Gabriel Resources Ltd. Fourth Quarter and Year-End Report by 24hgold

Keywords : Romania |

Gabriel Resources Ltd: Fourth Quarter and Year-End Report

Gabriel Resources Ltd. ("Gabriel" or the "Company") (TSX: GBU) -

Highlights

-- Technical Analysis Committee ("TAC") recommenced its review of the Rosia

Montana Environmental Impact Assessment ("EIA")

-- First formal TAC meeting was held on September 22, 2010

-- Romanian lower courts rejected legal challenges to Urbanism Certificates

issued for the Rosia Montana project in 2004 and 2010

-- Restoration of historical town centre continues

Jonathan Henry, Gabriel's President and Chief Executive Officer stated:

"We were very encouraged by the recommencement of the TAC review process in September. Our team is in the process of addressing all the questions posed by the Romanian authorities and looking forward to fully demonstrating that the Rosia Montana project has been designed in a technologically sound, safe and environmentally responsible fashion".

"The continuation of the EIA process is an important step in the development of Rosia Montana, which should deliver much-needed economic development and employment to the region as well as to Romania. The Rosia Montana project will also remediate ongoing environmental degradation within the footprint of the project caused by prior un-remediated mining activities" Jonathan Henry added.

About Gabriel Resources/ Rosia Montana Gold Corporation

Gabriel is a Canadian-based resource company engaged in the exploration and development of mineral properties in Romania and is presently in the permitting stage and preparing to develop its 80.46%- owned Rosia Montana gold project (the "Project"). Gabriel is committed to responsible mining and sustainable development in the communities in which it operates. Rosia Montana is expected to bring US$19 billion to Romania as direct and indirect investment according to recent estimates from British- based Oxford Policy Management. The project will generate thousands of jobs while observing all Romanian and European environmental laws and also helping preserve important historic buildings as well as local cultural heritage. For more information please visit the Company's websites at www.gabrielresources.com and www.rmgc.ro.

Financial Performance

-- Third quarter net income was $14.6 million, or $0.04 per share,

primarily reflecting foreign exchange gains of $10.2 million and $6.9

million Romanian income tax recovery. Year-to-date net loss was $13.6

million, or $0.04 per share.

-- A total of $9.1 million was spent on development projects during the

third quarter, increasing the year-to-date amount to $26.3 million.

Liquidity and Capital Resources

-- Cash, cash equivalents and short-term investments at September 30, 2010

totaled $131.3 million.

-- The budget for the fourth quarter of 2010 is estimated at $20 million

including expenditures and commitments to maintain the value of the

Company's investment in the Project.

-- The capital cost to complete the development of the Project - including

interest, financing and corporate costs - is estimated at approximately

US$1 billion. Once the EIA approval is granted, the Company will re-

examine its alternatives to finance the development of the Project in

the most optimal fashion.

Political Environment

-- Throughout the third quarter of 2010, the Romanian Government continued

to deal with the challenges of the global economic slowdown, focusing on

implementing austerity measures intended to reduce Romania's budget

deficit and comply with the requirements of the International Monetary

Fund emergency aid programme.

-- The Company is continuing to reach out to various stakeholders of the

Project. These efforts are designed to address comprehensively the

issues and concerns related to the development of the Project. Continued

strong local and regional support for Rosia Montana is believed to be

the direct result of these efforts. The Company's communication program

is fact-based and focused on explaining the Project's economic and

environmental benefits.

Environmental/Permitting

-- In July 2010, the members of the TAC were provided with the

documentation submitted originally to the Ministry of the Environment in

2004 and 2006; the first formal TAC meeting was held on September 22,

2010. The process is on-going.

-- The Company is moving forward with the amended Industrial Zone

Urbanization Plan, having completed the public participation phase of

the process.

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three-and-nine months ended September 30, 2010 and 2009. The MD&A should be read in conjunction with the unaudited consolidated financial statements and notes thereto ("Statements") of Gabriel Resources Ltd. ("Gabriel" or the "Company") as at and for the three-and-nine months ended September 30, 2010 and 2009, as well as the audited consolidated financial statements of the Company as at and for the year ended December 31, 2009 and notes thereto. The Company's consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").

All amounts included in the MD&A are in Canadian Dollars, unless otherwise specified. This report is dated as of November 2, 2010, and the Company's public filings, including its most recent Annual Information Form, can be reviewed on the SEDAR website (www.sedar.com).

Overview

Gabriel is a Canadian-based resource company engaged in the exploration and development of mineral properties in Romania and is presently in the permitting stage and preparing to develop its 80.46%-owned Rosia Montana gold project (the "Project"). Minvest S.A. ("Minvest"), a Romanian state owned mining company, and one other private Romanian company, hold a 19.54% interest in Rosia Montana Gold Corporation ("RMGC"), the beneficial owner of the Project, and Gabriel holds the pre-emptive right to acquire the 19.54% minority interest. Gabriel is committed to responsible mining and sustainable development in the communities in which it operates. RMGC will be required to pay 4% net smelter royalty on all production from the Project to the Romanian Government.

The Company's mission is to create value for all stakeholders from responsible mining. Gabriel's vision is to build the Project and to be a catalyst for sustainable economic, environmental, cultural and community development. As the Company develops the world-class Rosia Montana project, it will strive to set high standards through good governance, responsible engineering, open and transparent communications, and operations and reclamation based on best available techniques - all in the service of value creation and sustainable development. Whether the issue is corporate governance, community development, environmental responsibility or operational practices, the Company pledges to do it right.

Key Issues

Political Situation

Throughout the third quarter of 2010, the Romanian Government continued to grapple with the challenges of the global economic downturn, focusing on implementing austerity measures intended to reduce Romania's budget deficit and comply with the requirements of the International Monetary Fund ("IMF") emergency aid programme. In late October, opposition parties in the Romanian Parliament tabled a non-confidence motion against the Government in response to public-sector wage cuts and an increase in the country's value-added tax - steps the Government considered to be in keeping with the IMF recovery programme. The vote failed, leaving the coalition government in place.

Against the background of the Government's effort to encourage economic development, the Project continues to receive support from members of the local and regional political leadership. On September 17, 2010, the Ministry of Environment and Forestry ("MOE") recommenced the Technical Analysis Committee ("TAC") review of the Rosia Montana Environmental Impact Assessment ("EIA"), which had been suspended since the fall of 2007, and the project is now receiving the objective analysis the Company has long sought.

While the second quarter saw efforts by Project opponents to press the European Parliament to support a complete ban on cyanide use in mining, no additional initiatives were advanced in the third quarter. The last action relating to the Project occurred in June 2010, when the European Commission ("EC") issued a letter over the signature of the Environment Commissioner declining to institute a ban on cyanide, and endorsing existing European Union ("EU") directives regulating its use in mining. As the Project is designed to operate well within the EU directive's limits, the Company sees the EC statement as a positive endorsement for responsible mining.

Management continues to meet with stakeholders to understand their issues and concerns and to explain the benefits and impacts of the Project. Continued strong local and regional support is a direct result of the Company's outreach. The Company's communication efforts are fact based, focusing on the critically-needed economic benefits the Project will bring to Romania as well as the environmental benefits to an area that has significant environmental damage from historical unregulated mining activities. While political and NGO opposition remains, broader understanding of these economic and development issues is a factor in the positive reaction to the Project among Romania's governing authorities.

Environmental/Permitting

On September 17, 2010 the Romanian MOE recommenced resumption of the TAC review for the Project's EIA. The TAC review had been suspended since September 2007 based on a decision taken by the former Minister of Environment and Sustainable Development.

In July 2010, the members of the TAC were provided with the documentation originally submitted by RMGC to the MOE in 2004 and 2006. The first formal TAC meeting involving RMGC was held on September 22, 2010. At this time it is not known how many TAC meetings will be required to review and make an assessment of the Project's EIA or how long this process may take. Ultimately, the EIA must be approved by a Cabinet decision of the Romanian Government. The Company's management expects that this can be achieved by the end of the second quarter of 2011.

While the EIA is the most important project approval, there is a number of other permits and approvals required to advance the Project to construction, such as zonal urbanistic plans for the industrial and protected areas, forestry/agriculture land use change permits, archeological discharge certificates, as well as other permits and approvals that follow EIA approval. To that end, to the extent these permits and approvals are not dependent on EIA approval or the acquisition of surface rights, the processes for each of these will proceed in parallel with the EIA review process. The Company is moving forward with the amended industrial zonal urbanistic plan ("Amended PUZ"), having completed the public participation phase including ESPOO procedure (transboundary consultations pursuant to the Convention on Environmental Impact Assessment in a Transboundary Context) and obtained the Romanian Waters Authority Endorsement. In addition, the Local Council has initiated the process for the zonal urbanistic plan for the protected area ("PUZ - Protected Area"). During the third quarter, the Company obtained for the PUZ - Protected Area the Romanian Waters Authority Endorsement and the Environmental Endorsement issued by the Environmental Protection Agency of Alba. The forestry and agricultural land use change permits will proceed after the EIA has been approved and surface rights obtained. In June 2010, the dam safety permits for the Cetate and Corna dams for the Project were issued by the MOE. Although there is no precedent or regulatory timeline, in the absence of any other extraordinary events, legal or otherwise, we expect permitting processes to obtain initial construction permits for the Project to take approximately one year from the date the EIA for the Project and the new archeological discharge certificate for the Carnic deposit are approved by the Romanian government.

