November 4, 2008 |
Gabriel Resources Ltd: 2008 Third Quarter Report |
TORONTO, ONTARIO--(Marketwire - Nov. 4, 2008) - Gabriel Resources Ltd. (TSX:GBU) -
Highlights
"We look forward to advancing our Project after the forthcoming national election" said Alan R. Hill President and CEO. "Regardless of the form it takes, in the months following the election, we expect the new Government to be supportive of a fair and transparent review process."
Financial performance
- Third quarter loss was $2.8 million, or $0.01 per share basic and diluted. Year-to-date loss was $8.1 million, or $0.03 per share basic and diluted.
- The year-to-date results include foreign exchange gains, amounting to $7.2 million on EURO cash balances held to finance planned future EURO-denominated development activities.
- A total of $22.6 million was spent on our development projects during the quarter increasing the year-to-date amount to $52.6 million.
Liquidity and capital resources
- Cash, cash equivalents and short term investments at September 30, 2008 totaled $82.6 million.
- Project related expenditures are expected to total $67 million in 2008, below 2007 levels as the Company placed most activities on hold until environmental impact assessment (the "EIA") approval.
- The Company is forecasting a cash, cash equivalents and short term investment position at December 31, 2008 of approximately $65 million.
Rosia Montana Project Development
Overview
- In September 2007, the Minister of Environment and Sustainable Development announced it was impossible to continue the EIA review process for the Project. He suspended the Technical Assessment Committee (the "TAC") EIA review meetings, asserting a linkage between a minor procedural certificate and the EIA review process that, we believe, on the advice of local counsel, lacks any basis in law.
- As a result of the Minister's arbitrary action, the Company is focused on doing everything within its power to restart the permitting process. To that end, as well as advancing our cause through the Romanian judicial system, the Company stepped up its advocacy efforts in Romania and abroad.
- Those efforts have been focused on creating an open and transparent review of the Project. Management's goal is that these stakeholder outreach efforts will create a non-partisan environment for the Project's evaluation.
Global Financial Crisis
- The global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both currently closed. Companies looking to finance projects in this environment will have to focus on multilateral agencies and non traditional lenders, while respecting that the current financial crisis may extend the timeframes to complete project financing.
- Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs.
- Management has been advised by its financial advisors that financing the project might be challenging, nevertheless due to the quality of the Project, financing from multilateral agencies and non traditional lenders should be available, unless the financial crisis worsens further from the current level.
- In the meantime, management is reviewing all expenditures in an effort to conserve cash. The financial crisis may cause the time line from the restart of the permitting process until receipt of construction permits to be extended, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel.
Independent Report on Social-Economic Development
- An independent report titled the "Rosia Montana Commune Strategic Social-Economic Development Plan for 2008-2013" (the "Report") was adopted by the Rosia Montana Local Council during the third quarter. The Report was prepared over the course of the first half of 2008 with the participation of local leaders and community consultation. The Report was funded and conducted by the National Agency for Development of Mining Zones/Alba Regional Office.
- The Report concludes that the Project is an integral part of socio-economic development in the region, and seeks to ensure that local community benefits are widely felt and that the Project contributes to sustainable and diversified economic development.
Political Situation
- Romania became a full member of the EU on January 1, 2007. Since accession, however, the country's ruling coalition has disintegrated, with the departure of two of the parties in government, the first in January and the second in April 2007.
- A minority government comprised of the Liberal party and ethnic Hungarian UDMR party, representing approximately 23 percent of the Parliament, was formed in April 2007 under the then sitting Prime Minister.
- While management has made every effort - legal and political - to restart the EIA review process, the Company now awaits a change in Government. National elections are scheduled for November 30th and we anticipate, it will take some time for a new government to form as a coalition government is expected. Regardless of the form it takes, in the months following the election, the Company expects the new Government to be supportive of a fair and transparent review process.
Private Members Bills
- In addition to initiating court challenges designed to frustrate our ability to permit the Project in a timely manner, the opposition has orchestrated the tabling of three "private members bills" in the Romanian Parliament, the first of which was to ban the use of cyanide in mining operations in Romania.
- In the period between September and October 2008, the Speaker of the Chamber of Deputies indicated that if the Chamber failed to vote on the original private members bill (advocating a ban on the use of cyanide) before parliament adjourned in October 2008, he would advocate for an Emergency Ordinance to ban the use of cyanide. The permanent committee of the Chamber of Deputies declined to put the private members bill on the fall agenda. The Chamber of Deputies has now adjourned to contest the national elections.
- Against the backdrop of a potential Romanian Parliamentary vote on a ban on the use of cyanide in the mining industry, the Romanian Government transposed the EU Mine Waste Directive into domestic Romanian law on August 27, 2008. The EU Mine Waste Directive provides strict guidelines for the regulation of cyanide usage in ponds and specifically does not contemplate a blanket ban on its use.
- In addition to the proposed private members bill to ban the use of cyanide, the Senator (who proposed the cyanide ban) also proposed two additional private members bills to: declare Rosia Montana an archaeological and natural reserve, as well as declare Rosia Montana along with certain other areas, archeological sites of national importance.
- In October the proposed private members bill to declare Rosia Montana an archaeological and natural reserve was sent to Parliament, where it was rejected.
- The reporting deadline for the parliamentary commission responsible for the review of the bill to declare Rosia Montana along with certain other areas archeological sites of national importance, passed during third quarter 2008, the timing of the final report is uncertain.
- It is management's belief that neither of the two remaining bills will have enough support among Romanian parliamentarians to pass into law.
Tax Audits
- The Company has received three tax assessments over the course of the past twelve months totaling $15.2 million.
- While the Company has fully provided for the assessment in its financial statements and paid all of the tax related to the assessments, based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation. As a result, the Company plans to vigorously contest the State's position in court.
Environmental/Permitting
- On October 21, 2008 the Timisoara court of appeal suspended an urbanization certificate granted to the Company which had been granted in July 2007 and expired in July 2008. At the time of writing this report, the Company had not been provided with the court's reasons for judgment. The decision has no bearing on the case before the Bucharest court of appeal regarding the re-instatement of the EIA review process. The Company's position is that an urbanization certificate is not required to conduct the EIA review process.
- The Company filed a lawsuit against the Ministry of Environment and Sustainable Development (MESD), for suspending the permitting TAC review process, in November 2007, with the first hearing taking place on February 20, 2008. The lawsuit is ongoing, and the Company expects the court to rule during 2008.
- The MESD's suspension of the TAC review process was the most prominent of its efforts to stall the Project. MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts. As a result, we filed a second lawsuit against the MESD. The first hearing is scheduled for November 2008 and the Company expects the court to rule during the first half of 2009.
Surface Rights
- As a result of the suspension of the EIA review process, on February 1, 2008, the surface acquisition program was suspended indefinitely.
- As of September 2008, the Company owns or has options on 77 percent of the homes in the industrial zone, protected area and the buffer zone.
- Once we complete the agreements for institutional properties, our ownership will rise to approximately 85 percent of the three zones of the Project, further demonstrating strong local support for the Project.
Resettlement Sites
- Construction of the Alba Iulia resettlement site began in summer 2007. Infrastructure was completed during the third quarter 2008 and of the 123 homes to be built, 110 homes are under construction of which 42 are expected to be completed by year end with the balance of all homes completed by June 30, 2009.
- The Company is also working with local officials to obtain permits for the construction of Piatra Alba.
Archaeology
- An NGO commenced legal action in the Alba Court of Appeal in 2004 and obtained an annulment with respect to archaeological discharge Certificate No. 4. After a successful appeal to the Supreme Court and a retrial of the matter on its merits in the Brasov Court of Appeal, a second annulment of archaeological discharge Certificate No. 4 was ordered by the Brasov Court of Appeal.
- Gabriel has appealed this second annulment to the Supreme Court. The Company expects the Supreme Court to rule on the case by the end of 2008.
Expected Financing Plan
- Based on a definitive feasibility study completed in early 2006, the cost to construct the Project was estimated at US$638 million.
- The Company has placed the updated cost estimate, referred to as the control estimate, on hold until EIA approval.
- While the estimate is not complete, costs are higher in line with industry-wide factors, however, over the past two months, prices for commodities, services and other items have decreased significantly. Once the EIA is approved, we will update the control estimate and revise our Financing Plan.
- The Company has initiated an update of its Canadian securities filings which include updated capital and operating costs for the Project. This update is expected to be announced with the Company's year end results in first quarter 2009.
Rosia Montana Project Timeline
- The Company is using all means at its disposal to get the TAC process back on track. Once the TAC process recommences and in the absence of any other extraordinary events, legal or otherwise, Gabriel anticipates that it would take at least 6 months to:
-- complete the EIA approval process;
-- complete the purchase of the outstanding properties;
-- receive all other permits and approvals, including initial construction permits; and
-- update the control estimate and complete the financing plan.
- This estimated time line could be extended due to the global financial crisis, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel.
- Once construction of the mine begins it is expected to take approximately 24 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 Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.
About Gabriel
Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project. For more information please visit the Company's website at www.gabrielresources.com.
The Company will be hosting its Third Quarter 2008 Conference Call and Webcast on Tuesday, November 4, 2008 at 9:30 am EST. North American callers dial 1-888-680-0892; International callers dial 617-213-4858 - Participant Passcode: 17437662.
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, 2008 and 2007. 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, 2008 and 2007, as well as the audited Consolidated Financial Statements of the Company as at and for the year ended December 31, 2007 including 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 3, 2008. Readers are encouraged to read the Company's Annual Information Form dated March 26, 2008 and the Company's other public filings, which can be reviewed on the SEDAR website (www.sedar.com).
Overview
Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is engaged in the exploration and development of mineral properties in Romania and is presently developing its 80% owned Rosia Montana gold project (the "Project").
Our vision is to create value for all of our stakeholders from responsible mining. Our mission is to build the Project and, as a result, to be a catalyst for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, and operations and reclamation based on Best Available Techniques - all in the service of sustainable development. Whether the issue is corporate governance, community development, environmental responsibility or operational practices, we pledge to do it right.
