the
objective analysis the Company has long sought.
While the second quarter saw efforts
by Project opponents to press the European Parliament to support a complete ban
on cyanide use in mining, no additional initiatives were advanced in the third
quarter. The last action relating to the Project occurred in June 2010, when
the European Commission ("EC") issued a letter over the signature of
the Environment Commissioner declining to institute a ban on cyanide, and
endorsing existing European Union ("EU") directives regulating its
use in mining. As the Project is designed to operate well within the EU
directive's limits, the Company sees the EC statement as a positive endorsement
for responsible mining.
Management continues to meet with
stakeholders to understand their issues and concerns and to explain the
benefits and impacts of the Project. Continued strong local and regional
support is a direct result of the Company's outreach. The Company's
communication efforts are fact based, focusing on the critically-needed
economic benefits the Project will bring to Romania as well as the
environmental benefits to an area that has significant environmental damage
from historical unregulated mining activities. While political and NGO
opposition remains, broader understanding of these economic and development
issues is a factor in the positive reaction to the Project among Romania's
governing authorities.
Environmental/Permitting
On September 17, 2010 the Romanian
MOE recommenced resumption of the TAC review for the Project's EIA. The TAC
review had been suspended since September 2007 based on a decision taken by the
former Minister of Environment and Sustainable Development.
In July 2010, the members of the TAC
were provided with the documentation originally submitted by RMGC to the MOE in
2004 and 2006. The first formal TAC meeting involving RMGC was held on
September 22, 2010. At this time it is not known how many TAC meetings will be
required to review and make an assessment of the Project's EIA or how long this
process may take. Ultimately, the EIA must be approved by a Cabinet decision of
the Romanian Government. The Company's management expects that this can be
achieved by the end of the second quarter of 2011.
While the EIA is the most important
project approval, there is a number of other permits and approvals required to
advance the Project to construction, such as zonal urbanistic plans for the
industrial and protected areas, forestry/agriculture land use change permits,
archeological discharge certificates, as well as other permits and approvals
that follow EIA approval. To that end, to the extent these permits and
approvals are not dependent on EIA approval or the acquisition of surface
rights, the processes for each of these will proceed in parallel with the EIA
review process. The Company is moving forward with the amended industrial zonal
urbanistic plan ("Amended PUZ"), having completed the public
participation phase including ESPOO procedure (transboundary consultations
pursuant to the Convention on Environmental Impact Assessment in a
Transboundary Context) and obtained the Romanian Waters Authority Endorsement.
In addition, the Local Council has initiated the process for the zonal
urbanistic plan for the protected area ("PUZ - Protected Area").
During the third quarter, the Company obtained for the PUZ - Protected Area the
Romanian Waters Authority Endorsement and the Environmental Endorsement issued
by the Environmental Protection Agency of Alba. The forestry and agricultural
land use change permits will proceed after the EIA has been approved and
surface rights obtained. In June 2010, the dam safety permits for the Cetate
and Corna dams for the Project were issued by the MOE. Although there is no
precedent or regulatory timeline, in the absence of any other extraordinary
events, legal or otherwise, we expect permitting processes to obtain initial
construction permits for the Project to take approximately one year from the
date the EIA for the Project and the new archeological discharge certificate
for the Carnic deposit are approved by the Romanian government.
Litigation
Over the years a number of
foreign-funded and Romanian NGOs have initiated a multitude of legal challenges
against a number of local, regional and national Romanian regulatory
authorities that have the administrative authority to grant permits,
authorizations and approvals for any aspect of the exploration and development
of the Project. While some of these actions have been successful, most have
been frivolous. These legal challenges include civil actions against the
regulatory authorities and, in certain cases, against individuals within such
regulatory authorities; in general, they claim that such regulatory authorities
are acting in violation of Romanian laws and ask for cancellation of a
particular license, permit or approval. Gabriel, through RMGC, has intervened
in all material cases in order to ensure that the Romanian courts considering
these actions are presented with a legally correct, fair and balanced analysis
as to why the various Romanian regulatory authorities' actions are in
accordance with the relevant and applicable laws.
While the Company has designed the
Project to follow all applicable laws to protect against permitting delays of
the Project, multiple legal challenges brought forward by NGOs in Romania -
those currently ongoing and those that may be introduced in the future - may
continue to cause potential setbacks to the Project timeline.
During the third quarter of 2010,
RMGC was involved as a defendant and/or intervener in the following cases: (i)
defendant in a claim seeking the suspension, and ultimately the cancellation of
urbanism certificate No. 87 ("UC 87"); (ii) defendant in the final
appeal of a claim seeking the cancellation of urbanism certificate No. 68
("UC 68"); and iii) intervener in a claim challenging the legality of
a Rosia Montana local council resolution re-confirming zoning bylaws for the
local commune.
In June of 2010 a lower court ruling
rejected an NGO claim seeking the cancellation of UC 68. Prior to the end of
the third quarter the appeal of this ruling was filed and a preliminary hearing
on the appeal is currently scheduled for November 9, 2010. On September 29,
2010 a lower court also ruled against an NGO claim seeking the suspension of UC
87. This decision remains appealable.
During the third quarter, Gabriel
and the County Council of Alba Iulia withdrew their final appeal against an
earlier court ruling cancelling UC 105. UC 105 was granted to RMGC in 2007 and
expired in 2008.
RMGC also intervened in a claim
challenging the legality of a resolution of the local council of Rosia Montana
passed in 2009 re-confirming zoning bylaws initially approved in 2002 for the
area. This claim remains before the courts with a hearing scheduled for
November 16, 2010.
On September 21, 2010 RMGC and the
Romanian MOE definitively won a ruling case regarding an NGO claim seeking an
order compelling the MOE to return to RMGC for further completion the initial
project presentation report submitted by RMGC in 2004. RMGC and the MOE
obtained favourable judgments at both the lower and appellate courts in this
matter.
RMGC's action against the MOE
challenging its grounds for suspending the EIA (TAC) review process in 2007 and
seeking an order compelling it to re-commence the process remains before the
High Court of Cassation and Justice. The next hearing on this matter is
currently scheduled for January 18, 2011.
A lower or appellate court ruling
against RMGC's interest with respect to UC 68, UC 87 or the challenge to the
local council resolution re-confirming local zoning bylaws may have a material
impact on the permitting process for the Project. The implications of a negative
court ruling will only be known once such a decision is issued and the position
of the Romanian Government is assessed. In all circumstances RMGC will
vigorously maintain its legal rights and will continue to work with local,
county and federal authorities to ensure the Project receives a fair and timely
evaluation in accordance with all Romanian and EU laws.
There were no other material
developments involving litigation matters associated with the Company during
the third quarter of 2010.
Surface Rights
As a result of the suspension of the
EIA review process in September 2007, the home purchase program was suspended
in February 2008. The acquisition process for private properties is currently
on hold-pending progress in the permitting process. The Company owns 77 percent
of the homes in the industrial zone, protected area and the buffer zone.
In addition to the private
properties required, the Company needs to acquire properties (about 30 percent
of the surface area of the Project) which are owned by institutions, including
the local administrations of Rosia Montana and Abrud, as well as certain
churches and state-owned mining companies. The process to acquire the
institutional properties is underway and expected to be completed after the
approval of the EIA.
Ultimately, the Company's ability to
obtain construction permits for the mine and plant is predicated on securing
100 percent of the surface rights within the footprint of the construction
permits in the industrial zone, the timing of which is not entirely within the
Company's control.
Resettlement Sites
Construction of the Alba Iulia
resettlement site, known as Recea, began in summer 2007. The construction of
all 125 homes in the Recea has been completed, with 124 homes handed over to
their respective owners. This project stands as visible testimony to the
determination of the Company to deliver on its promises to the people of Rosia
Montana.
The Company is currently reviewing
the technical merits for a further resettlement village to be built, as well as
the process of obtaining permits for its construction.
Archaeology
An archaeological review of historic
mining activity at Rosia Montana is a critical step in the granting of the
construction permit to build the Project. A number of archaeological discharge
certificates are required for various parts of the area within the footprint of
the proposed mine.
An NGO commenced legal action in
2004 and ultimately obtained an annulment with respect to RMGC's archaeological
discharge certificate No. 4 ("ADC 4") from the High Court of
Cassation and Justice in December 2008. The Company has reviewed the Court's
written reasons for this decision and submitted documents for obtaining a new
archeological discharge certificate through a revised application prepared by
independent researchers that it believes will address all deficiencies
identified by the Court, which annulled the prior ADC 4.
The Company has completed the
restoration of a historical home located in the center of Rosia Montana to host
a permanent exhibition of history and mining archeology, which will be part of
the future Mining Museum (this being one of the public commitments made in the
EIA).
During the past year, the Company
continued emergency maintenance work on 160 houses located in the historical
center of Rosia Montana, with the aim to stop their deterioration. While these
houses are not designated as historic, their restoration will contribute to
maintaining the character of Rosia Montana village. This emergency conservation
work will continue through a multi-year program, which will run in parallel
with the construction and the operations phase of the mining project.
Liquidity and Capital Resources
Cash, cash equivalents and short
term investments at September 30, 2010 totaled $131.3 million. The budget for
the fourth quarter of 2010 is estimated at $20 million including expenditures
and commitments to maintain the value of the Company's investment in mineral
properties.
Financing Plan
The estimated capital cost to
complete the development of the Rosia Montana Project - including interest,
financing and corporate costs - is approximately US$1 billion. Once EIA
approval has been granted, the Company will re-examine financing alternatives
with a view to presenting the various options open to the Company to the board
of directors.
Project Timeline
-- The EIA was submitted in the second
quarter of 2006.
-- In January 2007, the Company received
the list of official questions
from the Romanian
Government, raised during the public consultation
process.
-- The Company responded to the questions
in the form of an Annex to the
EIA, in early May 2007.
-- Technical Analysis Committee and Espoo
Convention meetings went well
during the third quarter of
2007, until TAC meetings were suspended in
September 2007.
-- A new urbanism certificate for the Rosia
Montana Project was delivered
to the MOE in May 2010.
-- On September 17, 2010 the MOE
recommenced resumption of the Technical
Analysis Committee
("TAC") review of the Project's EIA, which had been
suspended since the fall of
2007.
At this stage management believes
that once the EIA for the Project and the
new archeological discharge
certificate for the Carnic area are approved by
the Romanian Government, in the
absence of any other extraordinary events,
legal or otherwise, it would take
approximately one year to:
-- Receive the majority of other permits
and approvals, including initial
construction permits; and
-- Complete the control estimate and
complete initial documentation on any
third party project
financing.
Once construction of the mine
begins, it is expected to take an estimated 30 months to complete. Ultimately,
the Romanian Government determines the timing of issuance of the EIA approval
and all other permits and approvals required for the Project, subject to the
Romanian courts dealing with litigation from NGOs in a timely manner. In the
absence of further unforeseen delays the Project is expected to pour first gold
by the end of 2014.
Outlook
The Company's key objectives in the
short term include:
1. Continue to win Romanian public and
Government support and backing for
the Project
2. Obtain approval of the EIA and all other
required permits that allow
construction activities to
commence;
3. Continue to maximize shareholder value,
while ensuring that the Project
benefits those in the
community and the surrounding area to the optimum
possible extent.