Litigation

Over the years a number of foreign-funded and Romanian NGOs have initiated a multitude of legal challenges against a number of local, regional and national Romanian regulatory authorities that have the administrative authority to grant permits, authorizations and approvals for any aspect of the exploration and development of the Project. While some of these actions have been successful, most have been frivolous. These legal challenges include civil actions against the regulatory authorities and, in certain cases, against individuals within such regulatory authorities; in general, they claim that such regulatory authorities are acting in violation of Romanian laws and ask for cancellation of a particular license, permit or approval. Gabriel, through RMGC, has intervened in all material cases in order to ensure that the Romanian courts considering these actions are presented with a legally correct, fair and balanced analysis as to why the various Romanian regulatory authorities' actions are in accordance with the relevant and applicable laws.

While the Company has designed the Project to follow all applicable laws to protect against permitting delays of the Project, multiple legal challenges brought forward by NGOs in Romania - those currently ongoing and those that may be introduced in the future - may continue to cause potential setbacks to the Project timeline.

During the third quarter of 2010, RMGC was involved as a defendant and/or intervener in the following cases: (i) defendant in a claim seeking the suspension, and ultimately the cancellation of urbanism certificate No. 87 ("UC 87"); (ii) defendant in the final appeal of a claim seeking the cancellation of urbanism certificate No. 68 ("UC 68"); and iii) intervener in a claim challenging the legality of a Rosia Montana local council resolution re-confirming zoning bylaws for the local commune.

In June of 2010 a lower court ruling rejected an NGO claim seeking the cancellation of UC 68. Prior to the end of the third quarter the appeal of this ruling was filed and a preliminary hearing on the appeal is currently scheduled for November 9, 2010. On September 29, 2010 a lower court also ruled against an NGO claim seeking the suspension of UC 87. This decision remains appealable.

During the third quarter, Gabriel and the County Council of Alba Iulia withdrew their final appeal against an earlier court ruling cancelling UC 105. UC 105 was granted to RMGC in 2007 and expired in 2008.

RMGC also intervened in a claim challenging the legality of a resolution of the local council of Rosia Montana passed in 2009 re-confirming zoning bylaws initially approved in 2002 for the area. This claim remains before the courts with a hearing scheduled for November 16, 2010.

On September 21, 2010 RMGC and the Romanian MOE definitively won a ruling case regarding an NGO claim seeking an order compelling the MOE to return to RMGC for further completion the initial project presentation report submitted by RMGC in 2004. RMGC and the MOE obtained favourable judgments at both the lower and appellate courts in this matter.

RMGC's action against the MOE challenging its grounds for suspending the EIA (TAC) review process in 2007 and seeking an order compelling it to re-commence the process remains before the High Court of Cassation and Justice. The next hearing on this matter is currently scheduled for January 18, 2011.

A lower or appellate court ruling against RMGC's interest with respect to UC 68, UC 87 or the challenge to the local council resolution re-confirming local zoning bylaws may have a material impact on the permitting process for the Project. The implications of a negative court ruling will only be known once such a decision is issued and the position of the Romanian Government is assessed. In all circumstances RMGC will vigorously maintain its legal rights and will continue to work with local, county and federal authorities to ensure the Project receives a fair and timely evaluation in accordance with all Romanian and EU laws.

There were no other material developments involving litigation matters associated with the Company during the third quarter of 2010.

Surface Rights

As a result of the suspension of the EIA review process in September 2007, the home purchase program was suspended in February 2008. The acquisition process for private properties is currently on hold-pending progress in the permitting process. The Company owns 77 percent of the homes in the industrial zone, protected area and the buffer zone.

In addition to the private properties required, the Company needs to acquire properties (about 30 percent of the surface area of the Project) which are owned by institutions, including the local administrations of Rosia Montana and Abrud, as well as certain churches and state-owned mining companies. The process to acquire the institutional properties is underway and expected to be completed after the approval of the EIA.

Ultimately, the Company's ability to obtain construction permits for the mine and plant is predicated on securing 100 percent of the surface rights within the footprint of the construction permits in the industrial zone, the timing of which is not entirely within the Company's control.

Resettlement Sites

Construction of the Alba Iulia resettlement site, known as Recea, began in summer 2007. The construction of all 125 homes in the Recea has been completed, with 124 homes handed over to their respective owners. This project stands as visible testimony to the determination of the Company to deliver on its promises to the people of Rosia Montana.

The Company is currently reviewing the technical merits for a further resettlement village to be built, as well as the process of obtaining permits for its construction.

Archaeology

An archaeological review of historic mining activity at Rosia Montana is a critical step in the granting of the construction permit to build the Project. A number of archaeological discharge certificates are required for various parts of the area within the footprint of the proposed mine.

An NGO commenced legal action in 2004 and ultimately obtained an annulment with respect to RMGC's archaeological discharge certificate No. 4 ("ADC 4") from the High Court of Cassation and Justice in December 2008. The Company has reviewed the Court's written reasons for this decision and submitted documents for obtaining a new archeological discharge certificate through a revised application prepared by independent researchers that it believes will address all deficiencies identified by the Court, which annulled the prior ADC 4.

The Company has completed the restoration of a historical home located in the center of Rosia Montana to host a permanent exhibition of history and mining archeology, which will be part of the future Mining Museum (this being one of the public commitments made in the EIA).

During the past year, the Company continued emergency maintenance work on 160 houses located in the historical center of Rosia Montana, with the aim to stop their deterioration. While these houses are not designated as historic, their restoration will contribute to maintaining the character of Rosia Montana village. This emergency conservation work will continue through a multi-year program, which will run in parallel with the construction and the operations phase of the mining project.

Liquidity and Capital Resources

Cash, cash equivalents and short term investments at September 30, 2010 totaled $131.3 million. The budget for the fourth quarter of 2010 is estimated at $20 million including expenditures and commitments to maintain the value of the Company's investment in mineral properties.

Financing Plan

The estimated capital cost to complete the development of the Rosia Montana Project - including interest, financing and corporate costs - is approximately US$1 billion. Once EIA approval has been granted, the Company will re-examine financing alternatives with a view to presenting the various options open to the Company to the board of directors.

Project Timeline

-- The EIA was submitted in the second quarter of 2006.

-- In January 2007, the Company received the list of official questions

from the Romanian Government, raised during the public consultation

process.

-- The Company responded to the questions in the form of an Annex to the

EIA, in early May 2007.

-- Technical Analysis Committee and Espoo Convention meetings went well

during the third quarter of 2007, until TAC meetings were suspended in

September 2007.

-- A new urbanism certificate for the Rosia Montana Project was delivered

to the MOE in May 2010.

-- On September 17, 2010 the MOE recommenced resumption of the Technical

Analysis Committee ("TAC") review of the Project's EIA, which had been

suspended since the fall of 2007.

At this stage management believes that once the EIA for the Project and the

new archeological discharge certificate for the Carnic area are approved by

the Romanian Government, in the absence of any other extraordinary events,

legal or otherwise, it would take approximately one year to:

-- Receive the majority of other permits and approvals, including initial

construction permits; and

-- Complete the control estimate and complete initial documentation on any

third party project financing.

Once construction of the mine begins, it is expected to take an estimated 30 months to complete. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner. In the absence of further unforeseen delays the Project is expected to pour first gold by the end of 2014.

Outlook

The Company's key objectives in the short term include:

1. Continue to win Romanian public and Government support and backing for

the Project

2. Obtain approval of the EIA and all other required permits that allow

construction activities to commence;

3. Continue to maximize shareholder value, while ensuring that the Project

benefits those in the community and the surrounding area to the optimum

possible extent.