As discussed in previous annual and quarterly reports, the Project has long faced opposition from a group of foreign-funded and Romanian non-governmental organizations ("NGOs"), certain Romanian organizations and some members of the Hungarian Government. During 2007, however, the nature and magnitude of the opposition changed. A change in Romania's Government, resulting in the appointment of a Minister for the Ministry of Environment and Sustainable Development ("MESD") who is a member of Romania's ethnic-Hungarian political union, positioned anti-project political forces to delay the Project. In September 2007, the Minister of MESD announced it was impossible to continue the environmental impact assessment (the "EIA") review process for the Project. He suspended the Technical Assessment Committee (the "TAC") EIA review meetings, asserting a linkage between a minor procedural certificate and the EIA review process that, we believe, on the advice of local counsel, lacks any basis in law.
As a result of the Minister's arbitrary action, the Company is focused on doing everything within its power to restart the permitting process. To that end, as well as advancing our cause through the Romanian judicial system, the Company stepped up its advocacy efforts in Romania and abroad. Those efforts have been focused on creating an open and transparent review of the Project. Management's goal is that these stakeholder outreach efforts will create a non-partisan environment for the Project's evaluation. In addition to stakeholder outreach, the Company continues to ensure that all licenses and approvals are maintained in good standing in order to preserve the value of our investment.
Key Issues
Global Financial Crisis
While Project finance planning was restarted during third quarter 2008, in preparation of project financing in 2009, the global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both currently closed. Companies looking to finance projects in this environment will have to focus on multilateral agencies and non traditional lenders, while respecting that the current financial crisis may extend the timeframes to complete project financing. Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs. Management has been advised by its financial advisors that financing the Project might be challenging. Nevertheless, due to the quality of the Project, financing from multilateral agencies and non traditional lenders should be available, unless the financial crisis worsens further from the current level.
In the meantime, management is reviewing all expenditures in an effort to conserve cash. The financial crisis may cause the time line from the restart of the permitting process until receipt of construction permits to be extended, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel. For example, the Company may not restart the acquisition of surface rights until after receipt of our environmental permits, where previously the plan was to consider restarting the surface rights program once the permitting process restarted.
Independent Report on Social-Economic Development
An independent report titled the "Rosia Montana Commune Strategic Social-Economic Development Plan for 2008-2013" (the "Report") was adopted by the Rosia Montana Local Council during the third quarter. Drafted over the course of the first half of 2008 with the participation of local leaders and community consultation, the Report was commissioned by the Rosia Montana Local Council. The Report was funded and conducted by the National Agency for Development of Mining Zones/Alba Regional Office.
Noting that "those supporting the project represent the majority and hope that the project implementation will generate a better life, jobs and a good standard of living," the Report articulates a local development strategy for the Rosia Montana commune. The Report is the product of collaboration between community leaders, community members and other partners along with the National Agency for Development of Mining Zones. As the Report's author indicates, the key is connecting the strategy to community needs: "Plans must be drafted from the bottom-up, to include real needs, objectively identified."
The Report concludes that the Project is an integral part of socio-economic development in the region, and seeks to ensure that local community benefits are widely felt and that the Project contributes to sustainable and diversified economic development.
Political Situation
Romania became a full member of the EU on January 1, 2007. Since accession, however, the country's ruling coalition has disintegrated, with the departure of two of the parties in government, the first in January and the second in April 2007. A minority government comprised of the Liberal party and ethnic Hungarian UDMR party, representing approximately 23 percent of the Parliament, was formed in April 2007 under the sitting Prime Minister. In the resulting reshuffle of ministry portfolios, the UDMR negotiated to obtain the Ministry of Environment and Sustainable Development. The new Minister arbitrarily suspended the Project's EIA review process in September 2007.
While management has made every effort - legal and political - to restart the EIA, the Company now awaits a change in Government. National elections are scheduled for November 30th and we anticipate, it will take some time for a new government to form as a coalition government is expected. Regardless of the form it takes, in the months following the election, the Company expects the new Government to be supportive of a fair and transparent review process.
In addition to initiating court challenges designed to frustrate our ability to permit the Project in a timely manner, the opposition has orchestrated the tabling of three "private members bills" in the Romanian Parliament, the first of which was to ban the use of cyanide in mining operations in Romania. This is the second time in recent years that a private members bill has been brought forward to ban cyanide. The previous bill was not supported by the Romanian Government and was rejected. The currently proposed bill was initially opposed by the minority government when introduced in April 2007, which argued the merits of mining conducted to high EU standards. The Romanian Government then changed its position without explanation to support the private members bill in June 2007.
Before the bill was introduced into Parliament, three commissions from the Chamber of Deputies reviewed it. The legal commission indicated the proposed bill poses no constitutional concerns in August 2007. The environmental commission rejected the proposed bill in September 2007. The industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, amended the bill to ban cyanide in excess of EU limits. The amended bill was placed on the agenda of the Chamber of Deputies on April 15, 2008, whereupon the Chamber decided to have the amended bill sent back to the industry commission for further review. In the period between September and October 2008, the Speaker of the Chamber of Deputies indicated that if the Chamber failed to vote on the original private members bill (advocating a ban on the use of cyanide) before parliament adjourned in October 2008, he would advocate for an Emergency Ordinance to ban the use of cyanide. The permanent committee of the Chamber of Deputies declined to put the private members bill on the fall agenda, without the industry commission report. The Chamber of Deputies has now adjourned to contest the national elections.
Against the backdrop of a potential Romanian Parliamentary vote on a ban on the use of cyanide in the mining industry, the Romanian Government transposed the EU Mine Waste Directive into domestic Romanian law on August 27, 2008. The EU Mine Waste Directive provides strict guidelines for the regulation of cyanide usage in ponds and specifically does not contemplate a blanket ban on its use. The Company has designed the Project to be compliant with the EU Mine Waste Directive from day one of operations.
Management has spent considerable time informing and educating parliamentarians from all parties on modern mining methods governing the safe use of cyanide. Management believes that a majority of legislators support a strong Romanian mining industry, as evidenced by the rejection of the proposed ban on cyanide by the environmental commission and its amendment by the industry commission to permit cyanide use within EU limits (in accordance with the EU Mine Waste Directive), as well as the transposition of the EU Mine Waste Directive into Romanian law during the third quarter 2008. As a result, management continues to believe the proposed ban on cyanide is unlikely to have enough support in Parliament to become law. The fall parliament adjourned in mid October for the national elections. The only practical option to ban the use of cyanide in mining in Romania before the national elections in November is through an Emergency Ordinance issued by the Government. Management has been advised by its Romanian political advisors that the Government is unlikely to pass an Emergency Ordinance at this time as there is already a law in place that regulates the proper use of cyanide.
If however, a cyanide ban were to pass, the Company would advocate and pursue all legal avenues possible to have the law overturned, as there are no other economic and environmentally safe technologies available to develop the Rosia Montana Project. While the Company's legal and political positions would be strong, passage of the cyanide ban would cause further delays in the timeline to develop the Project. In addition, the passage of a cyanide ban would cause management to undertake an impairment test of the recoverability of capital assets and mineral properties.
In addition to the proposed private members bill to ban the use of cyanide, the Senator (who proposed the cyanide ban) also proposed two additional private members bills to: declare Rosia Montana an archaeological and natural reserve, as well as declare Rosia Montana along with certain other areas, archeological sites of national importance. In September the parliamentary reporting commission responsible for the review of the private members bill to declare Rosia Montana an archaeological and nature reserve, rejected the proposed bill. In October the proposed private members bill declaring Rosia Montana an archeological and nature reserve was sent to Parliament, where it was also rejected.
The reporting deadline for the parliamentary commission responsible for the review of the bill to declare Rosia Montana along with certain other areas archeological sites of national importance, passed during third quarter 2008. While extensions have been requested, the timing of the final report of the parliamentary commission of this private members bill is uncertain, as are the implications of this bill on the Project given the current legal framework.
Under Romanian law the two private members bills will continue into the next parliamentary session after the national elections. It is management's view that neither of the two bills will have enough support among Romanian parliamentarians to pass into law.
Tax Audits
The Company has received three tax assessments over the course of the past twelve months totaling $15.2 million. The original two assessments were for the period January 1, 2005 to June 30, 2007, while the third assessment was for the previously audited 2003 and 2004 fiscal years. The majority of these assessments arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.
While the Company has fully provided for the assessment in its financial statements and paid all of the tax related to the assessments, based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation. As a result, the Company plans to vigorously contest the State's position in court. It is expected to take approximately 18 months to resolve the court cases.
Environmental/Permitting
On September 12, 2007 the Company received a letter from the MESD indicating that the review process for the EIA had been suspended. The MESD based its action on a court challenge by Alburnus Maior, an NGO opposing the Project, regarding the validity of an urbanism certificate wholly unrelated to the EIA review process.
On October 22, 2008 the Timisoara court of appeal suspended an urbanization certificate granted to the Company which had been granted in July 2007 and expired in July 2008. At the time of writing this report, the Company had not been provided with the court's reasons for judgment. The decision has no bearing on the case before the Bucharest court of appeal regarding the re-instatement of the EIA review process. The Company's position on the advice of local counsel, is that an urbanization certificate is not required to conduct the EIA review process.
An urbanism certificate is an information document detailing the legal, economic and technical regime for any project, as well as the list of documents needed to apply for a construction permit. It is not a permit or approval, nor does it authorize the undertaking of any activities. Anyone is entitled to ask for an urbanism certificate and the relevant local council is obligated to provide a copy to anyone who asks. Tens of thousands of these documents are provided each year across Romania as a matter of routine. To the Company's knowledge, only one - the Company's urbanism certificate - has been annulled in a Romanian court.