Results of Operations
The results of operations are
summarized in the following tables, which have been prepared in accordance with
Canadian GAAP:
Results of Operations
in thousands of Canadian dollars,
except per share amounts
2010 Q3 2010 Q2 2010 Q1 2009 Q4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss (Income)
Loss (Income) $(14,581)
$ 12,789 $ 15,439 $ 10,729
Loss (Income) per share - basic
(0.04)
0.04
0.04 0.03
----------------------------------------------------------------------------
Loss (Income) per share -
diluted
(0.04)
-
- -
----------------------------------------------------------------------------
Balance Sheet
Working capital
122,874 110,278 124,604 148,715
Total assets
654,261 632,678 642,189 658,694
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working capital
changes
4,473
10,372 13,185 13,004
Cash flow from financing
activities
6,321
3,764
857 70,260
----------------------------------------------------------------------------
in thousands of Canadian dollars,
except per share amounts
2009 Q3 2009 Q2 2009 Q1 2008 Q4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss (Income)
Loss (Income)
$ 7,082 $
1,798 $ 6,969 $ (3,958)
Loss (Income) per share - basic and
diluted
0.02
0.01
0.03 (0.02)
----------------------------------------------------------------------------
Balance Sheet
Working capital
95,838 109,518 7,401 29,172
Total assets
608,399 624,991 522,618 530,135
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working capital
changes
10,689
7,389 11,158 8,171
Cash flow from (used in) financing
activities
(435) 112,906
3 -
----------------------------------------------------------------------------
Statement of Loss (Income)
3 months ended
9 months ended
September 30, September 30,
in thousands of Canadian dollars,
except per share amounts
2010
2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total operating expenses for the
period
$ 2,657 $
3,139 $ 10,736 $ 14,201
Loss (Income) for the period
(14,581)
7,082
13,647 15,849
Loss (Income) per share - basic
(0.04)
0.02
0.04 0.06
Loss (Income) per share -
diluted
(0.04)
-
- -
Total operating expenses for the
three-month period ended September 30, 2010 decreased from the corresponding
period in 2009 primarily due to the costs associated with the settlement
payment to a senior employee in the third quarter of 2009. For the nine-month
period ended September 30, 2010, total operating expenses decreased from 2009
due to $5.7 million resulting from non-recurring retiring allowances and
settlement payments in 2009, including the expensing of share-based
compensation, for the former CEO and three senior employees who departed the
Company during 2009. The decrease is partially offset by $2.4 million
representing fair value of stock options which vested upon achievement of
certain milestones.
Income for the three-month period
ended September 30, 2010 increased from the same period in 2009 due to a
positive swing of $14.3 million in foreign currency movement and a $6.9 million
income tax recovery from the fiscal authorities in Romania resulting from the
cancellation of a 2003-2004 fiscal assessment.
Loss for the nine-month period ended
September 30, 2010 decreased from the same period in 2009 mainly due to a
decrease in operating costs of $3.5 million and the income tax recovery of $6.9
million, partially offset by an increase in foreign exchange losses of $8.1
million.
The Company expects to incur
operating losses until commercial production commences and revenues are
generated.
Expenses
Corporate, General and
Administrative
3 months ended 9
months ended
September 30,
September 30,
in thousands of Canadian
dollars
2010
2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance
$ 222 $ 40 $ 672 $ 473
External
communications
142 91 581 379
Information
technology
80
82
231
281
Legal
158
160
465
536
Payroll
592
681 2,181 4,664
Other
295
505 1,329 1,436
----------------------------------------------------------------------------
Corporate, general and
administrative
expense
$ 1,489 $ 1,559 $ 5,459 $ 7,769
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate, general and
administrative costs are those costs incurred by the corporate office in
Toronto. Corporate, general and administrative costs for the three-month period
ended September 30, 2010 were comparable to the same period in 2009. For the
nine-month period ended September 30, 2010, corporate, general and administrative
costs are lower than in 2009 due to the non-recurring retiring allowance of
$2.4 million paid to the Company's former CEO in 2009. Corporate, general and
administrative costs are anticipated to rise (excluding the cost of
non-recurring items) once the Project is permitted and the Company increases
its staffing for construction and operations.
Stock Based Compensation
3 months ended 9
months ended
September 30,
September 30,
in thousands of Canadian
dollars
2010
2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - expensed
$ 336 $ 239 $ 481 $ 760
Stock option compensation -
expensed
749
707 4,140 3,558
----------------------------------------------------------------------------
Stock based compensation -
expensed
$ 1,085 $ 946 $ 4,621 $ 4,318
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - capitalized
$ - $ 22 $ - $ 69
Stock option compensation -
capitalized
396
252
989
778
----------------------------------------------------------------------------
Stock based compensation -
capitalized $ 396 $ 274 $ 989 $ 847
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSU Compensation
Number of DSUs issued
1,639
- 370,407 36,389
Average value ascribed to each DSU
issued
$ 6.10 $ - $ 4.21 $ 2.14
DSU costs for the third quarter 2010
reflect mainly the issuance of 2 thousand DSU's during the period and the
amortization of 358 thousand DSUs issued to the Company's recently appointed
CEO which are being expensed over a two-year period.
For the nine-months ended September
30, 2010, the DSU costs reflect the issuance of 12 thousand units and the
increase in the Company's share price from the beginning of the period. The
Company's closing share price at September 30, 2010 was $5.96 while at December
31, 2009 the closing share price was $4.37.
Initially valued at the five-day
weighted average market price of the stock at date of issue, DSUs are revalued
each period based on the closing share price at the period end, with the
difference between the total value of the DSUs at period end compared to the
value at the end of the previous period. The change in share price of the DSU's
at the end of the period is charged to the Statement of Loss. Overall, for the
three-and-nine month periods ended September 30, 2010, the Company's share
price increased by $1.13 compared to June 30, 2010 and $1.59 compared to
December 31, 2009, while for the same period in 2009, the Company's share price
increased by $0.21 from June 30, 2009 and $0.64 compared to December 31, 2008.
3 months ended 9
months ended
September 30, September 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock option compensation
Number of stock options granted
200,000
- 4,250,000 2,150,000
Average value ascribed to each
regular
vesting option granted
$ 4.89 $ - $ 4.65 $ 1.12
Options granted to corporate
employees, consultants, officers, and
directors
-
- 2,925,000 1,350,000
Options granted to development
project
employees and consultants
200,000
- 1,325,000 800,000
The estimated fair value of stock
options is amortized over the period in which the options vest which is
normally three years. For those options which vest on single or multiple dates,
either on issuance or on meeting milestones (the "measurement date"),
the entire fair value of the vesting options is recognized immediately on the
measurement date.
The fair value of stock options
granted to personnel working on development projects is capitalized over the
vesting period.
During the nine-month period ended
September 30, 2010, the Company granted 4.2 million options. Of the 4.2 million
options issued, 2.2 million vest over a three-year period and the remainder
vest based on achievement of certain milestones. The fair value of options that
vest upon achievement of milestones will be recognized and capitalized as
milestones are achieved and the value can be reasonably measured.
Project Financing Costs
3 months ended 9
months ended
September
30, September 30,
in thousands of Canadian
dollars
2010
2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Project Financing Costs
$ 34 $ 37 $ 499 $ 423
The project financing costs for the
three-and-nine month periods ended September 30, 2010 were comparable to those
of the same period in 2009.
Project financing activities include
advisory services.
Interest Income
3 months ended 9
months ended
September 30,
September 30,
in thousands of Canadian
dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Income
$ 100 $ 172 $ 294 $ 303
Lower interest income in the
three-and-nine month periods ended September 30, 2010 compared to the same
periods in 2009 is the result of lower average cash balances during the 2010
periods.
The Company is focused on minimizing
credit risk and therefore is foregoing higher yields on its investments and is
investing predominantly in government guaranteed instruments. Approximately 88
percent of the Company's cash balances are invested in government guaranteed
instruments with the balance invested in term deposits with major Canadian
banks.
Foreign Exchange
3 months ended 9 months ended
September 30, September
30,
in thousands of Canadian
dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange gain (loss) -
realized
$ 682 $ (417) $ (935) $ (1,285)
Foreign exchange gain (loss) -
unrealized
9,540 (3,696) (9,182) (662)
----------------------------------------------------------------------------
Total foreign exchange gain
(loss) $ 10,222 $
(4,113) $(10,117) $ (1,947)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During 2009, the Company converted
the majority of the cash raised from two private placements and public equity
offering to foreign currencies to match its future anticipated foreign
denominated expenditures. Since the purchase of foreign currencies, mainly the
EURO and the US Dollar, the Canadian Dollar exchange rate versus the Euro and
US Dollar has experienced significant fluctuations. During the three-month
period ended September 30, 2010 the Euro regained some strength against
Canadian dollar thereby offsetting prior period foreign exchange losses.
The Company maintains a Canadian
Dollar cash position to fund corporate, general and administrative activities,
while the majority of its cash resources are in foreign currencies.
The Company expects to continue to
report foreign currency gains and losses as it continues to hold foreign
currencies.
Taxes
In April 2010, the Supreme Court in
Romania admitted an RMGC appeal and cancelled irrevocably a fiscal assessment
concerning the period 2003 and 2004. The original assessment arose from the
disallowance of the application of state tax incentives related to unrealized
foreign exchange gains on inter-company debt.
On September 2, 2010 the Company
received the equivalent of $6.9 million from the fiscal authorities in Romania
as a result of the cancelled fiscal assessment. The full recovered amount has
been recognized in the Statements of (Income) Loss.
Investing Activities
The most significant ongoing
investing activities are for the Project in Romania. Most of the expenditures
to date have been for identifying and defining the size of the four ore bodies,
for engineering to design the size and scope of the Project, for environmental
assessment and permitting, social support to local communities, archeological
and rehabilitation work to buildings, as well as surface rights/property
acquisition. Once the construction permit is received, the nature and magnitude
of the expenditures will increase, as roads, production facilities, open pits,
tailings management facilities and associated infrastructure are built.
Mineral Properties
All costs incurred in Romania
related to development and exploration projects - Rosia Montana, Bucium and
Baisoara - are capitalized to mineral properties.
Listed below is a summary of
expenditures at Rosia Montana for the three-and-nine months ended September 30,
2010 and 2009.
3 months ended 9
months ended
September 30,
September 30,
in thousands of Canadian
dollars
2010
2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance and administration
$2,559 $ (313) $ 5,541 $ 860
External communications
2,157 2,945 6,337 8,032
Legal
1,272
903 4,515 3,299
Permitting
471
420 1,130 1,791
Community development
1,194 1,239 3,874 2,613
Project management and
engineering
1,509 1,133 4,066 4,036
Exploration - Rosia Montana
136
343
435
693
Exploration - Bucium
-
-
- -
Exploration - Baisoara
32
19
96
105
Capitalized depreciation and
disposals
(192) (100) (1,155) (332)
Capitalized stock based compensation
(395) (274) (988) (847)
Reclassification to mineral
properties
- (3,853) - (7,417)
Decrease (increase) in resettlement
liabilities
139 6,285 695 14,063
----------------------------------------------------------------------------
Total exploration and development
expenditures
$8,882 $ 8,747 $24,546 $26,896
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the three-and-nine month
periods ended September 30, 2010, the finance and administration costs
increased compared to the corresponding 2009 periods primarily due to reduced
foreign exchange gains related to lower trade payables and resettlement
liability balances and a $0.6 million bonus achieved during the third quarter.