Results of Operations

The results of operations are summarized in the following tables, which have been prepared in accordance with Canadian GAAP:

Results of Operations

in thousands of Canadian dollars,

except per share amounts 2010 Q3 2010 Q2 2010 Q1 2009 Q4

----------------------------------------------------------------------------

Statement of Loss (Income)

Loss (Income) $(14,581) $ 12,789 $ 15,439 $ 10,729

Loss (Income) per share - basic (0.04) 0.04 0.04 0.03

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Loss (Income) per share - diluted (0.04) - - -

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Balance Sheet

Working capital 122,874 110,278 124,604 148,715

Total assets 654,261 632,678 642,189 658,694

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Statement of Cash Flows

Investments in development and

exploration including working capital

changes 4,473 10,372 13,185 13,004

Cash flow from financing activities 6,321 3,764 857 70,260

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in thousands of Canadian dollars,

except per share amounts 2009 Q3 2009 Q2 2009 Q1 2008 Q4

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Statement of Loss (Income)

Loss (Income) $ 7,082 $ 1,798 $ 6,969 $ (3,958)

Loss (Income) per share - basic and

diluted 0.02 0.01 0.03 (0.02)

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Balance Sheet

Working capital 95,838 109,518 7,401 29,172

Total assets 608,399 624,991 522,618 530,135

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Statement of Cash Flows

Investments in development and

exploration including working capital

changes 10,689 7,389 11,158 8,171

Cash flow from (used in) financing

activities (435) 112,906 3 -

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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 2010 2009 2010 2009

----------------------------------------------------------------------------

Total operating expenses for the

period $ 2,657 $ 3,139 $ 10,736 $ 14,201

Loss (Income) for the period (14,581) 7,082 13,647 15,849

Loss (Income) per share - basic (0.04) 0.02 0.04 0.06

Loss (Income) per share - diluted (0.04) - - -

Total operating expenses for the three-month period ended September 30, 2010 decreased from the corresponding period in 2009 primarily due to the costs associated with the settlement payment to a senior employee in the third quarter of 2009. For the nine-month period ended September 30, 2010, total operating expenses decreased from 2009 due to $5.7 million resulting from non-recurring retiring allowances and settlement payments in 2009, including the expensing of share-based compensation, for the former CEO and three senior employees who departed the Company during 2009. The decrease is partially offset by $2.4 million representing fair value of stock options which vested upon achievement of certain milestones.

Income for the three-month period ended September 30, 2010 increased from the same period in 2009 due to a positive swing of $14.3 million in foreign currency movement and a $6.9 million income tax recovery from the fiscal authorities in Romania resulting from the cancellation of a 2003-2004 fiscal assessment.

Loss for the nine-month period ended September 30, 2010 decreased from the same period in 2009 mainly due to a decrease in operating costs of $3.5 million and the income tax recovery of $6.9 million, partially offset by an increase in foreign exchange losses of $8.1 million.

The Company expects to incur operating losses until commercial production commences and revenues are generated.

Expenses

Corporate, General and Administrative

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Finance $ 222 $ 40 $ 672 $ 473

External communications 142 91 581 379

Information technology 80 82 231 281

Legal 158 160 465 536

Payroll 592 681 2,181 4,664

Other 295 505 1,329 1,436

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Corporate, general and administrative

expense $ 1,489 $ 1,559 $ 5,459 $ 7,769

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Corporate, general and administrative costs are those costs incurred by the corporate office in Toronto. Corporate, general and administrative costs for the three-month period ended September 30, 2010 were comparable to the same period in 2009. For the nine-month period ended September 30, 2010, corporate, general and administrative costs are lower than in 2009 due to the non-recurring retiring allowance of $2.4 million paid to the Company's former CEO in 2009. Corporate, general and administrative costs are anticipated to rise (excluding the cost of non-recurring items) once the Project is permitted and the Company increases its staffing for construction and operations.

Stock Based Compensation

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

DSUs - expensed $ 336 $ 239 $ 481 $ 760

Stock option compensation - expensed 749 707 4,140 3,558

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Stock based compensation - expensed $ 1,085 $ 946 $ 4,621 $ 4,318

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DSUs - capitalized $ - $ 22 $ - $ 69

Stock option compensation - capitalized 396 252 989 778

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Stock based compensation - capitalized $ 396 $ 274 $ 989 $ 847

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DSU Compensation

Number of DSUs issued 1,639 - 370,407 36,389

Average value ascribed to each DSU

issued $ 6.10 $ - $ 4.21 $ 2.14

DSU costs for the third quarter 2010 reflect mainly the issuance of 2 thousand DSU's during the period and the amortization of 358 thousand DSUs issued to the Company's recently appointed CEO which are being expensed over a two-year period.

For the nine-months ended September 30, 2010, the DSU costs reflect the issuance of 12 thousand units and the increase in the Company's share price from the beginning of the period. The Company's closing share price at September 30, 2010 was $5.96 while at December 31, 2009 the closing share price was $4.37.

Initially valued at the five-day weighted average market price of the stock at date of issue, DSUs are revalued each period based on the closing share price at the period end, with the difference between the total value of the DSUs at period end compared to the value at the end of the previous period. The change in share price of the DSU's at the end of the period is charged to the Statement of Loss. Overall, for the three-and-nine month periods ended September 30, 2010, the Company's share price increased by $1.13 compared to June 30, 2010 and $1.59 compared to December 31, 2009, while for the same period in 2009, the Company's share price increased by $0.21 from June 30, 2009 and $0.64 compared to December 31, 2008.

3 months ended 9 months ended

September 30, September 30,

2010 2009 2010 2009

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Stock option compensation

Number of stock options granted 200,000 - 4,250,000 2,150,000

Average value ascribed to each regular

vesting option granted $ 4.89 $ - $ 4.65 $ 1.12

Options granted to corporate

employees, consultants, officers, and

directors - - 2,925,000 1,350,000

Options granted to development project

employees and consultants 200,000 - 1,325,000 800,000

The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years. For those options which vest on single or multiple dates, either on issuance or on meeting milestones (the "measurement date"), the entire fair value of the vesting options is recognized immediately on the measurement date.

The fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.

During the nine-month period ended September 30, 2010, the Company granted 4.2 million options. Of the 4.2 million options issued, 2.2 million vest over a three-year period and the remainder vest based on achievement of certain milestones. The fair value of options that vest upon achievement of milestones will be recognized and capitalized as milestones are achieved and the value can be reasonably measured.

Project Financing Costs

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Project Financing Costs $ 34 $ 37 $ 499 $ 423

The project financing costs for the three-and-nine month periods ended September 30, 2010 were comparable to those of the same period in 2009.

Project financing activities include advisory services.

Interest Income

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Interest Income $ 100 $ 172 $ 294 $ 303

Lower interest income in the three-and-nine month periods ended September 30, 2010 compared to the same periods in 2009 is the result of lower average cash balances during the 2010 periods.

The Company is focused on minimizing credit risk and therefore is foregoing higher yields on its investments and is investing predominantly in government guaranteed instruments. Approximately 88 percent of the Company's cash balances are invested in government guaranteed instruments with the balance invested in term deposits with major Canadian banks.

Foreign Exchange

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Foreign exchange gain (loss) -

realized $ 682 $ (417) $ (935) $ (1,285)

Foreign exchange gain (loss) -

unrealized 9,540 (3,696) (9,182) (662)

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Total foreign exchange gain (loss) $ 10,222 $ (4,113) $(10,117) $ (1,947)

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During 2009, the Company converted the majority of the cash raised from two private placements and public equity offering to foreign currencies to match its future anticipated foreign denominated expenditures. Since the purchase of foreign currencies, mainly the EURO and the US Dollar, the Canadian Dollar exchange rate versus the Euro and US Dollar has experienced significant fluctuations. During the three-month period ended September 30, 2010 the Euro regained some strength against Canadian dollar thereby offsetting prior period foreign exchange losses.

The Company maintains a Canadian Dollar cash position to fund corporate, general and administrative activities, while the majority of its cash resources are in foreign currencies.

The Company expects to continue to report foreign currency gains and losses as it continues to hold foreign currencies.

Taxes

In April 2010, the Supreme Court in Romania admitted an RMGC appeal and cancelled irrevocably a fiscal assessment concerning the period 2003 and 2004. The original assessment arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.

On September 2, 2010 the Company received the equivalent of $6.9 million from the fiscal authorities in Romania as a result of the cancelled fiscal assessment. The full recovered amount has been recognized in the Statements of (Income) Loss.

Investing Activities

The most significant ongoing investing activities are for the Project in Romania. Most of the expenditures to date have been for identifying and defining the size of the four ore bodies, for engineering to design the size and scope of the Project, for environmental assessment and permitting, social support to local communities, archeological and rehabilitation work to buildings, as well as surface rights/property acquisition. Once the construction permit is received, the nature and magnitude of the expenditures will increase, as roads, production facilities, open pits, tailings management facilities and associated infrastructure are built.

Mineral Properties

All costs incurred in Romania related to development and exploration projects - Rosia Montana, Bucium and Baisoara - are capitalized to mineral properties.

Listed below is a summary of expenditures at Rosia Montana for the three-and-nine months ended September 30, 2010 and 2009.