The Company's position, supported by local counsel, is that an urbanism certificate is not required for the TAC review process. On September 21, 2007, the Company filed an Administrative Complaint against the MESD regarding its decision to suspend the TAC review process. While the MESD responded to the Administrative Complaint on October 19, 2007, the MESD's fourteen page response failed to address the grounds of the complaint. As a result, the Company filed a lawsuit against the MESD as well as the Minister of MESD himself and the State Secretary in November 2007. The lawsuits are ongoing, and the Company expects the court to rule during fourth quarter 2008.
The MESD's suspension of the TAC review process was the most prominent of its efforts to stall the Project. The MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee promptly received their necessary permits, our permits alone await final signature by the MESD. The Company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. The MESD reconvened an extraordinary second meeting of the dam safety committee in March 2008, requesting that they reconsider their earlier decision to grant RMGC its permits. The dam safety committee again voted to grant RMGC its permits. Despite this second meeting, the MESD continues to withhold the final signature for our dam safety permits. As a result, we filed a second lawsuit against the MESD. The first hearing is scheduled for November 2008 and the Company expects the court to rule during the first half of 2009.
While the EIA is by far the most important Project permit, there are a number of other permits and approvals required to advance the Project, such as the zonal urbanistic plans for the industrial and protected areas, the forestry and land use change permits, dam safety permits as well as other permits and approvals that follow the EIA approval, to obtain the construction permit. The processes for each of these permits and approvals were underway in parallel with the EIA review process. In the absence of any other extraordinary events, legal or otherwise, we expect these permitting processes to take at least six months from the restart of the EIA review process; however at present, most of these other permits and approvals have been stopped by virtue of the suspension of the EIA review process.
Litigation
A number of foreign-funded and Romanian NGOs, including the Hungarian-registered Alburnus Maior, the Soros Foundation Romania (formerly Open Society Institute/Romania), the Independent Centre for the Development of Environmental Resources (a "new" NGO formed in 2007 by the members of Alburnus Maior), Terra Mileniul III Foundation and the Center for Legal Resources (working on behalf of Alburnus Maior), have initiated a multitude of legal challenges against virtually every local, regional and national Romanian regulatory authority that has the administrative authority to grant permits, authorizations and approvals for any aspect of the exploration and development of the Project. While few of the actions have been successful and most have been frivolous, they include both civil actions and criminal complaints against both the regulatory authorities and 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 the license, permit or approval. Gabriel, through RMGC, has intervened in the majority of these 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 we have designed the Project to follow all applicable laws to protect against permitting delays of the Project, multiple legal challenges that abuse the privileged access to courts enjoyed by NGOs in Romania and the incorrect application of the law in some court decisions increase the litigation uncertainty and potential setbacks to the Project.
Since the summer of 2007, the Company has lost a number of court cases, causing greater concern for the rule of law in Romania, as well as concern for potential setbacks to the Project. Alburnus Maior has commenced legal action in the Alba Court of Appeal seeking an order compelling the National Agency for Mineral Resources (NAMR) to annul the Rosia Montana exploitation concession license, on the basis of a minor administrative fine imposed on state-run mining company Minvest in 2004. This action is the latest in a series of legal actions initiated by Alburnus Maior seeking the annulment of the Rosia Montana mineral license. A similar claim seeking the cancellation of the Rosia Montana mineral license was recently heard by the High Court of Cassation and Justice (the "Supreme Court") and was rejected on its merits. The action before the Alba Court of Appeal was suspended pending this ruling by the Supreme Court, and given the similarity of facts between the two cases, the Company remains hopeful that the law will be applied uniformly in the Alba case as well. The case has been temporarily suspended pending a hearing of the Company's request to relocate the matter to another court. Irrespective of the decision to relocate the case, the courts are expected to rule within the first half of 2009.
Surface Rights
As a result of the suspension of the EIA review process, and in order to align the Company's activities to the pace of the approval process, management met with the community to discuss a full shut down of the home purchase program for private properties. On February 1, 2008, the program was suspended indefinitely. As of September 2008, the Company owns or has options on 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 35 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 well underway and expected to be completed after the approval of the EIA.
Once we complete the agreements for institutional properties, our ownership will rise to approximately 85 percent of the three zones of the Project, further demonstrating strong local support for the Project. Ultimately, the Company's ability to obtain construction permits for the mine and plant is predicated on securing 100 percent of the surface rights in the industrial zone.
Resettlement Sites
In an effort to demonstrate continued commitment to the local community in spite of the EIA review suspension, construction of the Alba Iulia resettlement site began in summer 2007. Infrastructure was completed during the third quarter 2008 and of the 123 homes to be built, 110 homes are under construction of which 42 are expected to be completed by year end with the balance of all homes completed by June 30, 2009. The Company is also working with local officials to obtain permits for the construction of Piatra Alba.
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. An archaeological discharge is required for all of the area under the footprint of the proposed mine. Over the past five years as our program progressed, we have been granted several discharge permits to acknowledge completion of the archaeological program.
Here as on other issues, the opposition has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. An NGO commenced legal action in the Alba Court of Appeal in 2004 and obtained an annulment with respect to archaeological discharge Certificate No. 4. After a successful appeal to the Supreme Court and a retrial of the matter on its merits in the Brasov Court of Appeal, a second annulment of archaeological discharge Certificate No. 4 was ordered by the Brasov Court of Appeal. Gabriel has appealed this second annulment to the Supreme Court. The Company expects the Supreme Court to rule on the case by the end of 2008. If archaeological discharge Certificate No. 4 is ultimately annulled, then Gabriel will reapply for a new discharge certificate based on the recommendations cited in the Supreme Court decision.
The opposition has also challenged the issuance of archaeological discharge Certificate No. 5 ("Certificate No. 5") on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts.
Financing
Cash, cash equivalents and short term investments at September 30, 2008 totaled $82.6 million. During the third quarter of 2008, we spent $10.1 million for Project development activities compared to $23.2 million in the third quarter of 2007. The higher expenditure rate in 2007 reflects the commencement of the acquisition of properties, which began in the fourth quarter of 2006 and extended throughout 2007, as well as ordering of long-lead-time equipment in addition to other permitting activities. The higher levels of expenditures in 2007 were in response to and in anticipation of Project permitting approval by the Romanian Government in the third quarter of 2007.
The forecasted expenditures for the Rosia Montana Project for 2008 are approximately $67 million, of which $15 million is expected to be spent during the fourth quarter, as the Company placed most activities on hold until the EIA permit is approved. This is the minimum level of expenditures required to maintain the value of our investment. The control estimate scheduled for completion during the fourth quarter 2007 has been placed on hold until the EIA permit is approved, however the Company is in the process of updating capital and operating costs for its regulatory filings. No further long-lead-time equipment orders will be placed and installment payments under equipment previously ordered will be deferred to the extent possible under the terms of the agreements. Construction of the Alba Iulia resettlement site is expected to be completed by mid 2009, while the home purchase program remains suspended. Once the Company receives the construction permit, the nature and rate of expenditure changes significantly as site construction begins.
Expected Financing Plan
Based on a definitive feasibility study completed in early 2006, the cost to construct the Project was estimated at US$638 million. The Company has placed the updated cost estimate, referred to as the control estimate, on hold until EIA approval. The control estimate updates the feasibility study based on additional engineering undertaken since the definitive feasibility study was prepared, which provides a higher degree of accuracy including firm vendor bids for equipment, materials and labour, as well as incorporating the Company's actual experience to date in the placing of the long-lead-time equipment orders. While the estimate is not complete, costs are higher in line with industry-wide factors. Once the EIA is approved, we will update the control estimate and revise our Financing Plan. As a result, the updated Financing Plan will look very different from the original Financing Plan announced in the spring of 2006. While the feasibility study cost estimate to build and operate the Project contained contingencies, continued strengthening of currencies against the United States dollar, which have begun to weaken recently against the United States dollar due to the global financial crisis, and escalating costs exceed the estimated Project contingencies. Inflationary tendencies in the resource industry are causing many projects' costs to materially exceed feasibility study estimates; however, over the past two months, prices for commodities, services and other items have decreased significantly. It is not clear how much impact these price adjustments will have on the cost to build and operate the Project. The Company has initiated an update of its Canadian securities filings which include updated capital and operating costs for the Project. This update is expected to be announced with the Company's year end results in the first quarter of 2009. This update will not be as detailed as the control estimate used for financing.
The mining industry witnessed dramatic capital and operating cost escalation over the past few years through August of 2008, which was to a large degree more than offset by higher commodity prices, resulting in record earnings and improved Project returns. However, over the past two months the financial crisis has caused a slowdown in economies around the world, resulting in a significant decline in commodity prices and strengthening of the US dollar against most currencies. As a result, a number of major industrial projects have been cancelled or deferred. Overall, this should help to reduce the cost escalation of the Rosia Montana Project and increase the availability of goods and services to the Project.
While Project finance planning was restarted during third quarter of 2008 in preparation of project financing in 2009, the global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both currently closed. Companies looking to finance projects in this environment will have to focus on multilateral agencies and non traditional lenders, while respecting that the current financial crisis may extend the timeframes to complete project financing. We believe that any company seeking to finance a project of our magnitude will face significant difficulty with respect to the syndication of the transaction; however, concerns lenders have had over the past few years with respect to estimating the required amount of contingent overrun funding has likely lessened as capital costs appear to be declining for the first time in several years. Historically, contingent funding required by banks has been 10-15 percent of capital cost of a project.
Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs. Management has been advised by its financial advisors that while financing the Project will be challenging, due to the high quality of the Project, financing from multilateral agencies and non traditional lenders should be available, unless the financial crisis worsens further from the current level.
The Company raised $148.6 million during the first quarter of 2007 to bring the total equity raised over the past two years to develop the Project to $241.6 million. The proceeds of the offering were and will continue to be used to finance the development of the Rosia Montana Project, specifically to complete the permitting process, acquire necessary surface rights, in addition to covering the costs of engineering, the ordering of long-lead-time equipment, corporate overhead and the construction of resettlement sites.
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.
- TAC and Espoo Convention meetings went well during the third quarter, until TAC meetings were suspended in September 2007.