External communications costs
decreased for the three-and-nine-months ended September 30, 2010 compared to
the same period last year mainly due to the reduction in media advertising. The
professional service agreement between the Company and an international
communications firm continues until February 29, 2012. The agreed fee consists
of an annual fee and success fee payable at the end of the three-year agreement
upon fulfillment of certain criteria.
The increased legal costs for the
three-and-nine-months ended September 30, 2010 compared to the same periods
last year reflect the additional fees associated with the engagement of a new
legal firm in Romania.
Community development costs
increased for the nine-months ended September 30, 2010 compared to the same
period in 2009 due to the accelerated start of programs to support the local
community.
No additional work is planned on the
Bucium property until the exploration license is converted to an exploitation
license and the Rosia Montana EIA is approved. The government has indicated
that a decision on the conversion of the Bucium exploration to exploitation
license will not be made until a decision on the Project is made.
Capital Assets
3 months ended
9 months ended
September 30, September 30,
in thousands of Canadian
dollars
2010
2009
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ - $ 854 $ - $
5,592
Investment in long-lead-time
equipment
187
3,904 1,515 15,793
Other
122
35
307 78
----------------------------------------------------------------------------
Total investment in capital
assets $ 309 $
4,793 $ 1,822 $ 21,463
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and disposal -
expensed $ 49 $ 51 $ 157 $ 175
Depreciation and disposal -
capitalized to mineral properties $ (192) $ 100 $ (1,155) $ 332
The construction of all 125 homes at
the Recea resettlement site in Alba Iulia has been completed with 124 homes
handed over to their respective owners.
The final installments for the
processing mills are expected to be made in 2010 ($1.7 million) and 2011
($60,000) at which point the grinding area systems and crushing facilities will
be fully paid for and in the possession of the Company. In order to minimize
the transportation, storage expenditures and other costs, the Company evaluated
various strategies for storing completed equipment and based on the final
evaluation the equipment is currently stored at four main locations in
accordance with manufacturer's specifications.
Cash Flow Statement
Liquidity and Capital Resources
Until receipt of the environmental
permits for the Project, the only source of liquidity is the Company's cash
balance, bridge financing, exercise of stock options and warrants outstanding,
and the equity markets. The cost to complete the Project was estimated at
US$876 million based on a revised cost estimate in March 2009. To complete the
development of the Project, the Company will need financing of approximately
US$1 billion, to fund capital costs of US$876 million plus working capital,
interest, financing and corporate costs of US$124 million. Once EIA approval
has been granted, the Company will re-examine financing alternatives with a
view to presenting the various options open to the Company to the board of
directors.
If the Company was unable to raise
the required funds, it would seek strategic alternatives to move the Project
towards development.
In 2009, the Company raised $180
million net of acquisition costs through two private placements and a public
equity offering.
As at September 30, 2010, cash, cash
equivalents, and short-term investments were $131.3 million compared to $117.9
million at September 30, 2009. Substantially all of these amounts are invested
in government issued investments.
The Company manages its foreign
currency risks through matching its expected foreign denominated expenditures
with foreign currency investments. The Company has not entered into any
derivatives hedging activities. The Company maintains Canadian Dollar
investments to fund corporate costs while most investments are denominated in
Euros to match planned foreign currency expenditures. The Company incurs foreign
currency gains and losses on those foreign denominated investments as the
currencies move against each other. Accordingly, the Company will continue to
experience foreign exchange gains and losses as long as it maintains foreign
currency investments.
Based on management's knowledge and
experience of the financial markets, the
Company believes the following
movements are "reasonably possible" over a
three-month period:
-- For cash and cash equivalents a plus or
minus 1% change in earned
interest rates would affect
net income from deposits by $0.1 million.
-- For short-term investments a plus or
minus 1% change in earned interest
rates would affect net
income by $0.2 million.
-- As of September 30, 2010 a plus or minus
1% change in foreign exchange
rates of the Company's
significant balances in foreign currencies
would affect net income by
$0.3 million.
The Company's objective when
managing capital is to safeguard its accumulated capital in order to fund
development of its Project. The Company manages its capital structure and makes
adjustments to it based on the level of funds on hand and anticipated future
expenditures. While the Company expects that it will be able to obtain equity,
long-term debt and/or project-based financing sufficient to build and operate
the Project, there are no assurances that these initiatives will be successful.
To safeguard capital and to mitigate currency risk, the Company invests its
surplus capital in highly liquid, highly rated financial instruments that
reflect the currency of the planned expenditure.
Working Capital
As at September 30, 2010, the
Company had working capital, calculated as total current assets less total
current liabilities, of $122.9 million versus $148.7 million as at December 31,
2009. The decrease in working capital during the nine -month period ended
September 30, 2010 relates to the loss incurred during the year, investments in
mineral properties and payments for capital assets.
As at September 30, 2010, the
Company had current liabilities of $10.7 million of which $4.7 million relates
to resettlement obligations stemming from the acquisition of homes in the
Project area. The construction of all 125 homes at the Recea resettlement site
in Alba Iulia has been completed with 124 homes handed over to their respective
owners.
Net Change in Non-Cash Working
Capital
Operating non-cash working capital
decreased for the three-months ended September 30, 2010 compared to the same
period in 2009 due to a decrease in payables and accrued liabilities since the
previous period end.
The increase in investing non-cash
working capital for the three months ended September 30, 2010 compared to the
same period in 2009 is primarily due to the unrealized foreign exchange gain on
short-term investments.
Related Party Transactions
In December 2004, the Company loaned
a total of US$971,000 to the four non-controlling shareholders of RMGC, who
held an aggregate of 20% of the shares of RMGC, to facilitate a statutory
requirement to increase RMGC's total share capital. During 2009 the Company
purchased shares held in RMGC by two of its non-controlling shareholders. Upon
completion of this transaction, the outstanding indebtedness of the two
non-controlling shareholders of $23,000 was deemed to be paid in full.
During 2009, the Company received a
formal offer to purchase the shares held in RMGC by two of its non-controlling
shareholders (the "Non-Controlling Shareholders"), each of whom owned
23,967 common shares in RMGC representing each 0.23% of its share capital. The
Company responded to the offer of the non-controlling shareholders and has
purchased 47,934 common shares of RMGC held by the Non-Controlling Shareholders
for 222,708 shares of Gabriel and for US$0.8 million in cash. As a result of
these transactions, the Company's ownership interest in RMGC increased from 80%
to 80.46%.
In 2009, the Company loaned a
further US$40 million to the remaining two non-controlling shareholders of RMGC
to facilitate another statutory share capital increase in RMGC.
The loans are non-interest bearing
and are to be repaid as and when RMGC distributes dividends to its
shareholders. The loans and related non-controlling interest contribution have
been offset on the balance sheet until such time as the loans are repaid. Once
the loans are repaid the non- controlling interest component will be reflected
on the balance sheet.
Resettlement Liabilities
For a number of years, the Company
has had a program for purchasing homes in the Project area, which was suspended
in February 2008 due to the suspension of the EIA review process in September
2007. Under the resettlement program residents were offered two choices. They
could either choose to take the sale proceeds and move to a new location of
their choosing or they could exchange their properties for a new property to be
built by the Company at one of two resettlement sites. For those residents who
choose the resettlement option, the Company increases its mineral properties on
the balance sheet as well as resettlement liabilities for the anticipated
construction costs of the resettlement houses. As the construction takes place,
the cost of newly built houses is capitalized as construction in progress.
After the transfer of legal title of the property is completed, the Company
reduces the amounts capitalized as construction in progress and at the same
time its resettlement liabilities. All resettlement associated costs will
remain capitalized in mineral properties and amortized over the life of the
mine once the Project moves into production.
At September 30, 2010, the Company
had accrued resettlement liabilities totaling $4.7 million (December 31, 2009 -
$5.4 million), which represents the cost of building the remaining new homes
for the local residents and outstanding delay penalties.
The construction of all 125 homes at
the Recea resettlement site in Alba Iulia has been completed with 124 homes
handed over to their respective owners. The Company is currently reviewing the
technical merits for a further resettlement village to be built, as well as the
process of obtaining permits for this resettlement site. All 24 property owners
who chose to resettle within Rosia Montana have signed a three year extension
contract. As a result of the delay in delivery of homes, the Company paid or
accrued a penalty of 9% (for Recea) and up to 20% (for new site) of the agreed
upon unpaid property value per year of delay as required by the agreement
including all amendments.
As at September 30, 2010, the Company
has accrued $0.5 million (December 31, 2009 - $0.4 million) representing its
total estimated delay penalty. During the three-and-nine-months period ended
September 30, 2010, the Company paid $71,000 and $122,000 respectively, of
delay penalties (2009 - $0.1 and $0.5 million, respectively).
The acquisition process for private
properties is currently on hold pending progress in the permitting process.
Contractual Obligations
The Company, through its wholly
owned subsidiary Rom Aur SRL ("Rom Aur"), holds an exploration
license with respect to the Baisoara property in Western Romania. The license
is for an initial term of 5 years and expires in July 2011. Upon granting of
the license, the Company committed to spend US$3.2 million over the term of the
license. Due to the delay in the Rosia Montana permitting process, the Company
has reduced the exploration expenditure for Baisoara to a level required to
maintain the license and permit in good standing.
The Company and its subsidiaries
have a number of agreements with arms-length third parties who provide a wide
range of goods and services which totalled $9.6 million at September 30, 2010
(December 31, 2009 - $14.7 million). Typically, the service agreements are for
a term of not more than one year and permit either party to terminate for
convenience on notice periods ranging from 15 to 90 days. Upon termination, the
Company has to pay for services rendered and costs incurred to the date of
termination.
During 2007, the Company entered
into purchase agreements for long-lead-time equipment, the cost of which is to
be paid over several years beginning 2007. As at September 30, 2010 outstanding
commitments under such agreements totaled $1.7 million (December 31, 2009 -
$5.1 million). No further long-lead-time equipment orders are expected to be
placed until the EIA is approved; however, the reported commitment expressed in
Canadian Dollars will fluctuate as obligations are denominated in foreign
currencies.
The following is a summary of
contractual commitments of the Company including payments due for each of the
next five years and thereafter:
2014 and
Total 2010 2011 2012 2013 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Baisoara exploration license 2,690 $ 182 $2,508 $ - $ - $
-
Resettlement
4,628
- 4,628 - -
-
Goods and services
9,585 6,735 1,210 1,332 7
301
Long lead time equipment
1,766 1,702 64 - -
-
Rosia Montana exploitation
license
1,584 198 198 198 198
792
Surface concession rights
832
5 21 21 21
764
Lease agreements
397 125 272 - -
-
----------------------------------------------------------------------------
Total commitments
$21,482 $8,947 $8,901 $1,551 $ 226 $ 1,857
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following is a summary of the
long-lead-time equipment orders and the
payment status:
September 30, December
31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems
$
42,032 $ 41,731
Crusher facilities
3,961
3,961
Foreign exchange movement
1,647
3,023
----------------------------------------------------------------------------
47,640
48,715
Amount paid to date:
Grinding area systems
(40,425) (37,011)
Crusher facilities
(3,881) (3,881)
Foreign exchange movement
(1,568)
(2,676)
----------------------------------------------------------------------------
Outstanding payment obligation
$
1,766 $ 5,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
New Accounting Pronouncements
Business Combinations, Consolidated
Financial Statements and Non-Controlling Interests
The CICA issued three new accounting
standards in January 2009: Section 1582, "Business Combinations",
Section 1601, "Consolidated Financial Statements" and Section 1602,
"Non- Controlling interests". These new standards will be effective
for fiscal years beginning on or after January 1, 2011.