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Finance and administration $2,559 $ (313) $ 5,541 $ 860

External communications 2,157 2,945 6,337 8,032

Legal 1,272 903 4,515 3,299

Permitting 471 420 1,130 1,791

Community development 1,194 1,239 3,874 2,613

Project management and engineering 1,509 1,133 4,066 4,036

Exploration - Rosia Montana 136 343 435 693

Exploration - Bucium - - - -

Exploration - Baisoara 32 19 96 105

Capitalized depreciation and disposals (192) (100) (1,155) (332)

Capitalized stock based compensation (395) (274) (988) (847)

Reclassification to mineral properties - (3,853) - (7,417)

Decrease (increase) in resettlement

liabilities 139 6,285 695 14,063

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Total exploration and development

expenditures $8,882 $ 8,747 $24,546 $26,896

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During the three-and-nine month periods ended September 30, 2010, the finance and administration costs increased compared to the corresponding 2009 periods primarily due to reduced foreign exchange gains related to lower trade payables and resettlement liability balances and a $0.6 million bonus achieved during the third quarter.

External communications costs decreased for the three-and-nine-months ended September 30, 2010 compared to the same period last year mainly due to the reduction in media advertising. The professional service agreement between the Company and an international communications firm continues until February 29, 2012. The agreed fee consists of an annual fee and success fee payable at the end of the three-year agreement upon fulfillment of certain criteria.

The increased legal costs for the three-and-nine-months ended September 30, 2010 compared to the same periods last year reflect the additional fees associated with the engagement of a new legal firm in Romania.

Community development costs increased for the nine-months ended September 30, 2010 compared to the same period in 2009 due to the accelerated start of programs to support the local community.

No additional work is planned on the Bucium property until the exploration license is converted to an exploitation license and the Rosia Montana EIA is approved. The government has indicated that a decision on the conversion of the Bucium exploration to exploitation license will not be made until a decision on the Project is made.

Capital Assets

3 months ended 9 months ended

September 30, September 30,

in thousands of Canadian dollars 2010 2009 2010 2009

----------------------------------------------------------------------------

Resettlement site development costs $ - $ 854 $ - $ 5,592

Investment in long-lead-time equipment 187 3,904 1,515 15,793

Other 122 35 307 78

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Total investment in capital assets $ 309 $ 4,793 $ 1,822 $ 21,463

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Depreciation and disposal - expensed $ 49 $ 51 $ 157 $ 175

Depreciation and disposal -

capitalized to mineral properties $ (192) $ 100 $ (1,155) $ 332

The construction of all 125 homes at the Recea resettlement site in Alba Iulia has been completed with 124 homes handed over to their respective owners.

The final installments for the processing mills are expected to be made in 2010 ($1.7 million) and 2011 ($60,000) at which point the grinding area systems and crushing facilities will be fully paid for and in the possession of the Company. In order to minimize the transportation, storage expenditures and other costs, the Company evaluated various strategies for storing completed equipment and based on the final evaluation the equipment is currently stored at four main locations in accordance with manufacturer's specifications.

Cash Flow Statement

Liquidity and Capital Resources

Until receipt of the environmental permits for the Project, the only source of liquidity is the Company's cash balance, bridge financing, exercise of stock options and warrants outstanding, and the equity markets. The cost to complete the Project was estimated at US$876 million based on a revised cost estimate in March 2009. To complete the development of the Project, the Company will need financing of approximately US$1 billion, to fund capital costs of US$876 million plus working capital, interest, financing and corporate costs of US$124 million. Once EIA approval has been granted, the Company will re-examine financing alternatives with a view to presenting the various options open to the Company to the board of directors.

If the Company was unable to raise the required funds, it would seek strategic alternatives to move the Project towards development.

In 2009, the Company raised $180 million net of acquisition costs through two private placements and a public equity offering.

As at September 30, 2010, cash, cash equivalents, and short-term investments were $131.3 million compared to $117.9 million at September 30, 2009. Substantially all of these amounts are invested in government issued investments.

The Company manages its foreign currency risks through matching its expected foreign denominated expenditures with foreign currency investments. The Company has not entered into any derivatives hedging activities. The Company maintains Canadian Dollar investments to fund corporate costs while most investments are denominated in Euros to match planned foreign currency expenditures. The Company incurs foreign currency gains and losses on those foreign denominated investments as the currencies move against each other. Accordingly, the Company will continue to experience foreign exchange gains and losses as long as it maintains foreign currency investments.

Based on management's knowledge and experience of the financial markets, the

Company believes the following movements are "reasonably possible" over a

three-month period:

-- For cash and cash equivalents a plus or minus 1% change in earned

interest rates would affect net income from deposits by $0.1 million.

-- For short-term investments a plus or minus 1% change in earned interest

rates would affect net income by $0.2 million.

-- As of September 30, 2010 a plus or minus 1% change in foreign exchange

rates of the Company's significant balances in foreign currencies

would affect net income by $0.3 million.

The Company's objective when managing capital is to safeguard its accumulated capital in order to fund development of its Project. The Company manages its capital structure and makes adjustments to it based on the level of funds on hand and anticipated future expenditures. While the Company expects that it will be able to obtain equity, long-term debt and/or project-based financing sufficient to build and operate the Project, there are no assurances that these initiatives will be successful. To safeguard capital and to mitigate currency risk, the Company invests its surplus capital in highly liquid, highly rated financial instruments that reflect the currency of the planned expenditure.

Working Capital

As at September 30, 2010, the Company had working capital, calculated as total current assets less total current liabilities, of $122.9 million versus $148.7 million as at December 31, 2009. The decrease in working capital during the nine -month period ended September 30, 2010 relates to the loss incurred during the year, investments in mineral properties and payments for capital assets.

As at September 30, 2010, the Company had current liabilities of $10.7 million of which $4.7 million relates to resettlement obligations stemming from the acquisition of homes in the Project area. The construction of all 125 homes at the Recea resettlement site in Alba Iulia has been completed with 124 homes handed over to their respective owners.

Net Change in Non-Cash Working Capital

Operating non-cash working capital decreased for the three-months ended September 30, 2010 compared to the same period in 2009 due to a decrease in payables and accrued liabilities since the previous period end.

The increase in investing non-cash working capital for the three months ended September 30, 2010 compared to the same period in 2009 is primarily due to the unrealized foreign exchange gain on short-term investments.

Related Party Transactions

In December 2004, the Company loaned a total of US$971,000 to the four non-controlling shareholders of RMGC, who held an aggregate of 20% of the shares of RMGC, to facilitate a statutory requirement to increase RMGC's total share capital. During 2009 the Company purchased shares held in RMGC by two of its non-controlling shareholders. Upon completion of this transaction, the outstanding indebtedness of the two non-controlling shareholders of $23,000 was deemed to be paid in full.

During 2009, the Company received a formal offer to purchase the shares held in RMGC by two of its non-controlling shareholders (the "Non-Controlling Shareholders"), each of whom owned 23,967 common shares in RMGC representing each 0.23% of its share capital. The Company responded to the offer of the non-controlling shareholders and has purchased 47,934 common shares of RMGC held by the Non-Controlling Shareholders for 222,708 shares of Gabriel and for US$0.8 million in cash. As a result of these transactions, the Company's ownership interest in RMGC increased from 80% to 80.46%.

In 2009, the Company loaned a further US$40 million to the remaining two non-controlling shareholders of RMGC to facilitate another statutory share capital increase in RMGC.

The loans are non-interest bearing and are to be repaid as and when RMGC distributes dividends to its shareholders. The loans and related non-controlling interest contribution have been offset on the balance sheet until such time as the loans are repaid. Once the loans are repaid the non- controlling interest component will be reflected on the balance sheet.

Resettlement Liabilities

For a number of years, the Company has had a program for purchasing homes in the Project area, which was suspended in February 2008 due to the suspension of the EIA review process in September 2007. Under the resettlement program residents were offered two choices. They could either choose to take the sale proceeds and move to a new location of their choosing or they could exchange their properties for a new property to be built by the Company at one of two resettlement sites. For those residents who choose the resettlement option, the Company increases its mineral properties on the balance sheet as well as resettlement liabilities for the anticipated construction costs of the resettlement houses. As the construction takes place, the cost of newly built houses is capitalized as construction in progress. After the transfer of legal title of the property is completed, the Company reduces the amounts capitalized as construction in progress and at the same time its resettlement liabilities. All resettlement associated costs will remain capitalized in mineral properties and amortized over the life of the mine once the Project moves into production.

At September 30, 2010, the Company had accrued resettlement liabilities totaling $4.7 million (December 31, 2009 - $5.4 million), which represents the cost of building the remaining new homes for the local residents and outstanding delay penalties.

The construction of all 125 homes at the Recea resettlement site in Alba Iulia has been completed with 124 homes handed over to their respective owners. The Company is currently reviewing the technical merits for a further resettlement village to be built, as well as the process of obtaining permits for this resettlement site. All 24 property owners who chose to resettle within Rosia Montana have signed a three year extension contract. As a result of the delay in delivery of homes, the Company paid or accrued a penalty of 9% (for Recea) and up to 20% (for new site) of the agreed upon unpaid property value per year of delay as required by the agreement including all amendments.