The Company is using all means at its disposal to get the TAC process back on track. Once the TAC process recommences and in the absence of any other extraordinary events, legal or otherwise, Gabriel anticipates that it would take at least 6 months to:
- complete the EIA approval process;
- complete the purchase of the outstanding properties;
- receive all other permits and approvals, including initial construction permits; and
- update the control estimate and complete the financing plan.
This estimated time line could be extended due to the global financial crisis, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel. For example, the Company may not restart the acquisition of surface rights until after receipt of the EIA, whereas previously the plan was to consider restarting this activity once the permitting process restarted.
Once construction of the mine begins it is expected to take approximately 24 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 Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.
Outlook
With the current suspension of the EIA review process, our key objectives include:
1. Pursuing all political and legal means to get the EIA review process back underway;
2. Obtaining approval of our EIA and all other required permits;
3. Ensuring that the Company maintains all existing licenses and approvals in good standing;
4. Reviewing all Project activities with a goal of conserving cash until the EIA permitting process is underway;
5. Ensuring that we maintain all activities that will position the Company to gain all approvals once the EIA permitting process is recommenced; and
6. Strengthening dialogue and communications with all stakeholders.
Results of Operations
The results of operations are summarized in the following tables, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles:
in thousands of Canadian dollars 2008 Q3 2008 Q2 2008 Q1 2007 Q4
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Statement of Loss (Income)
Loss (Income) $ 2,782 $ 16,241 $ (10,970) $ 7,821
Loss (Income) per share 0.01 0.06 (0.04) 0.03
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Balance Sheet
Working capital 50,324 80,513 110,021 118,299
Total assets 508,010 513,965 521,269 507,955
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Statement of Cash Flows
Investments in development and
exploration including working
capital changes 19,237 4,375 17,211 24,708
Cash flow (used in) provided
by financing activities 82 1,015 - -
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in thousands of Canadian dollars 2007 Q3 2007 Q2 2007 Q1 2006 Q4
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Statement of Loss (Income)
Loss $ 6,785 $ 5,966 $ 2,471 $ 5,103
Loss per share 0.03 0.02 0.01 0.03
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Balance Sheet
Working capital 147,157 199,073 213,440 79,724
Total assets 513,490 503,381 491,356 338,056
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Statement of Cash Flows
Investments in development and
exploration including working
capital changes 15,448 24,107 13,318 31,490
Cash flow (used in) provided
by financing activities (31) 18,389 152,091 1,953
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Statement of Loss (Income)
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars,
except per share amounts 2008 2007 2008 2007
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Total operating expenses for the period $ 1,983 $ 2,365 $ 8,616 $ 9,320
Loss for the period 2,782 6,785 8,053 15,222
Loss per share - basic and diluted 0.01 0.03 0.03 0.06
Total operating expenses for the three-and-nine-month periods ending September 30, 2008 decreased from the corresponding 2007 periods due to lower financing costs in 2008. For the quarter ended September 30, 2008 the Company incurred a loss of $2.8 million or $0.01 per share compared to a loss of $6.8 million or $0.03 per share in the 2007 quarter due to lower foreign exchange losses for the three month period of 2008. For the nine-month period ended September 30, 2008 the loss for the period totaled $8.1 million or $0.03 per share compared to a loss of $15.2 million or $0.06 per share in the same nine-month period of 2007, primarily due to foreign exchange gains in 2008 compared to foreign exchange losses in 2007. The foreign exchange gain in 2008 was partially offset by an income tax assessment in the amount of $9.7 million received in the second quarter of 2008 in respect of tax liabilities arising from the disallowance of the application of state tax incentives to unrealized foreign exchange gains on inter company debt for the fiscal years 2003 and 2004.
We expect 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 2008 2007 2008 2007
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Finance $ 315 $ 263 $ 1,015 $ 842
External communications 117 368 614 1,481
Information technology 109 150 380 805
Legal 63 59 766 640
Payroll 734 753 2,159 2,261
Other 324 467 1,070 1,482
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Corporate, general and
administrative expense $ 1,662 $ 2,060 $ 6,004 $ 7,511
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Corporate, general and administrative costs -- those costs incurred by the corporate office in Toronto -- decreased for the three-and-nine-month periods ending September 30, 2008 primarily due to lower external communications and information technology costs partially offset by higher legal and finance costs. Corporate, general and administrative costs are anticipated to rise once the Rosia Montana Project is permitted as 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 2008 2007 2008 2007
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DSUs - expensed (recovered) $ (322) $ (480) $ 124 $ (491)
Stock option compensation - expensed 550 526 1,540 1,366
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Stock based compensation - expensed $ 228 $ 46 $ 1,664 $ 875
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DSUs - capitalized (capital reduction) $ (40) (43) $ 4 (48)
Stock option compensation
- capitalized 317 376 865 978
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Stock based compensation - capitalized $ 277 $ 333 $ 869 $ 930
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DSU Compensation
Number of DSUs granted 16,148 10,504 42,319 21,664
Average value ascribed to each DSU
granted $ 2.09 $ 2.38 $ 2.12 $ 3.46
For the quarter ended September 30, 2008 and 2007, the Company recorded a recovery of DSU costs due to the lower share price at quarter end compared to the Company's share price at the end of the second quarter of 2008 and 2007. DSUs costs increased for the nine-months ended September 30, 2008 compared to the same period of 2007. The increase in DSU costs relates primarily to the increase in our share price during the 2008 year. Initially valued at the 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. If the share price declines, as it did for the three-month periods ended September 30, 2008 and 2007 and the nine-month period ended September 30, 2007, the lower value of the DSUs is credited against costs during the period. If the value is higher, as it was at the end of the third quarter of 2008 compared to December 31, 2007, the difference is charged to the Statement of Loss, increasing costs for the period. Overall, for the three-month period ended September 30, 2008, our share price decreased by $0.71 compared to June 30, 2008 but increased by $0.08 compared to December 31, 2007, while for the same period in 2007, our share price decreased by $2.25 from June 30, 2007 and decreased by $2.54 compared to December 31, 2006.
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2008 2007 2008 2007
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Stock option compensation
Number of stock options granted - 210,000 5,935,000 1,615,000
Average value ascribed to each
option granted $ - $ 1.56 $ 1.05 $ 1.84
Options granted to corporate
employees, consultants, officers,
and directors - 210,000 2,100,000 1,140,000
Options granted to development
project employees and consultants - - 3,835,000 475,000
The estimated fair value of stock options is typically amortized over the period in which the options vest which in normally three years. For those options that begin to vest after a deferral period, the fair value of the options is amortized proportionately over the total vesting and delay period. 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 options is recognized immediately on the measurement date.
During the second quarter of 2008, the Company granted 3 million options which vest upon completion of certain milestones, including approval of the EIA, completion of project financing commitments, loan documentation, first draw down, or under certain conditions of termination. The estimated fair value of the options will be recognized and capitalized during the period in which the milestones are achieved and the value can be reasonably measured. For the three-and-nine-month period ended September 30, 2008, the amount capitalized was $NIL (2007 - $NIL).
Project Financing Costs
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
Project Financing Costs $ 16 $ 224 $ 50 $ 760
For the three-and-nine-months ended September 30, 2008, project financing costs declined compared to the same periods of 2007 as a result of financing activities being put on hold due to the suspension of the EIA review process. Project financing activities were resumed in September 2008 in anticipation of financing in 2009.
Project financing activities include advisory services for the various facilities under our financing plan.
Severance and Termination Costs
In December 2007, in light of the suspension of the EIA review process, the Company announced and enacted plans to scale back activities. In the fourth-quarter 2007, the Company expensed $1.4 million, being its total liability related to the retrenchment of 170 employees in Romania. During the year, concurrent with the modification of payment terms of its remaining obligation, the Company revised its estimated cost and accrued a further $0.7 million in respect of its total obligation and has classified its entire outstanding obligation as a current liability.
As at September 30, 2008 the Company paid $1.3 million in termination benefits.
Interest Income
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2008 2007 2008 2007
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Interest Income $ (788) $ (2,145) $ (3,122) $ (5,484)
Lower interest income in 2008 relates to lower average cash balances and lower interest rates in 2008 compared to 2007. For the remainder of 2008, interest income should decrease as our cash balance declines due to ongoing resettlement site development costs, installment payments made under our long-lead-time equipment orders and corporate and Romanian overhead costs, as well as lower interest rates on cash balances when compared to 2007.
The Company maintains an investment policy that prohibits investments in asset-backed-commercial-paper. As a result, the Company has not been exposed to the credit risk of the asset-backed-commercial-paper market. Furthermore, with the current global financial crisis, the Company is focused on capital preservation at the expense of lower yields on its investments. Approximately 87 percent of 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 2008 2007 2008 2007
----------------------------------------------------------------------------
Foreign exchange gain (loss)
- realized $ 1,000 $ 18 $ 5,168 $ (1,029)
Foreign exchange gain (loss)
- unrealized (3,516) (6,583) 2,064 (10,357)
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Total foreign exchange gain (loss) $ (2,516) $ (6,565) $ 7,232 $ (11,386)
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During 2007, we converted the majority of our Canadian dollar cash balances to foreign currencies to match anticipated foreign denominated expenditures. In the three-months ended September 30, 2008, the Canadian dollar weakened relative to the foreign currencies acquired, causing unrealized foreign exchange losses in the period. Offsetting these losses were realized foreign exchange gains caused by foreign currency usage during the period.
The Company maintains a Canadian dollar cash position to fund corporate, general and administrative activities, while the balance of its cash resources are in foreign currencies to match planned foreign denominated expenditures.
We would expect to continue to report foreign currency gains and losses as we continue to hold foreign currencies.
Taxes
The Company has subsidiaries in countries that have differing tax laws and rates, primarily Canada and Romania. The provision for income taxes is based on a number of estimates and assumptions made by management including its understanding of domestic and international tax rules. Advice is also sought from professional tax advisors.
Domestic tax authorities in Romania regularly initiate various tax audits to assess the appropriateness of the Company's tax filing positions. Regulators may interpret tax regulations different than the Company which may cause changes to the estimates made.