Section 1582, "Business
Combinations" replaces section 1581, "Business Combinations",
and establishes standards for the accounting for a business combination. It
provides the Canadian equivalent to IFRS 3 - Business Combinations. The section
applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after January 1, 2011. Sections 1601, "Consolidated Financial Statements",
and 1602, "Non-Controlling interests", together replace section 1600,
"Consolidated Financial Statements". Section 1601 establishes
standards for the preparation of consolidated financial statements and applies
to interim and annual consolidated financial statements relating to fiscal
years beginning on or after January 1, 2011. Section 1602 establishes standards
for accounting for non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination. The Company opted to
early adopt these standards as at December 31, 2009 and applied Section 1602,
"Non-Controlling Interests", in accounting for the purchase of
non-controlling interest shares in RMGC. Consequently, the difference between
the carrying amount of the non-controlling interest shares and the fair value
of the consideration paid was recognized directly in shareholders' equity. The
early adoption of Section 1582, "Business Combinations" and Section
1601, "Consolidated Financial Statements", did not have an impact on
the Company's consolidated financial statements.
IFRS Changeover Plan Disclosure
The Canadian Accounting Standards
Board (AcSB) has announced its decision to replace Canadian generally accepted
accounting principles ("GAAP") with International Financial Reporting
Standards (IFRS) for all Canadian Publicly Accountable Enterprises (PAEs).
The effective changeover date is
January 1, 2011, at which time Canadian GAAP will be replaced by IFRS.
Following this timeline, the Company will issue its first set of interim
financial statements prepared under IFRS in the first quarter of 2011 including
comparative IFRS financial results and an opening balance sheet as at January
1, 2010. The first annual IFRS consolidated financial statements will be
prepared for the year ended December 31, 2011 with restated comparatives for
the year ended December 31, 2010.
Management has developed a project
plan for the conversion to IFRS based on the current nature of operations. The
conversion plan is comprised of three phases: IFRS diagnostic assessment,
implementation and education, and completion of all integration system and
process changes.
Management has completed phase one,
IFRS diagnostic assessment, and phase two, implementation and education, and is
now advancing through phase three, completion of all integration system and
process changes. Management has finalized component evaluation of its existing
financial statement line items, comparing Canadian GAAP to the corresponding
IFRS guidelines, and identified a number of differences. Many of the
differences identified don't have a material impact on the reported results and
financial position.
Based on management's evaluation,
most of the adjustments required on transition to IFRS will be made
retrospectively against opening retained earnings as of the date of the first
comparative balance sheet presented based on standards applicable at that time.
IFRS 1, "First-Time Adoption of
International Financial Reporting Standards", provides entities adopting
IFRS for the first time with a number of optional exemptions and mandatory
exceptions in certain areas to the general requirement for full retrospective
application of IFRS. During the third quarter of 2009, management held an IFRS
educational session for the Audit Committee and the Board of Directors which
focused on the key issues and transitional choices under IFRS 1.
Set out below are the most
significant areas, management has identified to date, where changes in
accounting policies are expected to impact the Company's consolidated financial
statements based on the accounting policy choices approved by the Audit
Committee and Board of Directors. In the period leading up to the changeover in
2011, the AcSB has ongoing projects and intends to issue new accounting
standards during the conversion period. As a result, the final impact of IFRS
on the Company's consolidated financial statements can only be measured once
all the IFRS accounting standards at the conversion date are known. Management
will continue to review new standards, as well as the impact of the new
accounting standards, between now and the conversion date to ensure all
relevant changes are addressed.
Impairment of Assets
Canadian GAAP generally uses a
two-step approach to impairment testing: first comparing asset carrying values
with undiscounted future cash flows to determine whether impairment exists; and
then measuring any impairment by comparing asset carrying values with
discounted cash flows. International Accounting Standard (IAS) 36,
"Impairment of Assets" uses a one-step approach for both testing and
measurement of impairment, with asset carrying values compared directly with
the higher of fair value less costs to sell and value in use (which uses
discounted future cash flows). This may potentially result in write downs where
the carrying value of assets were previously supported under Canadian GAAP on
an undiscounted cash flow basis, but could not be supported on a discounted
cash flow basis. Management will continue on a regular basis to assess whether
or not impairment indicators are present and if the Project assets should be
tested for impairment based on criteria established in IAS 36.
Share Based Payments
IFRS and Canadian GAAP largely
converge on the accounting treatment for share - based transactions with only a
few differences.
Canadian GAAP allows either
accelerated or straight line method of amortization for the fair value of stock
options under graded vesting. Currently, the Company is using the straight line
amortization method. IFRS 2, on the other hand, allows only the accelerated
method.
Under IFRS, the estimate for
forfeitures must be made when determining the number of equity instruments
expected to vest, while under Canadian GAAP forfeitures can be recognized as
they occur.
Upon adoption of IFRS 2, the
accounting policy will be retrospectively applied to all equity instruments
granted after November 7, 2002 that have not vested at January 1, 2010. The
Company will change both the method of amortization, which will give rise to an
accelerated compensation expense, and the method of forfeiture recognition. As
a result the impact of IFRS 2 adoption on the transition date is expected to be
approximately $1.5 million, and will impact contributed surplus, accumulated
deficit and mineral properties.
Exploration and Evaluation Assets
Under the Company's current
accounting policy, acquisition costs of mineral properties, together with
direct exploration and development expenses incurred thereon, are capitalized.
Upon adoption of IFRS, the Company
has to determine the accounting policy for exploration and evaluation assets.
The Company may decide to apply the International Accounting Standards Board
("IASB") Framework, which requires exploration expenditures to be
expensed and capitalization of expenditures only after the completion of a
feasibility study or disregard the IASB Framework and keep the Company's
existing policy, if relevant and reliable. Management decided to fully adopt
IFRS 6, "Exploration and Evaluation of Mineral Properties", and apply
the IASB framework. As a result, management has analyzed mineral properties and
identified $28 million of exploration costs capitalized before the feasibility
studies for Rosia Montana and Bucium were completed, as well as all exploration
costs related to Baisoara. Once the Company applies the IASB Framework at the
transition date, mineral properties are expected to decrease by $28 million
together with an increase to accumulated deficit by the same amount reflecting
the capitalized exploration costs.
Property, Plant and Equipment
Under IFRS, Property, Plant and
Equipment ("PP&E") can be measured at fair value or at cost while
under Canadian GAAP, the Company has to carry PP&E on a cost basis and
revaluation is prohibited.
Upon adoption of IFRS, the Company
has to determine whether to elect a cost model or revaluation model. Management
decided to adopt the cost model for both initial recognition and as subsequent
accounting policy for all classes of assets. As a result there will be no
significant impact on the adoption of IFRS on the Company's financial
statements.
In accordance with IAS 16
"Property, Plant and Equipment", the Company needs to allocate an
amount initially recognized in respect of an asset to its component parts and
account for each component separately when the components have different useful
lives or the components provide benefits to the entity in a different pattern.
Based on management's evaluation, there is currently no expected impact from
the component accounting on earnings. Management expects that once the Company
enters commercial production the impact of component accounting will not be
significant.
Foreign Currency
IFRS requires that the functional
currency of each entity in the consolidated group be determined separately in
accordance with IAS 21 and the entity's financial results and position should
be measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). Currently the functional
currency of the consolidated entity is the Canadian Dollar ("CAD")
which is also the presentation currency of the Company's financial statements.
As the project progresses and the underlying transactions, events and
conditions relevant to the entities change, the Company will re-consider the
primary and secondary indicators, as described in IAS 21, in determining the
functional currency for each entity. Going forward under IFRS, management
expects that the functional currency will change either during construction,
after project financing is finalized, or when the Project enters into
commercial production. At that time management will assess the appropriate
functional currency based on existing circumstances, which may have a
significant impact on the Company's consolidated financial statements prepared
under IFRS.
Upon adoption of IFRS, all resulting
foreign exchange differences from translation of the entities' assets,
liabilities and income statement items are expected to be recognized in other
comprehensive income as a separate component of equity. There is no expected
impact at the transition date as under IFRS 1 the cumulative translation
differences for all foreign operations are deemed to be zero at the date of
transition to IFRS.
During the second quarter of 2010,
management determined the expected impact of IFRS adoption at the transition
date on the Company's financial statements. In the fourth quarter, management
will finalize the opening balance sheet with the required notes disclosure,
update internal accounting and business process documentation reflecting the
transition to IFRS, and finalize the IT system set up to be able to generate
all information required under IFRS. The International Accounting Standards
Board will continue to issue new accounting standards during the conversion
period and, as a result, the final impact of IFRS on the Company's consolidated
financial statements will only be measured once all the IFRS accounting
standards applicable at the conversion date are known.
One of the more significant impacts
identified to date of adopting IFRS is the expanded presentation and
disclosures required. Disclosure requirements under IFRS generally contain more
breadth and depth than those required under Canadian GAAP and, therefore, will
result in more extensive note references. The Company will continue to assess
the level of presentation and disclosures required to its consolidated
financial statements.
CEO/CFO Certification
The Company's Chief Executive
Officer and Corporate Controller, performing the function of Chief Financial
Officer ("CFO"), are responsible for establishing and maintaining
disclosure controls and procedures (DC&P) and internal control over
financial reporting (ICFR), as those terms are defined in National Instrument
52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for
the Company.
The Company's CEO and CFO certify
that, as at September 30, 2010, the Company's DC&P have been designed
effectively to provide reasonable assurance that material information relating
to the Company is made known to them by others, particularly during the period
in which the interim filings are being prepared; and information required to be
disclosed by the Company in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in
securities legislation. They also certify that the Company's ICFR have been
designed effectively to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP.
The control framework the Company's
CEO and CFO used to design the Company's ICFR is COSO. There is no material
weakness relating to the design of ICFR. There is no limitation on scope of
design as described in paragraph 5.3 of NI 52-109. There has been no change in
the Company's ICFR that occurred during the second quarter 2010 which has
materially affected, or is reasonably likely to materially affect, the
Company's ICFR.
Outstanding Share Data
The Company's fully diluted share
capital as at the report date was:
Outstanding
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Preferred shares
Nil
Common shares
345,702,676
Common stock options
22,003,546
Common stock warrants
30,375,000
Deferred share units - common
shares
417,748
----------------------------------------------------------------------------
Fully diluted share capital
398,498,970
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proven and Probable Mineral Reserves
The Company maintains an 80.46
percent economic interest in the Project which, at year end 2009, has aggregate
proven and probable reserves as follows, modeled using a gold price of US$735
per ounce and a silver price of $11.50:
---------------------------------------
In Situ
Grade (g/t)
(Ounces)
-------------------------------------------------------------------------
Reserve Category
Tonnes Gold Silver
Gold
Silver
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Proven
112,455,000 1.63 9.0 5,893,000 32,540,000
Probable
102,476,000 1.27 4.6 4,184,000 15,156,000
-------------------------------------------------------------------------
Total
214,931,000 1.46 6.9 10,077,000 47,696,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
John Marek, P.Eng., is the qualified
person responsible for calculating the reserve estimate set forth in the table
above.