As at September 30, 2010, the Company has accrued $0.5 million (December 31, 2009 - $0.4 million) representing its total estimated delay penalty. During the three-and-nine-months period ended September 30, 2010, the Company paid $71,000 and $122,000 respectively, of delay penalties (2009 - $0.1 and $0.5 million, respectively).

The acquisition process for private properties is currently on hold pending progress in the permitting process.

Contractual Obligations

The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. Upon granting of the license, the Company committed to spend US$3.2 million over the term of the license. Due to the delay in the Rosia Montana permitting process, the Company has reduced the exploration expenditure for Baisoara to a level required to maintain the license and permit in good standing.

The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services which totalled $9.6 million at September 30, 2010 (December 31, 2009 - $14.7 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

During 2007, the Company entered into purchase agreements for long-lead-time equipment, the cost of which is to be paid over several years beginning 2007. As at September 30, 2010 outstanding commitments under such agreements totaled $1.7 million (December 31, 2009 - $5.1 million). No further long-lead-time equipment orders are expected to be placed until the EIA is approved; however, the reported commitment expressed in Canadian Dollars will fluctuate as obligations are denominated in foreign currencies.

The following is a summary of contractual commitments of the Company including payments due for each of the next five years and thereafter:

2014 and

Total 2010 2011 2012 2013 thereafter

----------------------------------------------------------------------------

Baisoara exploration license 2,690 $ 182 $2,508 $ - $ - $ -

Resettlement 4,628 - 4,628 - - -

Goods and services 9,585 6,735 1,210 1,332 7 301

Long lead time equipment 1,766 1,702 64 - - -

Rosia Montana exploitation

license 1,584 198 198 198 198 792

Surface concession rights 832 5 21 21 21 764

Lease agreements 397 125 272 - - -

----------------------------------------------------------------------------

Total commitments $21,482 $8,947 $8,901 $1,551 $ 226 $ 1,857

----------------------------------------------------------------------------

The following is a summary of the long-lead-time equipment orders and the

payment status:

September 30, December 31,

2010 2009

----------------------------------------------------------------------------

Total purchase agreements:

Grinding area systems $ 42,032 $ 41,731

Crusher facilities 3,961 3,961

Foreign exchange movement 1,647 3,023

----------------------------------------------------------------------------

47,640 48,715

Amount paid to date:

Grinding area systems (40,425) (37,011)

Crusher facilities (3,881) (3,881)

Foreign exchange movement (1,568) (2,676)

----------------------------------------------------------------------------

Outstanding payment obligation $ 1,766 $ 5,147

----------------------------------------------------------------------------

New Accounting Pronouncements

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

The CICA issued three new accounting standards in January 2009: Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements" and Section 1602, "Non- Controlling interests". These new standards will be effective for fiscal years beginning on or after January 1, 2011.

Section 1582, "Business Combinations" replaces section 1581, "Business Combinations", and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to IFRS 3 - Business Combinations. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Sections 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling interests", together replace section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The Company opted to early adopt these standards as at December 31, 2009 and applied Section 1602, "Non-Controlling Interests", in accounting for the purchase of non-controlling interest shares in RMGC. Consequently, the difference between the carrying amount of the non-controlling interest shares and the fair value of the consideration paid was recognized directly in shareholders' equity. The early adoption of Section 1582, "Business Combinations" and Section 1601, "Consolidated Financial Statements", did not have an impact on the Company's consolidated financial statements.

IFRS Changeover Plan Disclosure

The Canadian Accounting Standards Board (AcSB) has announced its decision to replace Canadian generally accepted accounting principles ("GAAP") with International Financial Reporting Standards (IFRS) for all Canadian Publicly Accountable Enterprises (PAEs).

The effective changeover date is January 1, 2011, at which time Canadian GAAP will be replaced by IFRS. Following this timeline, the Company will issue its first set of interim financial statements prepared under IFRS in the first quarter of 2011 including comparative IFRS financial results and an opening balance sheet as at January 1, 2010. The first annual IFRS consolidated financial statements will be prepared for the year ended December 31, 2011 with restated comparatives for the year ended December 31, 2010.

Management has developed a project plan for the conversion to IFRS based on the current nature of operations. The conversion plan is comprised of three phases: IFRS diagnostic assessment, implementation and education, and completion of all integration system and process changes.

Management has completed phase one, IFRS diagnostic assessment, and phase two, implementation and education, and is now advancing through phase three, completion of all integration system and process changes. Management has finalized component evaluation of its existing financial statement line items, comparing Canadian GAAP to the corresponding IFRS guidelines, and identified a number of differences. Many of the differences identified don't have a material impact on the reported results and financial position.

Based on management's evaluation, most of the adjustments required on transition to IFRS will be made retrospectively against opening retained earnings as of the date of the first comparative balance sheet presented based on standards applicable at that time.

IFRS 1, "First-Time Adoption of International Financial Reporting Standards", provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions in certain areas to the general requirement for full retrospective application of IFRS. During the third quarter of 2009, management held an IFRS educational session for the Audit Committee and the Board of Directors which focused on the key issues and transitional choices under IFRS 1.

Set out below are the most significant areas, management has identified to date, where changes in accounting policies are expected to impact the Company's consolidated financial statements based on the accounting policy choices approved by the Audit Committee and Board of Directors. In the period leading up to the changeover in 2011, the AcSB has ongoing projects and intends to issue new accounting standards during the conversion period. As a result, the final impact of IFRS on the Company's consolidated financial statements can only be measured once all the IFRS accounting standards at the conversion date are known. Management will continue to review new standards, as well as the impact of the new accounting standards, between now and the conversion date to ensure all relevant changes are addressed.

Impairment of Assets

Canadian GAAP generally uses a two-step approach to impairment testing: first comparing asset carrying values with undiscounted future cash flows to determine whether impairment exists; and then measuring any impairment by comparing asset carrying values with discounted cash flows. International Accounting Standard (IAS) 36, "Impairment of Assets" uses a one-step approach for both testing and measurement of impairment, with asset carrying values compared directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). This may potentially result in write downs where the carrying value of assets were previously supported under Canadian GAAP on an undiscounted cash flow basis, but could not be supported on a discounted cash flow basis. Management will continue on a regular basis to assess whether or not impairment indicators are present and if the Project assets should be tested for impairment based on criteria established in IAS 36.

Share Based Payments

IFRS and Canadian GAAP largely converge on the accounting treatment for share - based transactions with only a few differences.

Canadian GAAP allows either accelerated or straight line method of amortization for the fair value of stock options under graded vesting. Currently, the Company is using the straight line amortization method. IFRS 2, on the other hand, allows only the accelerated method.

Under IFRS, the estimate for forfeitures must be made when determining the number of equity instruments expected to vest, while under Canadian GAAP forfeitures can be recognized as they occur.

Upon adoption of IFRS 2, the accounting policy will be retrospectively applied to all equity instruments granted after November 7, 2002 that have not vested at January 1, 2010. The Company will change both the method of amortization, which will give rise to an accelerated compensation expense, and the method of forfeiture recognition. As a result the impact of IFRS 2 adoption on the transition date is expected to be approximately $1.5 million, and will impact contributed surplus, accumulated deficit and mineral properties.

Exploration and Evaluation Assets

Under the Company's current accounting policy, acquisition costs of mineral properties, together with direct exploration and development expenses incurred thereon, are capitalized.

Upon adoption of IFRS, the Company has to determine the accounting policy for exploration and evaluation assets. The Company may decide to apply the International Accounting Standards Board ("IASB") Framework, which requires exploration expenditures to be expensed and capitalization of expenditures only after the completion of a feasibility study or disregard the IASB Framework and keep the Company's existing policy, if relevant and reliable. Management decided to fully adopt IFRS 6, "Exploration and Evaluation of Mineral Properties", and apply the IASB framework. As a result, management has analyzed mineral properties and identified $28 million of exploration costs capitalized before the feasibility studies for Rosia Montana and Bucium were completed, as well as all exploration costs related to Baisoara. Once the Company applies the IASB Framework at the transition date, mineral properties are expected to decrease by $28 million together with an increase to accumulated deficit by the same amount reflecting the capitalized exploration costs.

Property, Plant and Equipment

Under IFRS, Property, Plant and Equipment ("PP&E") can be measured at fair value or at cost while under Canadian GAAP, the Company has to carry PP&E on a cost basis and revaluation is prohibited.

Upon adoption of IFRS, the Company has to determine whether to elect a cost model or revaluation model. Management decided to adopt the cost model for both initial recognition and as subsequent accounting policy for all classes of assets. As a result there will be no significant impact on the adoption of IFRS on the Company's financial statements.

In accordance with IAS 16 "Property, Plant and Equipment", the Company needs to allocate an amount initially recognized in respect of an asset to its component parts and account for each component separately when the components have different useful lives or the components provide benefits to the entity in a different pattern. Based on management's evaluation, there is currently no expected impact from the component accounting on earnings. Management expects that once the Company enters commercial production the impact of component accounting will not be significant.