During the third quarter of 2007, tax authorities in Romania initiated various tax audits to assess the appropriateness of the Company's tax filing positions since January 1, 2005. As a consequence of the tax audits being undertaken, during the third quarter 2007, the Company accrued $0.7 million of withholding tax liabilities arising from payments made to non-Romanian resident suppliers of services. The entire accrual was charged to mineral properties in the period.
During the first quarter of 2008, the Company received a tax assessment for $4.8 million related to a second Romanian tax audit completed during the first quarter of 2008. The Company, having accrued in 2006 its then estimated tax liability, accrued an additional $3.7 million in respect of the assessment, which arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.
On April 10, 2008, the Company was advised by the Romanian tax authorities that they were re-opening fiscal years 2003 and 2004 which had been previously audited.
On June 24, 2008, the Company received a tax assessment for $9.7 million related to the third tax audit, for the years 2003 and 2004, initiated and completed during the second quarter of 2008. This assessment also arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.
Based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation and we are vigorously contesting the State's position through the courts. It is expected to take approximately 18 months to resolve the court case.
Investing Activities
The most significant ongoing investing activities are for our Rosia Montana development 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, as well as surface rights/property acquisition. Once we receive our construction permit, the nature and magnitude of the expenditures will increase as we build roads, production facilities, open pits, tailings management facilities and associated infrastructure.
Mineral Properties
We capitalize all costs incurred in Romania related to our development and exploration projects -- Rosia Montana, Bucium and Baisoara -- to mineral properties.
Listed below is a summary of expenditures at Rosia Montana for the three-and-nine months ended September 30, 2008 and 2007.
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2008 2007 2008 2007
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Finance and administration $ 5,158 $ 5,984 $ 16,134 $ 14,807
Permitting 621 1,736 1,871 6,119
Community development 8,354 18,791 20,591 37,710
Project management and engineering 1,312 6,445 5,967 13,317
Exploration - Rosia Montana 199 269 413 541
Exploration - Bucium - 105 82 903
Exploration - Baisoara 64 32 156 96
Capitalized depreciation net of
disposals (121) (147) (382) (451)
Capitalized stock based
compensation (277) (333) (869) (930)
Reclassification to mineral
properties - - (25) -
Increase in resettlement
liabilities (5,149) (9,590) (9,469) (11,859)
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Total cash exploration and
development expenditures $ 10,161 $ 23,292 $ 34,469 $ 60,253
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During the three-months ended September 30, 2008, finance and administration costs decreased due to lower foreign exchange losses however for the nine-months ended September 30, 2008, finance and administration costs increased due to higher legal and advisory costs related to ongoing legal challenges. Apart from finance and administrative costs, all other costs decreased in the three-and-nine-month periods of 2008 compared to the corresponding periods in 2007, due to lower levels of activity as a result of the EIA process suspension.
Management believes that its planned expenditures in 2008 represent only those required to maintain the value of its investments in Romania; accordingly, investments in Mineral Properties are anticipated to decrease from 2007 levels.
The major expenditures on Mineral Properties in 2008 revolve around those activities to maintain our existing licenses and permits in good standing and our efforts to restart the EIA permitting process. 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.
Purchase of Capital Assets
3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2008 2007 2008 2007
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Resettlement site development
costs $ 2,858 $ 5,698 $ 6,539 $ 7,058
Investment in long-lead-time
equipment 9,538 6,608 11,440 9,596
Other 55 138 118 743
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Total investment in capital assets $ 12,451 $ 12,444 $ 18,097 $ 17,397
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Depreciation - expensed $ 77 $ 35 $ 230 $ 174
Depreciation - capitalized to
mineral properties $ (121) $ (147) $ (382) $ (451)
Although hampered during the first quarter of 2008 by poor weather, construction activities on the Alba Iulia resettlement site accelerated during the second and third quarters of 2008. Infrastructure was completed during the third quarter 2008 and of the 123 homes to be built, 110 homes are under construction of which 42 are expected to be completed by year end with the balance of all homes completed by June 30, 2009. The Company is also working with local officials to obtain permits for construction of Piatra Alba.
While we were able to delay several installment payments for long-lead-time equipment during the year, we expect to make approximately $9.5 million in long-lead-time equipment payments during the fourth quarter of 2008.
Cash Flow Statement
Liquidity and Capital Resources
Our only sources of liquidity until we receive our environmental permits for Rosia Montana -- at which point we will be in a position to move toward completion of debt financing -- are our cash balance, bridge financing, exercise of stock options outstanding, and the equity markets. We updated the cost to construct the Project in first quarter 2006 to US$638 million. While we halted the update to our control estimate for Project construction during the fourth quarter of 2007 due to the suspension of the EIA process, initial capital costs are trending higher, in line with industry-wide factors.
The mining industry witnessed dramatic capital and operating cost escalation over the past few years through August of 2008, which was to a large degree more than offset by higher commodity prices, resulting in record earnings and improved Project returns. However, over the past two months the global financial crisis has caused a slowdown in economies around the world, resulting in a significant decline in commodity prices and strengthening of the US dollar against most currencies. As a result, a number of major industrial projects have been cancelled or deferred. Overall, this should help to reduce the cost escalation of the Rosia Montana Project and increase the availability of goods and services to the Project.
To complete the development of the Project, the Company will need additional external financing. The ability to develop Rosia Montana hinges on our ability to raise the necessary financing for construction. If we were unable to raise the required funds, we would seek strategic alternatives to move the Project toward development.
As we move towards receipt of construction permits, management will be in a position finalize the financing plan in light of market conditions at that time. Project finance planning was restarted during third quarter 2008 in preparation of project financing in 2009. The global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both closed. Companies looking to finance projects in this environment will have to focus on agencies and non traditional lenders.
Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs. Management has been advised by its financial advisors that financing the Project might be challenging. Nevertheless due to the high quality of the Project, financing from multilateral agencies and non traditional lenders should be available, unless the financial crisis worsens further from the current level.
However, the overall financing plan will differ materially from the plan originally contemplated due to rising costs of the Project and the state of the credit markets at the time of financing. This is expected to impact the cost of financing and potentially the ratio of debt to equity and timing of financing.
As at September 30, 2008, we had cash, cash equivalents and short term investments of $82.6 million compared to $147.2 million at December 31, 2007. Substantially all of these amounts are invested in government guaranteed investments. As the Company's investment policy prohibits investments in asset-backed-securities, we have no need to write down any investments due to the "credit crisis".
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 either US dollars or 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 "typical" three month period. The current global financial crisis has resulted in dramatic interest rate, commodity and currency volatility coupled with a dramatic unwinding of financial leverage in markets across the globe. The Company does not view these market conditions as "typical" and therefore the affect of interest rate changes and currency valuation changes on net income may be more dramatic than deemed "reasonably possible". Nonetheless, the Company has taken steps to reduce its risks as discussed above.
- Cash and cash equivalents include deposits which are at floating interest rates. Sensitivity of cash and cash equivalents to a plus or minus 1% change in earned interest rates would affect net income by $0.2 million.
- The Company holds significant balances in foreign currencies, and this gives rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 1% change in foreign exchange rates would affect net income by $0.6 million.
The Company's objective when managing capital is to safeguard its accumulated capital 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. 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 Rosia Montana 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.
The Company is forecasting a cash, cash equivalents and short-term investments position at December 31, 2008 of approximately $65 million. This forecast assumes total 2008 spending on the Rosia Montana Project of $67 million, (of which $15 million is expected to be spent during the fourth quarter) which includes: approximately $17 million on long-lead-time equipment in order to avoid substantial cost escalation for milling equipment should management choose to postpone scheduled fabrication activities; $23 million for community development activities associated with construction of the Alba Iulia resettlement site and property purchases -- both expenditures being contemplated in the original US$638 million cost estimate; and other permitting activities and overheads in Romania. Corporate overheads are expected to total $10 million net of interest income in 2008. This forecast includes a payment of $5.2 million for tax arising from the second Romanian tax assessment paid in April 2008 and second payment of $10.1 million was made in July 2008 arising from a third tax assessment. The Company is challenging the tax assessments but expects that challenge to take approximately 18 months to resolve.
Working Capital
As at September 30, 2008, we had working capital of $50.3 million versus $118.3 million as at December 31, 2007. The decrease in working capital in 2008 relates to the loss for the period, investment in capital assets and mineral properties.
Net Change in Non-Cash Working Capital
The net change in operating non-cash working capital increased for the three-months ended September 30, 2008 compared to same period of 2007 due to an increase in trade payables and accrued liabilities during the 2008 period.
The net change in investing non-cash working capital decreased for the three-months ended September 30, 2008 due to a decrease in trade payables and accrued liabilities.
There was no change in financing non-cash working capital in the three-month period ended September 30, 2008.
Related Party Transactions
The Company paid $4 thousand (2007 - $34 thousand) during the third quarter to a director of the Company for consultation services provided to the Company. For the nine-months ended September 30, 2008 the Company paid $9 thousand (2007 - $39 thousand).
In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, who hold an aggregate of 20 percent of the shares of RMGC, to facilitate a statutory requirement to increase RMGC's total share capital. The loans are non-interest bearing and are to be repaid as and when RMGC distributes dividends to its shareholders.
The loans and related minority interest contribution have been offset on the balance sheet until such time as the loans are repaid. Once the loans are repaid the minority interest component will be reflected on the balance sheet.
Resettlement Liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in the Project area. Residents had 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 the two new resettlement sites. At September 30, 2008, the Company had resettlement liabilities totaling $26.6 million, obligating the Company to deliver new homes under those contracts between September 30, 2007 and August 1, 2008.
The Company was unable to meet the original deadlines stipulated in those contracts. Under the terms of the original resettlement contracts, if the Company failed to fulfill its obligation by the end of the 12-month penalty period, the Company would be required to pay the owner the agreed-upon unpaid property value, plus the related penalties, and the owner would retain the right to occupy the home for an undetermined period of time.