Forward-Looking Statements
Certain statements included herein,
including capital costs estimates, sustaining capital and reclamation
estimates, estimated production and total cash costs of production, future
ability to finance the Project and other statements that express management's
expectations or estimates regarding the timing of completion of various aspects
of the Projects' development or of our future performance, constitute
"forward-looking statements" within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and Canadian securities
legislation. The words "believe", "expect",
"anticipate", "contemplate", "target",
"plan", "intends", "continue", "budget",
"estimate", "may", "will", "schedule",
and similar expressions identify forward- looking statements. Forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by management, are inherently subject to
significant business, economic and competitive uncertainties and contingencies.
In particular, the Management's Discussion and Analysis includes many such
forward-looking statements and such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
financial results, performance or achievements of the Company to be materially
different from its estimated future results, performance or achievements
expressed or implied by those forward-looking statements and its
forward-looking statements are not guarantees of future performance. These
risks, uncertainties and other factors include, but are not limited to: changes
in the worldwide price of precious metals; fluctuations in exchange rates;
legislative, political or economic developments including changes to mining and
other relevant legislation in Romania; operating or technical difficulties in
connection with exploration, development or mining; environmental risks; the
speculative nature of gold exploration and development, including the risks of
diminishing quantities or grades of reserves; and the Company's requirements
for substantial additional funding.
While Gabriel may elect to, Gabriel
is under no obligation to and does not undertake to update this information at
any particular time, except as required by law.
Gabriel Resources Ltd.
Interim Consolidated Financial Statements
(Unaudited)
For the period ended September 30, 2010
Consolidated Balance Sheets
As at September 30, 2010 and
December 31, 2009
(Unaudited and expressed in
thousands of Canadian Dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents
$ 57,679 $
116,110
Short-term investments (note 3)
73,604
46,201
Accounts receivable
1,368
1,460
Prepaid expenses and supplies
940
788
----------------------------------------------------------------------------
133,591 164,559
Restricted cash (note 3)
157
126
Capital assets (note 4)
52,974
52,464
Mineral properties (note 5)
467,539
441,545
----------------------------------------------------------------------------
$ 654,261 $
658,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued
liabilities
$ 5,970 $ 10,402
Resettlement liabilities (note
6)
4,747
5,442
----------------------------------------------------------------------------
10,717
15,844
Other Liabilities (note 7)
1,822
3,908
----------------------------------------------------------------------------
12,539
19,752
----------------------------------------------------------------------------
Shareholders' Equity
Capital stock (note 9)
749,704
733,481
Common share purchase warrants (note
10)
11,393
11,393
Contributed surplus (note 12)
18,254
18,050
Deficit
(137,629) (123,982)
----------------------------------------------------------------------------
641,722
638,942
----------------------------------------------------------------------------
$ 654,261 $
658,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nature of operations and going
concern (note 1)
Non-controlling interest (note 8(a))
Commitments and contingencies (note
17)
The accompanying notes are an
integral part of these interim consolidated
financial statements.
Consolidated Statements of
Shareholders' Equity
For the nine months ended September
30, 2010 and 2009
(Unaudited and expressed in
thousands of Canadian Dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares
At January 1
$ 733,481 $ 560,052
Shares issued from a public and private
offering
less share issue costs
$
- $ 112,557
Shares issued on the exercise of stock
options
(note 9)
10,942
3
Shares issued on the redemption of DSUs
(note 9)
357
-
Transfer from contributed surplus -
exercise of
stock options (note 12)
4,924
1
----------------------------------------------------------------------------
At September 30
749,704
672,613
----------------------------------------------------------------------------
Common share purchase warrants
At September 30
11,393
-
----------------------------------------------------------------------------
Contributed surplus
At January 1
18,050
15,051
Stock-based compensation (note 12)
5,128
4,336
Exercise of stock options (note 12)
(4,924)
(1)
----------------------------------------------------------------------------
At September 30
18,254
19,386
----------------------------------------------------------------------------
Deficit
At January 1
(123,982)
(97,084)
Net loss
(13,647)
(15,849)
----------------------------------------------------------------------------
At September 30
(137,629) (112,933)
----------------------------------------------------------------------------
Accumulated other comprehensive
loss
- -
----------------------------------------------------------------------------
Total shareholders' equity at
September 30
$ 641,722 $ 579,066
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an
integral part of these interim consolidated
financial statements.
Consolidated Statements of (Income)
Loss and Comprehensive (Income) Loss
For the three-and-nine-month periods
ended September 30, 2010 and 2009
(Unaudited and expressed in
thousands of Canadian Dollars and thousands of
shares)
3 months ended 9 months ended
September
30,
September 30,
2010
2009
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
Corporate, general and
administrative
$ 1,489 $
1,559 $ 5,459 $
7,769
Stock based compensation (notes 7
&
11)
1,085
946
4,621
4,318
Project financing costs
34 37 499 423
Severance costs
-
546
- 1,516
Amortization
49
51
157
175
----------------------------------------------------------------------------
2,657
3,139
10,736 14,201
----------------------------------------------------------------------------
Other expense (income)
Interest
(100) (172) (294) (303)
Foreign exchange (gain) loss
(10,222)
4,113 10,117 1,947
----------------------------------------------------------------------------
(Income) / Loss before income
taxes (7,665) 7,080 20,559 15,845
Income tax expense (recovery) (note
13)
(6,916)
2 (6,912) 4
----------------------------------------------------------------------------
(Income) / Loss for the period $(14,581)
$ 7,082 $ 13,647 $ 15,849
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Income) / Loss per share basic $ (0.04) $ 0.02 $ 0.04 $ 0.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of shares
(000')
342,599 307,257 341,007 276,515
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Income) / Loss per share
diluted $ (0.04) $ - $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fully diluted number of shares
(000')
396,162
-
-
-
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an
integral part of these interim consolidated
financial statements.
Consolidated Statements of Cash
Flows
For the three-and-nine-month periods
ended September 30, 2010 and 2009
(Unaudited and expressed in
thousands of Canadian Dollars)
3 months ended 9
months ended
September
30,
September 30,
2010
2009
2010
2009
----------------------------------------------------------------------------
Cash flows from (used in)
operating activities
Income/ (Loss) for the period $ 14,581 $ (7,082) $ (13,647) $ (15,849)
Items not affecting cash
Amortization
49
51
157
175
Stock- based compensation
1,084
946
4,621
4,318
Unrealized foreign exchange loss
(gain)
(9,540)
3,696
9,182 662
----------------------------------------------------------------------------
6,174 (2,389)
313 (10,694)
DSU cash settlement
(491)
(105)
(2,118)
(105)
Net changes in non-cash working
capital (note 18)
(1,221)
(110)
(1,393)
47
----------------------------------------------------------------------------
4,462 (2,604) (3,198) (10,752)
----------------------------------------------------------------------------
Cash flows from (used in)
investing activities
Decrease (increase) in short-term
investments and restricted cash (46,378) (1,838) (27,434) (54,573)
Development and exploration
expenditures
(8,882) (8,747) (24,546) (26,896)
Purchase of capital assets
(309) (4,793) (1,822) (21,463)
Net changes in non-cash working
capital (note 18)
4,409 (6,836) (3,483) (7,237)
----------------------------------------------------------------------------
(51,160) (22,214) (57,285) (110,169)
----------------------------------------------------------------------------
Cash flows from (used in)
financing activities
Proceeds from issuance of capital
stock, net of issue costs
-
(208)
- 112,473
Proceeds from the exercise of
stock options
6,321
-
10,942
3
Net changes in non-cash working
capital ( note 18)
-
(227)
- -
----------------------------------------------------------------------------
6,321
(435)
10,942 112,476
----------------------------------------------------------------------------
(Decrease) in cash and cash
equivalents
(40,377) (25,253) (49,541) (8,445)
Effect of foreign exchange on cash
and cash equivalents
5,405 (1,428) (8,890) (444)
Cash and cash equivalents -
beginning of period 92,651 90,025 116,110 72,233
----------------------------------------------------------------------------
Cash and cash equivalents - end of
period
$ 57,679 $ 63,344 $ 57,679 $ 63,344
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information
(note 18)
The accompanying notes are an
integral part of these interim consolidated
financial statements
Notes to Consolidated Financial
Statements
For the three-and-nine-month periods
ended September 30, 2010 and 2009
(Unaudited - Tabular amounts in
thousands of Canadian Dollars, unless otherwise stated)
1. Nature of operations and going
concern
Gabriel Resources Ltd. (the
"Company") is a Canadian-based resource company engaged in the
exploration and development of mineral properties in Romania and is currently
in the process of obtaining permits to develop its 80.46%-owned Rosia Montana
gold project (the "Project"). Since acquiring the exploitation
license the Company has defined a world class orebody. In the last five years
the Company has been focused on engineering to design the size and scope of the
Project, environmental assessment and permitting, rescue archaeology and
surface rights acquisition activities.
The underlying value of the
Company's mineral properties is dependent upon the existence and economic
recovery of such reserves in the future and the ability of the Company to
obtain all necessary permits and raise long-term financing to complete the
development of the Project. In addition, the Project may be subject to
sovereign risk, including political and economic instability, changes in existing
government regulations, for example, a ban on the use of cyanide in mining in
Romania or in the European Union, re- designation of the Project area as an
archeological site of national importance, government regulations relating to
mining which may withhold the receipt of required permits or impede the
Company's ability to acquire the necessary surface rights, as well as currency
fluctuations and local inflation. These risks may adversely affect the
Company's investment and may result in the impairment or loss of all or part of
the Company's investment.
These consolidated financial
statements have been prepared on the basis of Canadian generally accepted
accounting principles ("Canadian GAAP") applicable to a "going
concern", which assume that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities in the normal course of operations. As at September 30, 2010 the
Company had no sources of operating cash flows and does not have sufficient
cash to fund the development of the Project and therefore will require
additional funding which, if not raised, would result in the curtailment of
activities and the Project delays.
Once Environmental Impact Assessment
("EIA") approval has been granted, the Company will re-examine
financing alternatives with a view to presenting the various options open to
the Company to the board of directors. The timeline to build the Project is
dependent on a number of factors which include both the permitting and
financing processes.
There can be no assurances that the
Company's financing plan and permitting will be successful and, as a result,
there is significant doubt regarding the "going concern" assumption
and, accordingly, the use of accounting principles applicable to a going
concern. These consolidated financial statements do not reflect adjustments
that would be necessary if the "going concern" assumption were not
appropriate. If the "going concern" assumption were not appropriate
for these consolidated financial statements, then adjustments to the carrying
values of the assets and liabilities, the reported expenses and the balance
sheet classifications, which could be material, would be necessary.
2. Basis of presentation and new
accounting policies
The accompanying interim
consolidated financial statements have been prepared in accordance with
Canadian GAAP for the preparation of interim financial information.
Accordingly, they do not include all of the information and disclosures
required by Canadian GAAP for annual consolidated financial statements. The
accounting policies and methods of computation used in the preparation of these
unaudited interim consolidated financial statements are the same as those
described in the Company's audited consolidated financial statements and notes
thereto for the year ended December 31, 2009.
In the opinion of management, the
accompanying interim consolidated financial statements include all adjustments
considered necessary for fair and consistent presentation of financial
statements. These interim consolidated financial statements should be read in
conjunction with the Company's audited annual consolidated financial statements
and notes for the year ended December 31, 2009.