Foreign Currency

IFRS requires that the functional currency of each entity in the consolidated group be determined separately in accordance with IAS 21 and the entity's financial results and position should be measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). Currently the functional currency of the consolidated entity is the Canadian Dollar ("CAD") which is also the presentation currency of the Company's financial statements. As the project progresses and the underlying transactions, events and conditions relevant to the entities change, the Company will re-consider the primary and secondary indicators, as described in IAS 21, in determining the functional currency for each entity. Going forward under IFRS, management expects that the functional currency will change either during construction, after project financing is finalized, or when the Project enters into commercial production. At that time management will assess the appropriate functional currency based on existing circumstances, which may have a significant impact on the Company's consolidated financial statements prepared under IFRS.

Upon adoption of IFRS, all resulting foreign exchange differences from translation of the entities' assets, liabilities and income statement items are expected to be recognized in other comprehensive income as a separate component of equity. There is no expected impact at the transition date as under IFRS 1 the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to IFRS.

During the second quarter of 2010, management determined the expected impact of IFRS adoption at the transition date on the Company's financial statements. In the fourth quarter, management will finalize the opening balance sheet with the required notes disclosure, update internal accounting and business process documentation reflecting the transition to IFRS, and finalize the IT system set up to be able to generate all information required under IFRS. The International Accounting Standards Board will continue to issue new accounting standards during the conversion period and, as a result, the final impact of IFRS on the Company's consolidated financial statements will only be measured once all the IFRS accounting standards applicable at the conversion date are known.

One of the more significant impacts identified to date of adopting IFRS is the expanded presentation and disclosures required. Disclosure requirements under IFRS generally contain more breadth and depth than those required under Canadian GAAP and, therefore, will result in more extensive note references. The Company will continue to assess the level of presentation and disclosures required to its consolidated financial statements.

CEO/CFO Certification

The Company's Chief Executive Officer and Corporate Controller, performing the function of Chief Financial Officer ("CFO"), are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the Company.

The Company's CEO and CFO certify that, as at September 30, 2010, the Company's DC&P have been designed effectively to provide reasonable assurance that material information relating to the Company is made known to them by others, particularly during the period in which the interim filings are being prepared; and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. They also certify that the Company's ICFR have been designed effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

The control framework the Company's CEO and CFO used to design the Company's ICFR is COSO. There is no material weakness relating to the design of ICFR. There is no limitation on scope of design as described in paragraph 5.3 of NI 52-109. There has been no change in the Company's ICFR that occurred during the second quarter 2010 which has materially affected, or is reasonably likely to materially affect, the Company's ICFR.

Outstanding Share Data

The Company's fully diluted share capital as at the report date was:

Outstanding

----------------------------------------------------------------------------

Preferred shares Nil

Common shares 345,702,676

Common stock options 22,003,546

Common stock warrants 30,375,000

Deferred share units - common shares 417,748

----------------------------------------------------------------------------

Fully diluted share capital 398,498,970

----------------------------------------------------------------------------

Proven and Probable Mineral Reserves

The Company maintains an 80.46 percent economic interest in the Project which, at year end 2009, has aggregate proven and probable reserves as follows, modeled using a gold price of US$735 per ounce and a silver price of $11.50:

---------------------------------------

In Situ

Grade (g/t) (Ounces)

-------------------------------------------------------------------------

Reserve Category Tonnes Gold Silver Gold Silver

-------------------------------------------------------------------------

Proven 112,455,000 1.63 9.0 5,893,000 32,540,000

Probable 102,476,000 1.27 4.6 4,184,000 15,156,000

-------------------------------------------------------------------------

Total 214,931,000 1.46 6.9 10,077,000 47,696,000

-------------------------------------------------------------------------

John Marek, P.Eng., is the qualified person responsible for calculating the reserve estimate set forth in the table above.

Forward-Looking Statements

Certain statements included herein, including capital costs estimates, sustaining capital and reclamation estimates, estimated production and total cash costs of production, future ability to finance the Project and other statements that express management's expectations or estimates regarding the timing of completion of various aspects of the Projects' development or of our future performance, constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule", and similar expressions identify forward- looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, the Management's Discussion and Analysis includes many such forward-looking statements and such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements and its forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the worldwide price of precious metals; fluctuations in exchange rates; legislative, political or economic developments including changes to mining and other relevant legislation in Romania; operating or technical difficulties in connection with exploration, development or mining; environmental risks; the speculative nature of gold exploration and development, including the risks of diminishing quantities or grades of reserves; and the Company's requirements for substantial additional funding.

While Gabriel may elect to, Gabriel is under no obligation to and does not undertake to update this information at any particular time, except as required by law.

Gabriel Resources Ltd.

Interim Consolidated Financial Statements

(Unaudited)

For the period ended September 30, 2010

Consolidated Balance Sheets

As at September 30, 2010 and December 31, 2009

(Unaudited and expressed in thousands of Canadian Dollars)

2010 2009

----------------------------------------------------------------------------

Assets

Current Assets

Cash and cash equivalents $ 57,679 $ 116,110

Short-term investments (note 3) 73,604 46,201

Accounts receivable 1,368 1,460

Prepaid expenses and supplies 940 788

----------------------------------------------------------------------------

133,591 164,559

Restricted cash (note 3) 157 126

Capital assets (note 4) 52,974 52,464

Mineral properties (note 5) 467,539 441,545

----------------------------------------------------------------------------

$ 654,261 $ 658,694

----------------------------------------------------------------------------

Liabilities

Current Liabilities

Accounts payable and accrued liabilities $ 5,970 $ 10,402

Resettlement liabilities (note 6) 4,747 5,442

----------------------------------------------------------------------------

10,717 15,844

Other Liabilities (note 7) 1,822 3,908

----------------------------------------------------------------------------

12,539 19,752

----------------------------------------------------------------------------

Shareholders' Equity

Capital stock (note 9) 749,704 733,481

Common share purchase warrants (note 10) 11,393 11,393

Contributed surplus (note 12) 18,254 18,050

Deficit (137,629) (123,982)

----------------------------------------------------------------------------

641,722 638,942

----------------------------------------------------------------------------

$ 654,261 $ 658,694

----------------------------------------------------------------------------

Nature of operations and going concern (note 1)

Non-controlling interest (note 8(a))

Commitments and contingencies (note 17)

The accompanying notes are an integral part of these interim consolidated

financial statements.

Consolidated Statements of Shareholders' Equity

For the nine months ended September 30, 2010 and 2009

(Unaudited and expressed in thousands of Canadian Dollars)

2010 2009

----------------------------------------------------------------------------

Common shares

At January 1 $ 733,481 $ 560,052

Shares issued from a public and private offering

less share issue costs $ - $ 112,557

Shares issued on the exercise of stock options

(note 9) 10,942 3

Shares issued on the redemption of DSUs (note 9) 357 -

Transfer from contributed surplus - exercise of

stock options (note 12) 4,924 1

----------------------------------------------------------------------------

At September 30 749,704 672,613

----------------------------------------------------------------------------

Common share purchase warrants

At September 30 11,393 -

----------------------------------------------------------------------------

Contributed surplus

At January 1 18,050 15,051

Stock-based compensation (note 12) 5,128 4,336

Exercise of stock options (note 12) (4,924) (1)

----------------------------------------------------------------------------

At September 30 18,254 19,386

----------------------------------------------------------------------------

Deficit

At January 1 (123,982) (97,084)

Net loss (13,647) (15,849)

----------------------------------------------------------------------------

At September 30 (137,629) (112,933)

----------------------------------------------------------------------------

Accumulated other comprehensive loss - -

----------------------------------------------------------------------------

Total shareholders' equity at September 30 $ 641,722 $ 579,066

----------------------------------------------------------------------------

The accompanying notes are an integral part of these interim consolidated

financial statements.

Consolidated Statements of (Income) Loss and Comprehensive (Income) Loss

For the three-and-nine-month periods ended September 30, 2010 and 2009

(Unaudited and expressed in thousands of Canadian Dollars and thousands of

shares)

3 months ended 9 months ended

September 30, September 30,

2010 2009 2010 2009

----------------------------------------------------------------------------

Expenses

Corporate, general and

administrative $ 1,489 $ 1,559 $ 5,459 $ 7,769

Stock based compensation (notes 7 &

11) 1,085 946 4,621 4,318

Project financing costs 34 37 499 423

Severance costs - 546 - 1,516

Amortization 49 51 157 175

----------------------------------------------------------------------------

2,657 3,139 10,736 14,201

----------------------------------------------------------------------------

Other expense (income)

Interest (100) (172) (294) (303)

Foreign exchange (gain) loss (10,222) 4,113 10,117 1,947

----------------------------------------------------------------------------

(Income) / Loss before income taxes (7,665) 7,080 20,559 15,845

Income tax expense (recovery) (note

13) (6,916) 2 (6,912) 4

----------------------------------------------------------------------------

(Income) / Loss for the period $(14,581) $ 7,082 $ 13,647 $ 15,849

----------------------------------------------------------------------------

(Income) / Loss per share basic $ (0.04) $ 0.02 $ 0.04 $ 0.06

----------------------------------------------------------------------------

Weighted average number of shares

(000') 342,599 307,257 341,007 276,515

----------------------------------------------------------------------------

(Income) / Loss per share diluted $ (0.04) $ - $ - $ -

----------------------------------------------------------------------------

Fully diluted number of shares

(000') 396,162 - - -

----------------------------------------------------------------------------

The accompanying notes are an integral part of these interim consolidated

financial statements.