The Company has been working with those residents who chose the resettlement option to extend the delivery dates of the contracts for up to an additional 36 months. Most of the residents have agreed to the extension and the Company is in the process of finalizing the extension agreements with the remaining residents. As a result, the Company is accruing a penalty of 6% to 20% of the agreed upon unpaid property value per year of delay as required by the agreement including all amendments.
Overall, 101 of the 123 residents who chose the resettlement site in Alba Iulia have signed the extension contract; 10 of those who have not signed the extension contract should receive their homes within the contract penalty period and we are in discussions with the 12 residents who have not signed extension contracts for which we will not be able to deliver their homes within the prescribed period. All of the residents want their new homes and are pleased with the development of the new site.
Of the 26 residents who chose the Piatra Alba resettlement site, 12 residents have signed the extension contract, 12 more are in the process of signing the extension contract, while two residents have requested to relocate to the Alba Iulia resettlement site, which we have agreed to. As at September 30, 2008 the Company has accrued $1.7 million (December 31, 2007 - $0.5 million) in respect of the additional delay penalties.
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. The Company is obligated to spend US$3.2 million over the term of the license. Field work commenced in the fourth quarter of 2006.
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 totaled $6.0 million at September 30, 2008 (December 31, 2007 - $9.3 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 three years beginning 2007. As at September 30, 2008 outstanding commitments under such agreements totaled $30.3 million (December 31, 2007 - $42.4 million). Contractual obligations are not expected to rise during 2008 as 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 currencies fluctuate on the foreign denominated obligations.
The following is a summary of contractual commitments of the Company including payments due for each of the next five years and thereafter:
2012 and
Total 2008 2009 2010 2011 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Baisoara exploration
license $ 3,012 $ 120 $ 668 $ 1,370 $ 854 $ -
Resettlement 26,609 5,700 20,309 300 300 -
Goods and services 6,012 4,346 1,263 9 9 385
Long lead time
equipment 30,300 11,992 18,278 30 - -
Rosia Montana
exploitation
license 2,661 242 242 242 242 1,693
Surface concession
rights 879 - 21 21 21 816
Lease agreements 1,314 123 622 401 168 -
----------------------------------------------------------------------------
Total commitments $ 70,787 $ 22,523 $ 41,403 $ 2,373 $ 1,594 $ 2,894
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following is a summary of the long-lead-time equipment orders and the
payment status:
September 30, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems $ 44,249 $ 46,140
Crusher facilities 4,155 6,976
Other process equipment - 2,646
Foreign exchange movement 2,810 -
----------------------------------------------------------------------------
51,214 55,762
Amount paid as at September 30, 2008:
Grinding area systems (17,857) (11,043)
Crusher facilities (1,896) (2,018)
Other process equipment - (267)
Foreign exchange movement (1,161) -
----------------------------------------------------------------------------
Outstanding payment obligation $ 30,300 $ 42,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the second quarter 2008, the Company elected not to exercise its manufacturing order option on $7.4 million of orders, pending the restart of the permitting process. We have therefore excluded the orders' value from the commitments table. During detailed engineering those items were deemed non critical and therefore the placement of the order could be delayed, preserving cash for the Company, without impacting the timeline to complete construction, once permits are received.
CEO/CFO Certification
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded at September 30, 2008 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at September 30, 2008 that management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting as required by the Ontario Securities Commission Internal Control certification requirements.
Outstanding Share Data
The Company's fully diluted share capital as at the report date was:
Outstanding
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Preferred shares Nil
Common shares 255,449,278
Common stock options 17,289,144
Common stock warrants 2,625,000
Deferred share units - common shares 616,706
----------------------------------------------------------------------------
Fully diluted share capital 275,980,128
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Forward-Looking Statements
Certain statements included herein, including capital costs estimates, 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, 2008
Consolidated Balance Sheets
As at September 30, 2008 and December 31, 2007
(Unaudited and expressed in thousands of Canadian dollars)
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 74,218 $ 147,244
Short-term investments (note 3) 8,363 -
Accounts receivable 3,427 1,237
Prepaid expenses and supplies 746 990
----------------------------------------------------------------------------
86,754 149,471
Restricted cash (note 3) 170 162
Capital assets (note 4) 36,511 18,961
Mineral properties (note 5) 384,575 339,361
----------------------------------------------------------------------------
$ 508,010 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 9,821 $ 14,032
Resettlement liabilities (note 6) 26,609 17,140
----------------------------------------------------------------------------
36,430 31,172
Other Liabilities (note 7) 1,924 2,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------
38,354 33,860
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' Equity
Capital stock (note 9) 560,052 558,277
Contributed surplus (note 12) 10,646 8,807
Deficit (101,042) (92,989)
----------------------------------------------------------------------------
469,656 474,095
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 508,010 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nature of operations and going concern (note 1)
Minority interest (note 8(b))
Commitments and contingencies (note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Loss and Deficit
For the three-and-nine-month periods ended September 30, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars, except per share
data)
3 months ended 9 months ended
September 30, September 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
Corporate,
general and
administrative $ 1,662 $ 2,060 $ 6,004 $ 7,511
Stock based
compensation
(note 7 & 11) 228 46 1,664 875
Project
financing costs 16 224 50 760
Severance costs
(note 7(c)) - - 668 -
Amortization 77 35 230 174
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1,983 2,365 8,616 9,320
----------------------------------------------------------------------------
Other expense
(income)
Interest (788) (2,145) (3,122) (5,484)
Foreign exchange
loss (gain) 2,516 6,565 (7,232) 11,386
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss (income)
before income
taxes 3,711 6,785 (1,738) 15,222
Income tax
expense
(recovery)
(note 13) (929) - 9,791 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss for the
period 2,782 6,785 8,053 15,222
Deficit -
beginning
of period 98,260 78,383 92,989 69,946
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deficit - end of
period $ 101,042 $ 85,168 $ 101,042 $ 85,168
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss per share
(basic and
diluted) $ 0.01 $ 0.03 $ 0.03 $ 0.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average
number of shares 255,427,795 254,864,738 255,105,648 241,264,593
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Loss
For the three-and-nine month periods ended September 30, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended 9 months ended
September 30, September 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss for the period $ 2,782 $ 6,785 $ 8,053 $ 15,222
Other comprehensive
loss - - - -
----------------------------------------------------------------------------
Comprehensive loss $ 2,782 $ 6,785 $ 8,053 $ 15,222
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
For the three-and-nine-month periods ended September 30, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended 9 months ended
September 30, September 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from (used in)
operating activities
Loss for the period $ (2,782) $ (6,785) $ (8,053) $ (15,222)
Items not affecting cash
Amortization 77 35 230 174
Stock-based compensation 228 46 1,664 875
Unrealized foreign exchange
loss (gain) on cash and
cash equivalents 3,679 6,585 (1,914) 10,358
----------------------------------------------------------------------------
1,202 (119) (8,073) (3,815)
DSU settlement - - (52) -
Net changes in non-cash
working capital (note 18) 8 (630) (772) 328
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1,210 (749) (8,897) (3,487)
----------------------------------------------------------------------------
Cash flows provided by (used
in) investing activities
Decrease (increase) in
short-term investments (8,348) (17,238) (8,371) 51,206
Development and exploration
expenditures (10,161) (23,292) (34,469) (60,253)
Purchase of capital assets (12,451) (12,444) (18,097) (17,397)
Net changes in non-cash
working capital (note 18) (9,076) 7,844 (6,353) 7,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(40,036) (45,130) (67,290) (18,800)
----------------------------------------------------------------------------
Cash flows from (used in)
financing activities
Proceeds from issuance of
capital stock, net of
issue costs - 7 - 148,550
Proceeds from the exercise of
share purchase warrants - - - 20,489
Proceeds from the exercise of
stock options 82 112 1,209 1,214
Net changes in non-cash
working capital (note 18) - (150) (112) 196
----------------------------------------------------------------------------
82 (31) 1,097 170,449
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (38,744) (45,910) (75,090) 148,162
Effect of foreign exchange on
cash, cash equivalents,
and non-cash working capital (3,516) (6,583) 2,064 (10,357)
Cash and cash equivalents -
beginning of period 116,478 202,896 147,244 12,598
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 74,218 $ 150,403 $ 74,218 $ 150,403
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information (note 18)
The accompanying notes are an integral part of these consolidated financial
statements
Notes to Consolidated Financial Statements
For the three-and-nine-month periods ended September 30, 2008 and 2007
(Unaudited and 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 presently developing its 80% owned Rosia Montana gold project (the "Project"). Since acquiring the exploitation license, the Company has been focused on identifying and defining the size of the four ore bodies, engineering to design the size and scope of the Project, environmental assessment and permitting, rescue archaeology and surface rights acquisitions.
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 properties. 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, re-designation of project area as a 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. The suspension of the EIA process by the Minister of Environment and Sustainable Development in September 2007 demonstrates the significant risks that this Project faces. These risks may adversely affect the 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, 2008 the Company had no sources of operating cash flows, 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 result in project delays.
The global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both currently closed. Companies looking to finance projects in this environment will need to focus on multilateral agencies and non traditional lenders. Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs.
The current global financial crisis may cause the time line from the restart of the permitting process until receipt of construction permits to be extended as the Company may pursue certain activities sequentially that had previously been planned to run in parallel.
There can be no assurances that the Company's activities will be successful and as a result there is substantial doubt regarding the "going concern" assumption. 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, may 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 our audited consolidated financial statements and notes thereto for the year ended December 31, 2007. To ensure comparability of financial information, certain prior period amounts have been reclassified to conform to the current year presentation.
In the opinion of management, the accompanying interim 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, 2007.
3. Short-term investments and restricted cash
Short-term investments September 30, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Money market investments with
maturities from the date of
acquisition of 4 - 6 months $ 8,363 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Short term money market investment held at period end yielded an average
interest rate of 2.05% in 2008(2007 - Nil).
Restricted cash September 30, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted cash(1) $ 170 $ 162
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)Restricted cash represents environmental guarantees for future clean up
costs.