Business Combinations, Consolidated
Financial Statements and Non-Controlling Interests
The CICA issued three new accounting
standards in January 2009: Section 1582, "Business Combinations",
Section 1601, "Consolidated Financial Statements" and Section 1602,
"Non-Controlling interests". These new standards will be effective
for fiscal years beginning on or after January 1, 2011.
Section 1582, "Business
Combinations" replaces section 1581, "Business Combinations",
and establishes standards for the accounting for a business combination. It
provides the Canadian equivalent to IFRS 3 - Business Combinations. The section
applies prospectively to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after January 1, 2011. Sections 1601, "Consolidated Financial
Statements", and 1602, "Non-Controlling interests", together
replace section 1600, "Consolidated Financial Statements". Section
1601 establishes standards for the preparation of consolidated financial
statements and applies to interim and annual consolidated financial statements
relating to fiscal years beginning on or after January 1, 2011. Section 1602
establishes standards for accounting for non-controlling interest in a
subsidiary in consolidated financial statements subsequent to a business
combination. The Company opted to early adopt these standards as of December
31, 2009 and applied Section 1602, "Non-Controlling Interests", in
accounting for the purchase of non-controlling interest shares in RMGC (refer
to Note 8). Consequently, the difference between the carrying amount of the
non-controlling interest shares and the fair value of the consideration paid
was recognized directly in shareholders' equity. The early adoption of Section
1582, "Business Combinations" and Section 1601, "Consolidated
Financial Statements", did not have an impact on the Company's
consolidated financial statements.
3. Short-term investments and
restricted cash
Short-term investments
September 30, December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Money market investments with
maturities from
the date of acquisition of 4 - 12
months
$
73,604 $
46,201
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Short-term investments held at
period end yielded a weighted average
interest rate of 0.38% in 2010 (2009 -
0.67%).
Restricted cash
September 30, December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted cash (1)
$
157 $ 126
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Restricted cash represents
environmental guarantees for future clean up
costs.
4. Capital Assets
September 30, December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost
Office equipment
$
4,011 $ 4,207
Building
1,073
1,082
Vehicles
1,405
1,282
Leasehold improvements
215
215
Construction in progress (1)
50,857
50,249
----------------------------------------------------------------------------
57,561
57,035
----------------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 3,137
3,122
Building
71
63
Vehicles
1,181
1,207
Leasehold improvements
198
179
----------------------------------------------------------------------------
4,587
4,571
----------------------------------------------------------------------------
Net book value
Office equipment
874
1,085
Building
1,002
1,019
Vehicles
224
75
Leasehold improvements
17
36
Construction
in progress (1)
50,857
50,249
----------------------------------------------------------------------------
$ 52,974 $ 52,464
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)
Amounts included in construction in progress are not subject to
amortization.
Construction in progress includes the following amounts:
September 30, December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement
site development costs
$
1,044 $ 1,951
Long-lead-time
equipment
49,813
48,298
----------------------------------------------------------------------------
$
50,857 $ 50,249
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5.
Mineral Properties
Rosia Montana
Bucium Baisoara Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
- December 31, 2008 $ 396,239 $ 10,458
$ 387 $ 407,084
Development
costs
33,314
-
- 33,314
Exploration
costs
1,016
1
130 1,147
----------------------------------------------------------------------------
Balance
- December 31, 2009
430,569 10,459 517 441,545
Development
costs (1)
25,463
- 25,463
Exploration
costs (1)
435
-
96
531
----------------------------------------------------------------------------
Balance
- September 30, 2010
$
456,467 $ 10,459 $ 613 $ 467,539
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)
Mineral property additions of $25.9 million (2009 - $34.5 million) is
$1.4
million higher than the amount reported in the Consolidated Statements
of
Cash Flows of $24.5 million. The difference is attributed to a net
adjustment
of resettlement liabilities partially offset by non-cash charges
for
stock based compensation and amortization (see details in note 18).
The Company's principal asset is its 80.46% direct ownership
interest in a Romanian company, Rosia Montana Gold Corporation
("RMGC"), which has certain rights to two mineral licenses in
Romania, being Rosia Montana and Bucium. Minvest S.A. ("Minvest"), a
Romanian state-owned mining company, together with one other private Romanian
company, hold a 19.54% interest in RMGC, and Gabriel holds the pre-emptive
right to acquire the 19.54% minority interest. The Company is obligated to fund
100% of all expenditures related to the exploration and development of these
properties and holds a preferential right to recover all funding plus interest
(other than on non-interest bearing loans) from future cash flows prior to the
minority shareholders receiving dividends. RMGC will be required to pay a 4%
net smelter royalty on all production from the Project. In December 2009, in
order to replenish the net asset position of RMGC in accordance with the
Romanian Fiscal Code, the shareholders of RMGC contributed $216 million into
the share capital of RMGC. The share capital increase was accomplished in part
by converting $174 million of debt owed by RMGC to the Company into equity. The
remaining $42 million was funded through a contribution provided to minority
shareholders in the form of a non-interest bearing loan to fund their
respective pro-rata contributions.
An exploitation license is held by RMGC as the titleholder
in respect of the Project. RMGC has the exclusive right to conduct mining
operations at the Project for an initial term of 20 years expiring in 2019, and
thereafter with successive five-year renewal periods.
RMGC holds rights to an exploration license over the Bucium
property. The license was extended in 2004 and expired on May 19, 2007. The
expired exploration license can be converted into an exploitation license upon
submission and approval of a feasibility study. During 2007, the Company filed
the necessary documentation to convert the exploration license into an
exploitation license and the Company is awaiting a response from the
authorities on this item. No additional work on the Bucium property is planned
until the license is converted from an exploration to an exploitation license
and until the Project progresses further.
The Company, through its wholly owned subsidiary Rom Aur SRL
("Rom Aur"), holds an exploration license with respect to the
Baisoara property in Western Romania. The license is for an initial term of 5
years and expires in July 2011. Upon granting of the license, the Company
committed to spend US$3.2 million over the term of the license. Due to the
delay in the Rosia Montana permitting process, the Company has reduced the
exploration expenditure for Baisoara to a level required to maintain the
license and permit in good standing.
6. Resettlement liabilities
For a number of years, the Company has had a program for
purchasing homes in the Project area, which was suspended in February 2008 due
to the suspension of the EIA review process in September 2007. Under the
resettlement program residents were offered two choices. They could either
choose to take the sale proceeds and move to a new location of their choosing
or they could exchange their properties for a new property to be built by the
Company at one of two resettlement sites. For those residents who choose the
resettlement option, the Company increases its mineral properties on the
balance sheet as well as resettlement liabilities for the anticipated construction
costs of the resettlement houses. As the construction takes place, the cost of
newly built houses is capitalized as construction in progress. After the
transfer of legal title of the property is completed, the Company reduces the
amounts capitalized as construction in progress and at the same time its
resettlement liabilities. All resettlement associated costs will remain
capitalized in mineral properties and amortized over the life of the mine once
the Project moves into production.
At September 30, 2010, the Company had accrued resettlement
liabilities totaling $4.7 million (December 31, 2009 - $5.4 million), which
represents the cost of building the remaining new homes for the local residents
and outstanding delay penalties.
The construction of all 125 homes at the Recea resettlement
site in Alba Iulia has been completed with 124 homes handed over to their
respective owners. The Company is currently reviewing the technical merits for
a further resettlement village to be built, as well as the process of obtaining
permits for this resettlement site. All 24 property owners who chose to
resettle within Rosia Montana have signed a three year extension contract. As a
result of the delay in delivery of homes, the Company paid or accrued a penalty
of 9% (for Recea) and up to 20% (for new site) of the agreed upon unpaid
property value per year of delay as required by the agreement including all
amendments.
As at September 30, 2010, the Company has accrued $0.5
million (December 31, 2009 - $0.4 million) representing its total estimated
delay penalty. During the three-and-nine-months period ended September 30,
2010, the Company paid $71,000 and $122,000 respectively, of delay penalties
(2009 - $0.1 and $0.5 million, respectively).
The acquisition process for private properties is currently
on hold pending progress in the permitting process.
7.
Other liabilities
Price per
DSU's Common Share
Deferred
Share Units ("DSU") (a)
(000's)
(dollars) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding
- December 31, 2008
1,155
$ 1.52 $ 1,755
Issued
68
2.43
165
Settled
(623)
3.39 (2,114)
Change
in fair value
- - 2,811
----------------------------------------------------------------------------
Outstanding
- December 31, 2009
600
4.36 2,617
Issued
12
4.82
60
Amortized
(1)
45
4.19
187
Settled
(551)
4.49 (2,475)
Change
in fair value
-
234
----------------------------------------------------------------------------
Balance
- September 30, 2010
106
$ 5.96 $ 623
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fidelity
bonus and other benefits (b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
accrued - December 31, 2008
$ 1,310
Additions
$ 228
Foreign
exchange movement
(247)
----------------------------------------------------------------------------
Balance
accrued - December 31, 2009
1,291
Foreign
exchange movement
(92)
----------------------------------------------------------------------------
Balance
accrued - September 30, 2010
$ 1,199
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
Other Liabilities
$ 1,822
----------------------------------------------------------------------------
1)
During the second quarter of 2010 the Company issued 358 thousand DSUs to
the
Company's CEO. The expense is amortized over a two year period.
(a) DSUs
The Company implemented a Deferred Share Unit
("DSU") Plan under which qualifying participants receive certain
compensation in the form of DSUs in lieu of cash. On retirement or departure
from the Company, participants may redeem their DSUs for common shares of the
Company, cash, or a combination of common shares and cash. It is at the
holder's discretion as to whether they elect to settle the DSU in cash or
shares of the Company. If the holder elects to settle the DSU in shares of the
Company, the Company, at its sole discretion, can elect to pay the amount in
common shares either purchased from the open market, or issued from treasury.
The change in the fair market value of the DSU liability has
been recorded in stock based compensation expense except for costs relating to
personnel working on projects in Romania, which are capitalized.
3 months ended
9 months ended
September
30,
September 30,
Deferred
Share Units ("DSUs")
2010 2009
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed
(recovered)
336
239 $ 481 $ 760
Capitalized
-
22 $ - $ 69
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Initially valued at the five-day weighted average market
price of the stock at date of issue, DSUs are revalued each period end based on
the closing share price at the period end, with the difference between the fair
value of the DSUs at period end compared to the fair value at the end of the
previous period. The change in share price of the DSUs at the end of the period
is charged to the Statement of Income and Loss.
(b) Fidelity Bonus
Under the Collective Bargaining Agreement between RMGC and
its employees, under certain conditions, employees of RMGC are entitled to a
bonus equal to one month of average gross salary when celebrating 3, 5, 10, 15,
20, and 25 years of uninterrupted service as well as other benefits related to
death benefits and termination of employment. As of September 30, 2010, $1.2
million (December 31, 2009 - $1.3 million) has been accrued for these benefits.
8. Related Party Transactions
The Company had related party transactions, with directors
of the Company or associated corporations, which were undertaken in the normal
course of operations and were measured at the exchange amounts as follows:
a. In December 2004, the Company loaned a
total of US$971 thousand to the
four non-controlling
shareholders of RMGC, who held an aggregate of 20%
of the shares of RMGC, to
facilitate a statutory requirement to increase
RMGC's total share capital.