Consolidated Statements of Cash Flows

For the three-and-nine-month periods ended September 30, 2010 and 2009

(Unaudited and expressed in thousands of Canadian Dollars)

3 months ended 9 months ended

September 30, September 30,

2010 2009 2010 2009

----------------------------------------------------------------------------

Cash flows from (used in)

operating activities

Income/ (Loss) for the period $ 14,581 $ (7,082) $ (13,647) $ (15,849)

Items not affecting cash

Amortization 49 51 157 175

Stock- based compensation 1,084 946 4,621 4,318

Unrealized foreign exchange loss

(gain) (9,540) 3,696 9,182 662

----------------------------------------------------------------------------

6,174 (2,389) 313 (10,694)

DSU cash settlement (491) (105) (2,118) (105)

Net changes in non-cash working

capital (note 18) (1,221) (110) (1,393) 47

----------------------------------------------------------------------------

4,462 (2,604) (3,198) (10,752)

----------------------------------------------------------------------------

Cash flows from (used in)

investing activities

Decrease (increase) in short-term

investments and restricted cash (46,378) (1,838) (27,434) (54,573)

Development and exploration

expenditures (8,882) (8,747) (24,546) (26,896)

Purchase of capital assets (309) (4,793) (1,822) (21,463)

Net changes in non-cash working

capital (note 18) 4,409 (6,836) (3,483) (7,237)

----------------------------------------------------------------------------

(51,160) (22,214) (57,285) (110,169)

----------------------------------------------------------------------------

Cash flows from (used in)

financing activities

Proceeds from issuance of capital

stock, net of issue costs - (208) - 112,473

Proceeds from the exercise of

stock options 6,321 - 10,942 3

Net changes in non-cash working

capital ( note 18) - (227) - -

----------------------------------------------------------------------------

6,321 (435) 10,942 112,476

----------------------------------------------------------------------------

(Decrease) in cash and cash

equivalents (40,377) (25,253) (49,541) (8,445)

Effect of foreign exchange on cash

and cash equivalents 5,405 (1,428) (8,890) (444)

Cash and cash equivalents -

beginning of period 92,651 90,025 116,110 72,233

----------------------------------------------------------------------------

Cash and cash equivalents - end of

period $ 57,679 $ 63,344 $ 57,679 $ 63,344

----------------------------------------------------------------------------

Supplemental cash flow information (note 18)

The accompanying notes are an integral part of these interim consolidated

financial statements

Notes to Consolidated Financial Statements

For the three-and-nine-month periods ended September 30, 2010 and 2009

(Unaudited - Tabular amounts in thousands of Canadian Dollars, unless otherwise stated)

1. Nature of operations and going concern

Gabriel Resources Ltd. (the "Company") is a Canadian-based resource company engaged in the exploration and development of mineral properties in Romania and is currently in the process of obtaining permits to develop its 80.46%-owned Rosia Montana gold project (the "Project"). Since acquiring the exploitation license the Company has defined a world class orebody. In the last five years the Company has been focused on engineering to design the size and scope of the Project, environmental assessment and permitting, rescue archaeology and surface rights acquisition activities.

The underlying value of the Company's mineral properties is dependent upon the existence and economic recovery of such reserves in the future and the ability of the Company to obtain all necessary permits and raise long-term financing to complete the development of the Project. In addition, the Project may be subject to sovereign risk, including political and economic instability, changes in existing government regulations, for example, a ban on the use of cyanide in mining in Romania or in the European Union, re- designation of the Project area as an archeological site of national importance, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. These risks may adversely affect the Company's investment and may result in the impairment or loss of all or part of the Company's investment.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at September 30, 2010 the Company had no sources of operating cash flows and does not have sufficient cash to fund the development of the Project and therefore will require additional funding which, if not raised, would result in the curtailment of activities and the Project delays.

Once Environmental Impact Assessment ("EIA") approval has been granted, the Company will re-examine financing alternatives with a view to presenting the various options open to the Company to the board of directors. The timeline to build the Project is dependent on a number of factors which include both the permitting and financing processes.

There can be no assurances that the Company's financing plan and permitting will be successful and, as a result, there is significant doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, would be necessary.

2. Basis of presentation and new accounting policies

The accompanying interim consolidated financial statements have been prepared in accordance with Canadian GAAP for the preparation of interim financial information. Accordingly, they do not include all of the information and disclosures required by Canadian GAAP for annual consolidated financial statements. The accounting policies and methods of computation used in the preparation of these unaudited interim consolidated financial statements are the same as those described in the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2009.

In the opinion of management, the accompanying interim consolidated financial statements include all adjustments considered necessary for fair and consistent presentation of financial statements. These interim consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements and notes for the year ended December 31, 2009.

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

The CICA issued three new accounting standards in January 2009: Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements" and Section 1602, "Non-Controlling interests". These new standards will be effective for fiscal years beginning on or after January 1, 2011.

Section 1582, "Business Combinations" replaces section 1581, "Business Combinations", and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to IFRS 3 - Business Combinations. The section applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. Sections 1601, "Consolidated Financial Statements", and 1602, "Non-Controlling interests", together replace section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements and applies to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Section 1602 establishes standards for accounting for non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The Company opted to early adopt these standards as of December 31, 2009 and applied Section 1602, "Non-Controlling Interests", in accounting for the purchase of non-controlling interest shares in RMGC (refer to Note 8). Consequently, the difference between the carrying amount of the non-controlling interest shares and the fair value of the consideration paid was recognized directly in shareholders' equity. The early adoption of Section 1582, "Business Combinations" and Section 1601, "Consolidated Financial Statements", did not have an impact on the Company's consolidated financial statements.

3. Short-term investments and restricted cash

Short-term investments

September 30, December 31,

2010 2009

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Money market investments with maturities from

the date of acquisition of 4 - 12 months $ 73,604 $ 46,201

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Short-term investments held at period end yielded a weighted average

interest rate of 0.38% in 2010 (2009 - 0.67%).

Restricted cash

September 30, December 31,

2010 2009

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Restricted cash (1) $ 157 $ 126

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(1) Restricted cash represents environmental guarantees for future clean up

costs.

4. Capital Assets

September 30, December 31,

2010 2009

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Cost

Office equipment $ 4,011 $ 4,207

Building 1,073 1,082

Vehicles 1,405 1,282

Leasehold improvements 215 215

Construction in progress (1) 50,857 50,249

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57,561 57,035

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Less: Accumulated amortization

Office equipment 3,137 3,122

Building 71 63

Vehicles 1,181 1,207

Leasehold improvements 198 179

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4,587 4,571

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Net book value

Office equipment 874 1,085

Building 1,002 1,019

Vehicles 224 75

Leasehold improvements 17 36

Construction in progress (1) 50,857 50,249

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$ 52,974 $ 52,464

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(1) Amounts included in construction in progress are not subject to

amortization. Construction in progress includes the following amounts:

September 30, December 31,

2010 2009

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Resettlement site development costs $ 1,044 $ 1,951

Long-lead-time equipment 49,813 48,298

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$ 50,857 $ 50,249

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5. Mineral Properties

Rosia Montana Bucium Baisoara Total

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Balance - December 31, 2008 $ 396,239 $ 10,458 $ 387 $ 407,084

Development costs 33,314 - - 33,314

Exploration costs 1,016 1 130 1,147

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Balance - December 31, 2009 430,569 10,459 517 441,545

Development costs (1) 25,463 - 25,463

Exploration costs (1) 435 - 96 531

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Balance - September 30, 2010 $ 456,467 $ 10,459 $ 613 $ 467,539

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(1) Mineral property additions of $25.9 million (2009 - $34.5 million) is

$1.4 million higher than the amount reported in the Consolidated Statements

of Cash Flows of $24.5 million. The difference is attributed to a net

adjustment of resettlement liabilities partially offset by non-cash charges

for stock based compensation and amortization (see details in note 18).