4. Capital Assets
September 30, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost
Office equipment $ 4,018 $ 3,908
Building 1,082 1,082
Vehicles 1,270 1,270
Leasehold improvements 214 206
Construction in progress(1) 33,726 15,681
----------------------------------------------------------------------------
40,310 22,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 2,413 1,949
Building 50 43
Vehicles 1,189 1,065
Leasehold improvements 147 129
Construction in progress(1) - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3,799 3,186
----------------------------------------------------------------------------
Net book value
Office equipment 1,605 1,959
Building 1,032 1,039
Vehicles 81 205
Leasehold improvements 67 77
Construction in progress(1) 33,726 15,681
----------------------------------------------------------------------------
$ 36,511 $ 18,961
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)Amounts included in construction in progress are not subject to
amortization. Construction in progress includes the following amounts:
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ 8,957 $ 2,353
Long-lead-time equipment 24,769 13,328
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 33,726 $ 15,681
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Mineral Properties
Rosia Montana Bucium Baisoara Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2006 $ 231,910 $ 9,390 $ 41 $ 241,341
Development costs 96,192 - - 96,192
Exploration costs 702 985 141 1,828
----------------------------------------------------------------------------
Balance - December 31, 2007 328,804 10,375 182 339,361
Development costs(1) 44,563 - - 44,563
Exploration costs(1) 413 82 156 651
----------------------------------------------------------------------------
Balance - September 30, 2008 $ 373,780 $ 10,457 $ 338 $ 384,575
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1)Mineral property additions of $45.2 million includes $10.7 million of
non-cash items principally related to resettlement liabilities, stock
based compensation, and amortization, therefore the net cash investment
during the nine-month period ended September 30, 2008 was $34.5 million.
The Company's principal asset is its 80% direct ownership interest in a Romanian company, Rosia Montana Gold Corporation ("RMGC"), which holds two mineral licenses in Romania, being Rosia Montana and Bucium. Minvest S.A. ("Minvest"), a Romanian state-owned mining company, together with three other private Romanian companies, hold a 20% interest in RMGC, and RMGC holds the pre-emptive right to acquire the 20% minority interest. RMGC is required 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 from future cash flows prior to the shareholders receiving dividends.
An exploitation license is held by RMGC as the titleholder in respect of the Rosia Montana property. RMGC has the exclusive right to conduct mining operations at the Rosia Montana property for an initial term of 20 years commencing in 1998, and thereafter with successive five -year renewal periods.
RMGC holds an exploration license over the Bucium property. The license, which was extended in 2004, expired on May 19, 2007. The Company spent US$3.4 million over the term of the license extension period. The expiring exploration license can be converted into an exploitation license upon submission and approval of a feasibility study. During the third quarter of 2007, the Company filed the necessary documentation to convert the exploration license into an exploitation license and the Company is awaiting response from the authorities on this item. No additional work on Bucium's project economics is planned until the license is converted from an exploration to an exploitation license and until the EIA is approved.
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. The Company is obligated to spend US$3.2 million over the term of the license. Field work commenced in the fourth quarter of 2006.
6. Resettlement liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in the Project area. Residents had 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 the two new resettlement sites. At September 30, 2008, the Company had resettlement liabilities totaling $26.6 million, obligating the Company to deliver new homes under those contracts between September 30, 2007 and August 1, 2008. The Company was unable to meet the original deadlines stipulated in those contracts. .Under the terms of the original resettlement contracts, if the Company failed to fulfill its obligation by the end of the 12-month penalty period, the Company would be required to pay the owner the agreed upon unpaid property value, plus the related penalties, and the owner would retain the right to occupy the home for an undetermined period of time. The Company has been working with those residents who chose the resettlement option to extend the delivery dates of the contracts for up to an additional 36 months. As a result, the Company is accruing a penalty of 6% to 20% of the agreed upon unpaid property value per year of delay as required by the agreement including all amendments.
The Company accrued $0.8 million (2007 - $0.2 million) during the third quarter in respect of the additional delay penalties. As at September 30, 2008 the Company has accrued $1.7 million (December 31, 2007 - $0.5 million) representing its total estimated delay penalty.
7. Other liabilities
Price per
DSU's Common Share
Deferred Share Units ("DSU") (a) (000's) (dollars) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding - December 31, 2006 238 $ 5.06 $ 1,204
Granted 370 1.62 599
Settled (5) 4.75 (24)
Change in fair value - - (592)
----------------------------------------------------------------------------
Outstanding - December 31, 2007 603 1.97 1,188
Granted 42 2.12 90
Settled (28) 1.82 (52)
Change in fair value - - 39
----------------------------------------------------------------------------
Balance - September 30, 2008 617 $ 2.05 $ 1,265
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fidelity bonus and other benefits (b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance accrued - December 31, 2006 $ 184
Additions 665
----------------------------------------------------------------------------
Balance accrued - December 31, 2007 849
Reductions (212)
Foreign exchange impact 22
----------------------------------------------------------------------------
Balance accrued - September 30, 2008 $ 659
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Other Liabilities $ 1,924
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) DSUs
The Company implemented a DSU Plan under which qualifying participants receive certain compensation in the form of DSUs in lieu of cash. On retirement, 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 he/she elects to settle the DSU in cash or shares of Gabriel. If the holder elects to settle the DSU in shares of Gabriel, 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") 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed (recovered) $ (322) (480) $ 124 (491)
Capitalized (capital reduction) $ (40) (43) $ 4 (48)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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, 2008, $0.7 million (December 31, 2007 - $0.9 million) has been accrued for these benefits.
(c) Severance and Termination Costs
On December 4, 2007, in light of the suspension of the EIA review process, the Company announced and enacted plans to scale back activities. In the fourth-quarter 2007, the Company accrued $1.4 million in costs related to the retrenchment of 170 employees. During the year, concurrent with the modification of payment terms of its remaining obligation, the Company revised its estimated cost and accrued a further $0.7 million in respect of its total obligation and has classified its entire outstanding obligation as a current liability.
Foreign
December Exchange Reclassi- September
31, 2007 Payment Addition Movement fication 30, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current
portion $ 796 $ (1,270) $ 668 $ (1) $ 706 $ 899
Long-term
portion 652 - 54 (706) -
----------------------------------------------------------------------------
Total Costs $ 1,448 $ (1,270) $ 668 $ 53 $ - $ 899
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Related Party Transactions
The Company had related party transactions, with directors, officers and employees of the Company or associated corporations, which were in the normal course of operations and were measured at the exchange amounts as follows:
(a) The Company paid $4 thousand (2007 - $34 thousand) during the third quarter to a director of the Company for consultation services provided to the Company. For the nine months ended September 30, 2008 the Company paid $9 thousand (2007 - $39 thousand).
(b) In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders of RMGC, who hold an aggregate of 20% of the shares of RMGC, to facilitate a statutory requirement to increase RMGC's total share capital. The loans are non-interest bearing and are to be repaid as and when RMGC distributes dividends to its shareholders.
The loans and related minority interest contribution have been offset on the balance sheet until such time as the loans are repaid. Once the loans are repaid the minority 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
shares
Common shares issued and outstanding (000's) Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2006 210,891 $ 385,444
Shares issued from a public offering(a) 35,937 156,328
Less: Share issue costs - (7,778)
Shares issued on the exercise of stock options
(note 11) 614 1,213
Stock-based compensation - exercise of stock options
(note 12) - 620
Stock-based compensation - settlement of DSUs
(note 7(a)) 5 24
Shares issued from the exercise of share purchase
warrants (note 10) 7,451 20,489
Exercise of share purchase warrants - transfer from
common share purchase warrants - 1,937
----------------------------------------------------------------------------
Balance - December 31, 2007 254,898 $ 558,277
Shares issued on the exercise of stock options
(note 11) 551 1,209
Stock-based compensation - exercise of stock options
(note 12) - 566
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - September 30, 2008 255,449 $ 560,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) In the first quarter of 2007, the Company issued 35.9 million common
shares at $4.35 per share to a syndicate of underwriters and Newmont
Canada Limited ("NCL"). Aggregate net proceeds of $148.6 million were
received, after deducting underwriting fees of $6.9 million plus various
professional fees related to the offering of $0.7 million. The net
proceeds of the offering are being used to advance the development of
the Rosia Montana gold deposit in Romania including completing surface
rights acquisition, advancing detailed engineering, purchasing of
long-lead-time equipment, development of the new resettlement sites and
general corporate purposes.
NCL, a subsidiary of Newmont Mining Corporation, participated to acquire
20% (7.2 million common shares) of the total offering.
10. Share Purchase Warrants
During fourth quarter 2006, the Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project. As part of the proposed compensation of the financial institutions, the Company is prepared to issue up to a total of 2.625 million common share purchase warrants (the "Warrants"). The Warrants have an exercise price of $4.88 per warrant, a four year term and will vest upon achievement of project financing milestones, including public announcement of a committed underwriting by such financial institutions of a syndicated bank credit facility in an amount up to US$350 million (the "Facility"), execution of definitive credit documentation for the Facility, and first draw-down under the Facility.
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 un-granted options.
As at September 30, 2008, 8.2 million options are available for issuance under the Plan (December 31, 2007 - 12.6 million).