During 2009 the Company purchased shares
held in RMGC by two of its
non-controlling shareholders. Upon completion
of this transaction, the
outstanding indebtedness of the two non-
controlling shareholders of
$23 thousand was deemed to be paid in full.
b. During 2009, the Company received a
formal offer to purchase the shares
held in RMGC by two of its
non-controlling shareholders (the "Non-
Controlling
Shareholders"), each of whom owned 23,967 common shares in
RMGC representing each 0.23%
of its share capital. The Company responded
to the offer of the
non-controlling shareholders and purchased 47,934
common shares of RMGC held
by the Non-Controlling Shareholders for
222,708 shares of Gabriel
and US$0.8 million in cash. As a result of
these transactions, the
Company's ownership interest in RMGC increased
from 80% to 80.46%.
c. In 2009, the Company loaned a further
US$40 million to the remaining two
non-controlling shareholders
of RMGC to facilitate another statutory
share capital increase in
RMGC.
The loans are non-interest
bearing and are to be repaid as and when RMGC
distributes dividends to its
shareholders. The loans and related non-
controlling interest
contribution have been offset on the balance sheet
until such time as the loans
are repaid. Once the loans are repaid the
non-controlling interest
component will be reflected on the balance
sheet.
9.
Capital Stock
Authorized
Unlimited number of common shares without
par value
Unlimited number of preferred shares,
issuable in series, without par value
Number of
Common
shares issued and outstanding
shares
(000's) Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
- December 31, 2008
255,449 $560,052
Shares issued from public and private
offerings
81,806 172,671
Less: Share issue costs
- (4,293)
Shares issued on the exercise of stock
options
(note 11)
1,654 3,049
Transfer from contributed surplus -
exercise of
stock options (note 12)
- 1,399
Shares issued on DSU settlement
68
123
Shares issued on purchase of minority
interest
shares
223
480
----------------------------------------------------------------------------
Balance
- December 31, 2009
339,200
$733,481
Shares issued on the exercise of stock
options
(note 11)
5,614 10,942
Shares issued on DSU settlement
74
357
Transfer from contributed surplus -
exercise of
stock options (note 12
- 4,924
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
- September 30, 2010
344,888 $749,704
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In June 2009 the Company closed a private placement and a
public offering financing through the issuance of 51.8 million common shares,
including common shares issued under an over-allotment option, for aggregate
gross proceeds of approximately $117 million. The share issuance costs related to
the public offering and private placement were $4 million.
As a result of the public offering, the Company sold 29.8
million common shares, which includes the exercise in full of the
over-allotment option, at $2.25 per common share to a syndicate of underwriters
led by Cormark Securities Inc. and RBC Capital Markets as joint bookrunners,
and including Canaccord Capital Corporation, for aggregate gross proceeds of
$67.1 million.
Pursuant to the private placement, each of Electrum
Strategic Holdings LLC and Paulson & Co. Inc., two of Gabriel's significant
shareholders, purchased 10.6 million and 11.4 million common shares
respectively at a price of $2.25 per common share, for aggregate gross proceeds
of $49.5 million.
In December 2009, the Company closed a private placement
with BSG Capital Markets PCC Limited, which is part of the Beny Steinmetz Group
("BSG"). Pursuant to the private placement, BSG subscribed for 30
million Units at a subscription price of $2.25 per Unit for gross proceeds to
the Company of $67.5 million. The share issuance costs related to the private
placement were $0.3 million. Each Unit consists of one common share of the
Company and one common share purchase warrant entitling BSG to purchase one
additional common share of the Company (see Note 10). The net proceeds of the
private placement were allocated between the share capital and share purchase
warrants on the basis of their relative fair values. The amount allocated to
share capital was $55.8 million while $11.4 million was allocated to share
purchase warrants.
10.
Share Purchase Warrants
As
at September 30, 2010, the following share purchase warrants were issued
and
outstanding:
Number of Exercise
Warrants
issued to two
warrants
price Assigned
financial institutions (000's) (dollars) Value Expiry
date
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
- December 31,
2008 (1) and 2009
1,125 $
4.88 US$1,500
November 28, 2010
Warrants
settled (1)
(750)
(US$1,000) November 28, 2010
----------------------------------------------------------------------------
Balance - September 30,
2010
375
US$500 November 28, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)
The assigned value of the warrants vested, being US$1.5 million,
represents
their cash settlement value. The Company accrued this amount in
accounts
payable and accrued liabilities. It is at the holders' discretion
to
settle the warrants in cash or shares of the Company. In March 2010, one
of
warrant holders exercised its option to receive a termination fee of US$1
million
in respect of the warrants.
Warrants
issued to BSG Number
of Exercise
Capital Markets PCC
warrants
price Assigned
Limited
(000's) (dollars) Value Expiry
date
----------------------------------------------------------------------------
Balance
- December 31,
2008
- $ -
$
-
July
18, 2011 to
$2.50-
Warrants
issued (2)
30,000 3.00
$ 11,393 December 18,
2011
----------------------------------------------------------------------------
Balance
- December 31,
2009 and September 30,
July 18, 2011 to
2010
30,000
$ 11,393
December 18, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(2)
The assigned value of warrants represents relative fair value allocated
between
the share capital and warrants based on the net proceeds from
private
placement with BSG.
During the fourth quarter of 2006, the Company entered into
mandate letters with two international financial institutions to arrange
project debt financing for the development of the Project. The two institutions
were to provide a committed underwriting in an amount up to US$350 million. As
a result of the suspension of the EIA review process, the mandate letters
terminated during 2008 and 1.125 million warrants vested while 1.5 million
warrants were cancelled. Each warrant has a four year term and has an exercise
price of $4.88. In March 2010, one of the two financial institutions exercised
its option to receive a termination fee of US$1 million in respect of 750,000
warrants, which was fully paid during the first half of 2010.
During 2009, the Company closed a private placement with
BSG. Pursuant to the private placement, BSG subscribed for 30 million Units at
a subscription price of $2.25 per Unit. Each Unit consists of one common share
of Gabriel and one common share purchase warrant entitling BSG to purchase one
additional common share of Gabriel at $2.50 per share for 18 months rising to
$3.00 per share for the final six months of the two year warrant. The net
proceeds of the private placement were allocated between the share capital and
share purchase warrants on the basis of their relative fair values. The amount
allocated to share capital was $55.8 million while $11.4 million was allocated
to share purchase warrants.
11. Stock Options
The Incentive Stock Option Plan (the "Plan")
authorizes the Directors to grant options to purchase shares of the Company to
directors, officers, employees and consultants. The exercise price of the
options equals the five-day weighted average closing price prior to the option
allotment. The majority of options granted vest over three years and are
exercisable over five years from the date of issuance.
The Plan was amended on May 8, 2007 to allow for the maximum
number of common shares issuable under the Plan to equal 10% of the issued and
outstanding common shares of the Company at any point in time, and that options
once exercised would be re-endorsed into the pool of ungranted options.
As at September 30, 2010, 11.7 million options are available
for issuance under the Plan (December 31, 2009 - 6.6 million).
As
at September 30, 2010, common share stock options held by directors,
officers,
employees and consultants are as follows:
Outstanding
Exercisable
-------------------------------------- ------------------------
Weighted
Weighted
Weighted
Range
of
average
average
average
exercise Number of exercise remaining Number of exercise
prices options
price contractual options
price
(dollars) (thousands) (dollars) life (Years)
(thousands) (dollars)
-------------------------------------- ------------------------
$
1.18 -
2.00
11,073 $ 1.76
2.4
4,222 $ 1.74
2.01
- 3.00
4,064
2.53
2.5
3,030
2.54
3.01
- 5.23
7,681
4.46
3.8
2,530
4.38
-------------------------------------- ------------------------
22,818 $ 2.81
2.9
9,782 $ 2.67
-------------------------------------- ------------------------
-------------------------------------- ------------------------
During
the year ended December 31, 2009 and the nine-month period ended
September
30, 2010, director, officer, employee and consultants stock
options
were granted, exercised, forfeited and cancelled as follows:
Number of Weighted average
options
exercise price
(thousands)
(dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance
- December 31, 2008
22,514
$ 2.16
Options granted
3,870
3.05
Options forfeited / cancelled
(496)
3.54
Options exercised
(1,654)
1.84
----------------------------------------------------------------------------
Balance
- December 31, 2009
24,234
2.29
Options granted
4,250
4.65
Options forfeited / cancelled
(52)
3.68
Options exercised (5,614)
1.95
----------------------------------------------------------------------------
Balance
- September 30, 2010
22,818
$ 2.81
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The estimated fair value of stock options is amortized over
the period in which the options vest which is normally three years. For those
options which vest on a single date, either on issuance or on meeting
milestones (the "measurement date"), the entire fair value of the
vesting options is recognized immediately on the measurement date.
The fair value of stock options granted to personnel working
on development projects is capitalized over the vesting period.
During the year ended December 31, 2009, the Company granted
3.9 million options. Of the 3.9 million options issued, 2.1 million vest over a
three-year period and the remainder vest based on achievement of certain
milestones. The fair value of options that vest upon achievement of milestones
will be recognized and capitalized as milestones are achieved and the value can
be reasonably measured.
During the nine-month period ended September 30, 2010, the
Company granted 4.2 million options. Of the 4.2 million options issued, 2.2
million vest over a three-year period and the remainder vest based on
achievement of certain milestones. The fair value of options that vest upon
achievement of milestones will be recognized and capitalized as milestones are
achieved and the value can be reasonably measured.
The value of the stock options granted in the
three-and-nine-month periods ended September 30, 2010 and 2009 was calculated
with the following assumptions:
3 months ended 9 months ended
September 30, September
30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted
average risk-free interest
rate
1.49%
- 1.68% 1.49%
Volatility
of the expected market
price of share
103%
-
103%
100%
Weighted
average expected life of
2.6
2.6 2.7
options
years
- years years
Weighted
average cost per option $ 3.00 - $ 2.79 $ 1.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As of September 30, 2010, the remaining fair value of
outstanding measurable unvested options to be expensed and capitalized is $6.4
million and $4.0 million, respectively. For the three-and-nine-month periods
ended September 30, 2010 and 2009, the fair value of stock options expensed and
capitalized is as follows:
3 months ended 9 months ended
September 30, September
30,
2010
2009
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed
$ 749
$ 707 $ 4,140 $ 3,558
Capitalized
$ 395
$ 252 $ 988 $ 778
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12.
Contributed Surplus
The
following table identifies the changes in contributed surplus for the
periods
indicated:
Total
----------------------------------------------------------------------------
Balance
- December 31, 2008
$ 15,051
Stock-based
compensation
5,403
Exercise
of stock options
(1,399)
Purchase
of minority interest shares
(1,005)
----------------------------------------------------------------------------
Balance
- December 31, 2009
18,050
Stock-based
compensation
5,128
Exercise
of stock options
(4,924)
----------------------------------------------------------------------------
Balance
- September 30, 2010
$ 18,254
----------------------------------------------------------------------------
----------------------------------------------------------------------------
13. Income Taxes
In April 2010, the Supreme Court in Romania admitted an RMGC
appeal and cancelled irrevocably a fiscal assessment concerning the period 2003
and 2004. The original assessment arose from the disallowance of the
application of state tax incentives related to unrealized foreign exchange
gains on inter-company debt.
On September 2, 2010 the Company received the equivalent of
$6.9 million from the fiscal authorities in Alba Iulia and Abrud in Romania as
a result of the cancelled fiscal assessment. The full recovered amount was
recognized in the Statements of Income and Loss.