As at September 30, 2008, common share stock options held by directors, officers, employees and consultants are as follows:
Outstanding Exercisable
----------------------------------------------------------
----------------------------------------------------------
Weighted
average Weighted
Weighted remaining average
average contractual exercise
Range of exercise Number of exercise price life Number of price
prices (dollars) options (dollars) (Years) options (dollars)
----------------------------------------------------------------------------
$1.48 - $2.00 10,314 $ 1.55 3.6 3,314 $ 1.54
2.01 - 3.00 4,654 2.52 3.6 2,108 2.52
3.01 - 5.00 2,415 4.49 3.3 1,382 4.53
----------------------------------------------------------
----------------------------------------------------------
17,383 $ 2.22 3.6 6,804 $ 2.45
----------------------------------------------------------
----------------------------------------------------------
During the year ended 2007 and the nine-month period ended September 30,
2008, director, officer, employee and consultants stock options were
granted, exercised and cancelled as follows:
Weighted average
Number of exercise price
options (dollars)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2006 9,583 $ 2.96
Options granted 5,965 2.34
Options expired (941) 5.17
Options forfeited / cancelled (1,067) 4.46
Options exercised (614) 1.98
----------------------------------------------------------------------------
Balance - December 31, 2007 12,926 2.44
Options granted 5,935 1.95
Options expired (279) 4.51
Options forfeited / cancelled (648) 3.23
Options exercised (551) 2.19
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - September 30, 2008 17,383 $ 2.22
----------------------------------------------------------------------------
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The exercise of the outstanding stock options would be anti-dilutive in the loss per share calculation.
The estimated fair value of stock options is typically amortized over the period in which the options vest which is normally three years. For those options that begin to vest after a deferral period, the fair value of the options is amortized proportionately over the total vesting and delay period. 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 options is recognized 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, the Company granted 3 million options that will vest upon completion of certain milestones including approval of EIA, completion of project financing commitment, loan documentation, first draw down, or under certain conditions of termination. The estimated fair value of the options will be recognized and capitalized at the measurement date, or the period in which the milestones are achieved and the value can be reasonably measured. For the nine-month period ended September 30, 2008, the amount capitalized was $Nil. Subsequent to quarter end the options vested and the entire fair value of the options will be recognized in the fourth quarter 2008.
Excluding the 3 million options that vest conditional on the achievement of milestones, the fair value of the remaining 2,935 thousand options granted during the nine -month period ended September 30, 2008 (September 30, 2007 - 1,615 thousand) has been estimated at the date of grant using a Black-Scholes option pricing model. The current period's valuation was calculated with the following assumptions:
9 months ended
September 30,
2008 2007
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Weighted average risk-free
interest rate 3.16% 4.22%
Volatility of the expected market
price of share 67% 60%
Weighted average expected life of options 2.7 years 2.7 years
Weighted average cost per option $ 1.05 $ 1.84
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For the three-and-nine-month periods ended September 30, 2008 and 2007, fair
value of stock options are expensed and capitalized as follows:
3 months ended 9 months ended
September 30, September 30,
2008 2007 2008 2007
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Expensed $ 550 $ 526 $ 1,540 $ 1,366
Capitalized $ 317 $ 376 $ 865 $ 978
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12. Contributed Surplus
The following table identifies the changes in contributed surplus for the
periods indicated:
Total
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Balance - December 31, 2006 $ 5,904
Stock-based compensation 3,516
Exercise of stock options (620)
Expiry of unexercised warrants 7
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Balance - December 31, 2007 8,807
Stock-based compensation 2,405
Exercise of stock options (566)
Expiry of unexercised warrants -
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Balance - September 30, 2008 $ 10,646
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13. Income Taxes
In response to a Romanian tax assessment received in the second quarter of 2008 the Company accrued $9.7 million in respect of tax liabilities arising from the disallowance of the application of state tax incentives to unrealized foreign exchange gains on inter company debt for the fiscal years 2003 and 2004. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities are misapplying their domestic legislation and the Company is vigorously contesting the State's position through the courts.
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,
2008 2007
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Romania $ 420,541 $ 357,558
Canada 545 764
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Total $ 421,086 $ 358,322
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15. Financial Instruments
The recorded amounts for cash and cash equivalents, 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 and cash equivalents that are held in investment accounts with major Canadian banks. As a consequence of the global financial crisis that began impacting the financial markets in the summer 2007, the Company, adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, the United States and France, with the balance of cash being invested in short-term Term Deposits issued by major Canadian banks.
The Company strives to maintain at least 85-90% of its cash and cash equivalent investments in sovereign debt. With the ongoing global financial crisis it is becoming increasingly difficult to source short-term sovereign debt that meets the Company's credit risk criteria and maturities schedule.
The global financial crisis has drastically reduced the liquidity of treasury instruments and this has led to greater counterparty risk on trade settlement.
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 immediate 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, 2008 to settle current and long-term liabilities.
Market risk
(a) Interest rate risk
The Company has significant cash balances and no interest-bearing 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 90 days, for its cash and cash equivalent balances, it is highly susceptible to interest rate volatility as investments mature and are rolled over. The global financial crisis has led to a shortage of treasury instruments as investors worldwide undergo a 'flight to security' and therefore the Company is experiencing dramatic reductions in yield on investments that are rolled over into similar securities.
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 and cash equivalents, 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.
In recent weeks, the global financial crisis has led to dramatic volatility in the foreign currency markets. The Company maintains cash and cash equivalents in the currency of planned expenditures and is therefore highly 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 as significant market volatility continues.
Sensitivity analysis
The Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value. As of September 30, 2008, 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 "typical" three month period. The current global financial crisis has resulted in dramatic interest rate, commodity and currency volatility coupled with a dramatic unwinding of financial leverage in markets across the globe. The Company does not view these market conditions as "typical" and therefore the affect of interest rate changes and currency valuation changes on net income may be more dramatic than deemed "reasonably possible". Nonetheless, the Company has taken steps to reduce its risks as discussed above.
- Cash and cash equivalents include deposits which are at floating interest rates. Sensitivity of cash and cash equivalents to a plus or minus 1% change in earned interest rates would affect net income by $0.2 million.
- The Company holds significant balances in foreign currencies, and this gives rise to exposure to foreign exchange risk. Sensitivity of the foreign currency balance as of September 30, 2008 to a plus or minus 1% change in foreign exchange rates would affect net income by $0.6 million.
16. Capital Management
The Company's objective when managing capital is to safeguard its accumulated capital 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.
The global financial crisis has frozen most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional debt market and the high-yield bond market are both currently closed. Companies looking to finance projects in this environment will need to focus on multilateral agencies and non traditional lenders. Management is in the process of refining a financing plan that assumes neither the conventional debt market nor the bond market will reopen in time to meet our financing needs.
There are no assurances that this initiative will be successful. To safeguard capital and to mitigate currency risk, the Company strives to maintain at least 85-90% of its cash and cash equivalent investments in sovereign debt 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.
2012 and
Total 2008 2009 2010 2011 thereafter
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Baisoara exploration
license (note 5) $ 3,012 $ 120 $ 668 $ 1,370 $ 854 $ -
Resettlement (note 6) 26,609 5,700 20,309 300 300 -
Goods and services(a) 6,012 4,346 1,263 9 9 385
Long lead time
equipment(b) 30,300 11,992 18,278 30 - -
Rosia Montana
exploitation
license(c) 2,661 242 242 242 242 1,693
Surface concession
rights(d) 879 - 21 21 21 816
Lease agreements(e) 1,314 123 622 401 168 -
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Total commitments $ 70,787 $ 22,523 $ 41,403 $ 2,373 $ 1,594 $ 2,894
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(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 totaled $6.0 million at September 30, 2008 (December 31, 2007 - $9.3 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 three years beginning 2007. The following is a summary of the long-lead-time equipment orders and the payment status:
September 30, December 31,
2008 2007
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Total purchase agreements:
Grinding area systems $ 44,249 $ 46,140
Crusher facilities 4,155 6,976
Other process equipment - 2,646
Foreign exchange movement 2,810 -
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51,214 55,762
Amount paid as at September 30, 2008:
Grinding area systems (17,857) (11,043)
Crusher facilities (1,896) (2,018)
Other process equipment - (267)
Foreign exchange movement (1,161) -
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Outstanding payment obligation $ 30,300 $ 42,434
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During the second quarter 2008, the Company elected not to exercise its manufacturing order option on $7.4 million of orders, pending the restart of the permitting process and therefore has excluded the orders value from the commitments table.
(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 11 years remaining.
(d) RMGC has approximately 43 years remaining on a concession agreement with the Local Council of Rosia Montana Commune by which it is granted exploitation rights in property located on and around the proposed Cirnic pit for an annual payment of $20 thousand.
(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 Rosia Montana gold 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 this item.
18. Supplemental Cash Flow Information
3 months ended 9 months ended
(a) Net changes in non-cash September 30, September 30,
working capital 2008 2007 2008 2007
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Operating activities:
Accounts receivable,
prepaid expenses and
supplies $ 202 $ 189 $ (121) $ 1,194
Accounts payable and
accrued liabilities (223) (817) (695) (865)
Unrealized foreign exchange
loss (gain) on working
capital 29 (2) 44 (1)
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$ 8 $ (630) $ (772) $ 328
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Investing activities:
Accounts receivable,
prepaid expenses and
supplies $ (198) $ 70 $ (1,916) $ 236
Accounts payable and
accrued liabilities (8,686) 7,774 (4,245) 7,408
Unrealized foreign exchange
loss (gain) on short-term
investments (192) - (192) -
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$ (9,076) $ 7,844 $ (6,353) $ 7,644
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Financing activities:
Accrued legal costs for
public equity issue $ - $ (150) $ (112) $ 196
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(b) Exploration and
development
expenditures
Balance sheet change in
mineral properties $ (15,708) $ (33,362) $ (45,214) $ (73,493)
Reclassification of mineral
properties from prepaid
expenses - - 25 -
Increase in resettlement
liabilities 5,149 9,590 9,469 11,859
Non-cash depreciation and
disposal capitalized 121 147 382 451
Stock based compensation
capitalized 277 333 869 930
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Exploration and development
expenditures per cash
flow statement $ (10,161) $ (23,292) $ (34,469) $ (60,253)
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September 30, December 31,
2008 2007
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Cash $ 1,427 $ 1,947
Short-term investments (less
than 90 days) - weighted
average interest of 3.5%
(2007 - 3.9%) 72,791 145,297
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$ 74,218 $ 147,244
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The Company paid $14.9 million of income taxes including interest and penalties during the nine-month period ended September 30, 2008 (2007 -$Nil).
19. Reclassification of Comparative Figures
Certain comparative figures have been reclassified to conform to the current year's presentation. | |