14. Segmented Information
The Company has one operating segment: the acquisition,
exploration and development of precious metal projects located in Romania.
Geographic
segmentation of capital assets and mineral properties is as
follows:
September
30, December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Romania
$
520,244 $ 493,697
Canada
269
312
----------------------------------------------------------------------------
Total
$
520,513 $ 494,009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
15. Financial Instruments
The recorded amounts for cash, cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued liabilities
approximate fair values based on the short-term nature of those instruments.
The Company's risk exposures and the impact on the Company's
financial instruments are summarized below:
Credit risk
The Company's credit risk is primarily attributable to cash,
cash equivalents, and short-term investments that are held in investment
accounts with Canadian banks and invested in sovereign debt. The Company has
adopted a strategy to minimize its credit risk by substantially investing in
sovereign debt issued by France and Germany with the balance of cash being
invested in short-term Term Deposits issued by Canadian banks.
The Company strives to maintain at least 85-90% of its cash,
cash equivalents, and short-term investments in sovereign debt.
The Company is exposed to the credit risk of Romanian banks
that hold and disburse cash on behalf of its Romanian subsidiaries. The Company
manages its Romania bank credit risk by centralizing custody, control and
management of its surplus cash resources in Canada at the corporate office and
only transferring money to its Romanian subsidiary based on short-term cash
requirements, thereby mitigating exposure to Romania banks.
The Company's credit risk is also attributable to
value-added taxes receivable. Value-added taxes receivable are collectable from
the Romanian government.
Liquidity risk
The Company has sufficient funds as at September 30, 2010 to
settle current and long-term liabilities.
Market risk
(a) Interest rate risk
The Company has significant cash balances and no debt. As
discussed above in the section entitled "Credit Risk", the Company's
policy is to primarily invest excess cash in sovereign guaranteed investments.
With the Company maintaining a short-term investment
horizon, typically less than 12 months, for its cash, cash equivalent, and
short-term investment balances, it minimizes the risk of interest rate
volatility as investments mature and are rolled over.
With a short-term investment horizon and the intent to hold
all investments until maturity, the Company is only marginally exposed to
capital erosion should interest rates rise and cause its fixed yield
investments to devalue.
The Company's primary objective with respect to cash, cash
equivalents, and short-term investments is to mitigate credit risk. The Company
has elected to forego yield in favour of capital preservation.
(b) Foreign currency risk
The Company's functional currency is the Canadian dollar and
its operations expose it to significant fluctuations in foreign exchange rates.
The Company has monetary assets and liabilities denominated in Romanian Ron, United
States Dollars and European Union Euros, and is therefore, subject to exchange
variations against the functional and reporting currency, the Canadian Dollar.
The Company maintains cash, cash equivalents, and short-term
investments in the currency of planned expenditures and is therefore
susceptible to market volatility as foreign cash balances are revalued to the
functional currency of the Company. Therefore, the Company may report
significant foreign exchange gains or losses if significant market volatility
continues.
Financial Instruments
As at September 30, 2010 and December 31, 2009, the
Company's financial instruments consisted of cash and cash equivalents,
short-term investments, other current assets, accounts payable and accrued
liabilities, and other long-term liabilities. With respect to all of these
financial instruments, the Company estimates that their fair values approximate
their carrying values at September 30, 2010 and December 31, 2009,
respectively.
The
following table illustrates the classification of the Company's
financial
instruments within the fair value hierarchy as at September 30,
2010
and December 31, 2009:
Financial assets and liabilities as at
September
30, 2010(i)
-----------------------------------------
Level 1 Level 2 Level
3 Total
----------------------------------------------------------------------------
Cash
$
- $ 8,747 $ - $ 8,747
Cash
Equivalents
-
48,932
- 48,932
Short-term
investments (note 3)
-
73,604
- 73,604
Deferred
Share Units (note 7)
(623)
-
-
(623)
----------------------------------------------------------------------------
$ (623) $
131,283 $
- $ 130,660
----------------------------------------------------------------------------
Financial assets and liabilities as at
December 31, 2009(i)
-----------------------------------------
Level 1 Level
2 Level 3 Total
----------------------------------------------------------------------------
Cash
$
- $ 13,674 $ - $ 13,674
Cash
Equivalents
- 102,436
- 102,436
Short-term
investments (note 3)
-
46,201
- 46,201
Deferred
Share Units (note 7)
(2,617)
-
- (2,617)
----------------------------------------------------------------------------
$ (2,617) $ 162,311 $ - $
159,694
----------------------------------------------------------------------------
(i)
at fair value
Sensitivity analysis
The Company has designated its cash, cash equivalents, and
short-term investments as held-for-trading, which are measured at fair value.
As of September 30, 2010, the carrying amount of the financial instruments
equals fair market value. Based on management's knowledge and experience of the
financial markets, the Company believes the following movements are
"reasonably possible" over a three month period.
-- For a cash and cash equivalents a plus
or minus 1% change in earned
interest rates would affect
net income from deposits by $0.1 million.
-- For short-term investments a plus or
minus 1% change in earned interest
rates would affect net
income by $0.2 million.
-- As of September 30, 2010 a plus or minus
1% change in foreign exchange
rates of the Company's
significant balances in foreign currencies would
affect net income by $0.3
million.
16. Capital Management
The Company's objective when managing capital is to
safeguard its accumulated capital (cash on hand) in order to fund development
of its Rosia Montana Project. The Company manages its capital structure and
makes adjustments to it based on the level of funds on hand and anticipated
future expenditures.
To safeguard capital and to mitigate currency risk, the
Company invests its surplus capital in highly liquid, highly rated financial
instruments that reflect the currency of the planned expenditure.
17. Commitments and Contingencies
The following is a summary of contractual commitments of the
Company including payments due for each of the next five years and thereafter.
2014 and
Total 2010 2011 2012 2013 thereafter
----------------------------------------------------------------------------
Baisoara
exploration
license (note 5)
$ 2,690 $ 182 $ 2,508 $ - $ - $ -
Resettlement
(note 6)
4,628
- 4,628
- -
-
Goods
and services (a) 9,585 6,735 1,210 1,332 7 301
Long
lead time equipment
(b)
1,766 1,702 64
- -
-
Rosia
Montana exploitation
license (c)
1,584 198 198 198 198 792
Surface
concession rights
(d)
832
5
21
21 21 764
Lease
agreements (e)
397 125 272
- -
-
----------------------------------------------------------------------------
Total
commitments
$21,482 $8,947 $ 8,901 $ 1,551 $ 226 $ 1,857
----------------------------------------------------------------------------
(a) The Company and its subsidiaries have a number of
agreements with arms-length third parties who provide a wide range of goods and
services which totalled $9.6 million at September 30, 2010 (December 31, 2009 -
$14.7 million). Typically, the service agreements are for a term of not more
than one year and permit either party to terminate for convenience on notice
periods ranging from 15 to 90 days. Upon termination, the Company has to pay
for services rendered and costs incurred to the date of termination.
(b) During 2007, the Company entered into purchase
agreements for long-lead-time equipment, the cost of which is to be paid over
several years beginning 2007. The following is a summary of the long-lead- time
equipment orders and the payment status:
September 30,
December 31,
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
purchase agreements:
Grinding
area systems
$
42,032 $ 41,731
Crusher
facilities
3,961
3,961
Foreign
exchange movement
1,647
3,023
----------------------------------------------------------------------------
47,640
48,715
Amount
paid to date:
Grinding
area systems
(40,425)
(37,011)
Crusher
facilities
(3,881)
(3,881)
Foreign
exchange movement
(1,568)
(2,676)
----------------------------------------------------------------------------
Outstanding
payment obligation
$
1,766 $ 5,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Under the terms of the Company's exploitation mineral
license for the Rosia Montana Project, an annual fee is required to be paid to
maintain the license in good standing. The current annual fee is approximately
$0.2 million. These fees are indexed annually by the Romanian Government and
the license has 9 years remaining.
(d) RMGC has approximately 42 years remaining on a
concession agreement with the Local Council of Rosia Montana Commune by which
it is granted exploitation rights to property located on and around the
proposed Cirnic pit for an annual payment of $20,000.
(e) The Company has entered into agreements to lease
premises for various periods until May 31, 2011. The annual rent of premises
consists of minimum rent plus realty taxes, maintenance and utilities.
The Company has an agreement with a consulting firm to provide
financial advisory services in relation to defining and implementing the
financing plan for development of the Project. A success fee of up to US$4
million will be payable on execution of definitive credit agreements and/or
financing documents for the senior, mezzanine and cost overrun debt facilities
for the Project. No amount has been accrued for these services.
In March, 2009 the Company entered
into a professional service agreement with an international communications firm
providing services in media planning and related activities. The term of the
agreement is 3 years from the commencement date of March 1, 2009 until February
29, 2012. The agreed fee consists of annual fee of 450,000 EUR and success fee
of 800,000 EUR payable at the end of the 3 -year agreement and upon fulfillment
of certain criteria. The Company has paid or accrued 337,000 EUR for the 2010
annual fee as at September 30, 2010.
Notes to Consolidated Financial
Statements
For the three-and-nine-month periods
ended September 30, 2010 and 2009
(Unaudited - Tabular amounts in
thousands of Canadian Dollars, unless
otherwise stated)
18. Supplemental Cash Flow
Information
3 months ended 9 months ended
September 30, September
30,
(a) Net changes in non-cash working
capital
2010
2009
2010
2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid
expenses and supplies
$ (70) $ (102) $ (244) $ (281)
Accounts payable and accrued
liabilities
(1,171) (187) (1,171) 1
Unrealized gain on working capital
20
179
22
327
----------------------------------------------------------------------------
$ (1,221) $ (110) $
(1,393) $ 47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investing
activities:
Accounts receivable, prepaid
expenses and supplies
$ (709) $ (671) $ 184 $
2,670
Accounts payable and accrued
liabilities
1,002
(3,719) (3,353) (9,361)
Unrealized gain (loss) on short-
term investments
4,116
(2,446)
(314)
(546)
----------------------------------------------------------------------------
$ 4,409 $ (6,836) $ (3,483) $ (7,237)
----------------------------------------------------------------------------
Financing activities:
Accrued share issue costs
$
- $ (227) $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Exploration and development
expenditures
Balance sheet change in mineral
properties
$ (9,330) $ (6,689) $(25,994) $(21,429)
Reclassification of mineral
properties from construction in
progress
-
3,853
- 7,417
Decrease in resettlement
liabilities
(139) (6,285) (695) (14,063)
Non-cash depreciation and disposal
capitalized
192
100
1,155
332
Stock based compensation
capitalized
395
274
988
847
----------------------------------------------------------------------------
Development and exploration
expenditures per cash flow
statement
$ (8,882) $ (8,747) $(24,546) $(26,896)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Cash and cash equivalents is
comprised of:
Cash
$ 8,747 $ 30,691 $
8,747 $ 30,691
Short- term investments (less than
90 days) - weighted average
interest of 0 .44% (2009 - 0.21%) 48,932 32,653 48,932 32,653
----------------------------------------------------------------------------
$ 57,679 $ 63,344 $ 57,679 $ 63,344
----------------------------------------------------------------------------
19. Reclassification of Comparative
Figures
Certain comparative figures have
been reclassified to conform to the current period's presentation.
Contacts:
Gabriel Resources Ltd.
Jonathan Henry
President and Chief Executive
Officer
+ 44 7798 801783