The Company's principal asset is its 80.46% direct ownership interest in a Romanian company, Rosia Montana Gold Corporation ("RMGC"), which has certain rights to two mineral licenses in Romania, being Rosia Montana and Bucium. Minvest S.A. ("Minvest"), a Romanian state-owned mining company, together with one other private Romanian company, hold a 19.54% interest in RMGC, and Gabriel holds the pre-emptive right to acquire the 19.54% minority interest. The Company is obligated to fund 100% of all expenditures related to the exploration and development of these properties and holds a preferential right to recover all funding plus interest (other than on non-interest bearing loans) from future cash flows prior to the minority shareholders receiving dividends. RMGC will be required to pay a 4% net smelter royalty on all production from the Project. In December 2009, in order to replenish the net asset position of RMGC in accordance with the Romanian Fiscal Code, the shareholders of RMGC contributed $216 million into the share capital of RMGC. The share capital increase was accomplished in part by converting $174 million of debt owed by RMGC to the Company into equity. The remaining $42 million was funded through a contribution provided to minority shareholders in the form of a non-interest bearing loan to fund their respective pro-rata contributions.

An exploitation license is held by RMGC as the titleholder in respect of the Project. RMGC has the exclusive right to conduct mining operations at the Project for an initial term of 20 years expiring in 2019, and thereafter with successive five-year renewal periods.

RMGC holds rights to an exploration license over the Bucium property. The license was extended in 2004 and expired on May 19, 2007. The expired exploration license can be converted into an exploitation license upon submission and approval of a feasibility study. During 2007, the Company filed the necessary documentation to convert the exploration license into an exploitation license and the Company is awaiting a response from the authorities on this item. No additional work on the Bucium property is planned until the license is converted from an exploration to an exploitation license and until the Project progresses further.

6. Resettlement liabilities

The acquisition process for private properties is currently on hold pending progress in the permitting process.

7. Other liabilities

Price per

DSU's Common Share

Deferred Share Units ("DSU") (a) (000's) (dollars) Value

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Outstanding - December 31, 2008 1,155 $ 1.52 $ 1,755

Issued 68 2.43 165

Settled (623) 3.39 (2,114)

Change in fair value - - 2,811

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Outstanding - December 31, 2009 600 4.36 2,617

Issued 12 4.82 60

Amortized (1) 45 4.19 187

Settled (551) 4.49 (2,475)

Change in fair value - 234

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Balance - September 30, 2010 106 $ 5.96 $ 623

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Fidelity bonus and other benefits (b)

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Balance accrued - December 31, 2008 $ 1,310

Additions $ 228

Foreign exchange movement (247)

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Balance accrued - December 31, 2009 1,291

Foreign exchange movement (92)

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Balance accrued - September 30, 2010 $ 1,199

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Total Other Liabilities $ 1,822

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1) During the second quarter of 2010 the Company issued 358 thousand DSUs to

the Company's CEO. The expense is amortized over a two year period.

(a) DSUs

The Company implemented a Deferred Share Unit ("DSU") Plan under which qualifying participants receive certain compensation in the form of DSUs in lieu of cash. On retirement or departure from the Company, participants may redeem their DSUs for common shares of the Company, cash, or a combination of common shares and cash. It is at the holder's discretion as to whether they elect to settle the DSU in cash or shares of the Company. If the holder elects to settle the DSU in shares of the Company, the Company, at its sole discretion, can elect to pay the amount in common shares either purchased from the open market, or issued from treasury.

The change in the fair market value of the DSU liability has been recorded in stock based compensation expense except for costs relating to personnel working on projects in Romania, which are capitalized.

3 months ended 9 months ended

September 30, September 30,

Deferred Share Units ("DSUs") 2010 2009 2010 2009

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Expensed (recovered) 336 239 $ 481 $ 760

Capitalized - 22 $ - $ 69

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Initially valued at the five-day weighted average market price of the stock at date of issue, DSUs are revalued each period end based on the closing share price at the period end, with the difference between the fair value of the DSUs at period end compared to the fair value at the end of the previous period. The change in share price of the DSUs at the end of the period is charged to the Statement of Income and Loss.

(b) Fidelity Bonus

Under the Collective Bargaining Agreement between RMGC and its employees, under certain conditions, employees of RMGC are entitled to a bonus equal to one month of average gross salary when celebrating 3, 5, 10, 15, 20, and 25 years of uninterrupted service as well as other benefits related to death benefits and termination of employment. As of September 30, 2010, $1.2 million (December 31, 2009 - $1.3 million) has been accrued for these benefits.

8. Related Party Transactions

The Company had related party transactions, with directors of the Company or associated corporations, which were undertaken in the normal course of operations and were measured at the exchange amounts as follows:

a. In December 2004, the Company loaned a total of US$971 thousand to the

four non-controlling shareholders of RMGC, who held an aggregate of 20%

of the shares of RMGC, to facilitate a statutory requirement to increase

RMGC's total share capital. During 2009 the Company purchased shares

held in RMGC by two of its non-controlling shareholders. Upon completion

of this transaction, the outstanding indebtedness of the two non-

controlling shareholders of $23 thousand was deemed to be paid in full.

b. During 2009, the Company received a formal offer to purchase the shares

held in RMGC by two of its non-controlling shareholders (the "Non-

Controlling Shareholders"), each of whom owned 23,967 common shares in

RMGC representing each 0.23% of its share capital. The Company responded

to the offer of the non-controlling shareholders and purchased 47,934

common shares of RMGC held by the Non-Controlling Shareholders for

222,708 shares of Gabriel and US$0.8 million in cash. As a result of

these transactions, the Company's ownership interest in RMGC increased

from 80% to 80.46%.

c. In 2009, the Company loaned a further US$40 million to the remaining two

non-controlling shareholders of RMGC to facilitate another statutory

share capital increase in RMGC.

The loans are non-interest bearing and are to be repaid as and when RMGC

distributes dividends to its shareholders. The loans and related non-

controlling interest contribution have been offset on the balance sheet

until such time as the loans are repaid. Once the loans are repaid the

non-controlling interest component will be reflected on the balance

sheet.

9. Capital Stock

Authorized

Unlimited number of common shares without par value

Unlimited number of preferred shares, issuable in series, without par value

Number of

Common shares issued and outstanding shares (000's) Amount

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Balance - December 31, 2008 255,449 $560,052

Shares issued from public and private offerings 81,806 172,671

Less: Share issue costs - (4,293)

Shares issued on the exercise of stock options

(note 11) 1,654 3,049

Transfer from contributed surplus - exercise of

stock options (note 12) - 1,399

Shares issued on DSU settlement 68 123

Shares issued on purchase of minority interest

shares 223 480

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Balance - December 31, 2009 339,200 $733,481

Shares issued on the exercise of stock options

(note 11) 5,614 10,942

Shares issued on DSU settlement 74 357

Transfer from contributed surplus - exercise of

stock options (note 12 - 4,924

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Balance - September 30, 2010 344,888 $749,704

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In June 2009 the Company closed a private placement and a public offering financing through the issuance of 51.8 million common shares, including common shares issued under an over-allotment option, for aggregate gross proceeds of approximately $117 million. The share issuance costs related to the public offering and private placement were $4 million.

As a result of the public offering, the Company sold 29.8 million common shares, which includes the exercise in full of the over-allotment option, at $2.25 per common share to a syndicate of underwriters led by Cormark Securities Inc. and RBC Capital Markets as joint bookrunners, and including Canaccord Capital Corporation, for aggregate gross proceeds of $67.1 million.

Pursuant to the private placement, each of Electrum Strategic Holdings LLC and Paulson & Co. Inc., two of Gabriel's significant shareholders, purchased 10.6 million and 11.4 million common shares respectively at a price of $2.25 per common share, for aggregate gross proceeds of $49.5 million.

In December 2009, the Company closed a private placement with BSG Capital Markets PCC Limited, which is part of the Beny Steinmetz Group ("BSG"). Pursuant to the private placement, BSG subscribed for 30 million Units at a subscription price of $2.25 per Unit for gross proceeds to the Company of $67.5 million. The share issuance costs related to the private placement were $0.3 million. Each Unit consists of one common share of the Company and one common share purchase warrant entitling BSG to purchase one additional common share of the Company (see Note 10). The net proceeds of the private placement were allocated between the share capital and share purchase warrants on the basis of their relative fair values. The amount allocated to share capital was $55.8 million while $11.4 million was allocated to share purchase warrants.

10. Share Purchase Warrants

As at September 30, 2010, the following share purchase warrants were issued

and outstanding:

Number of Exercise

Warrants issued to two warrants price Assigned

financial institutions (000's) (dollars) Value Expiry date

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Balance - December 31,

2008 (1) and 2009 1,125 $ 4.88 US$1,500 November 28, 2010

Warrants settled (1) (750) (US$1,000) November 28, 2010

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Balance - September 30,

2010 375 US$500 November 28, 2010

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(1) The assigned value of the warrants vested, being US$1.5 million,

represents their cash settlement value. The Company accrued this amount in

accounts payable and accrued liabilities. It is at the holders' discretion

to settle the warrants in cash or shares of the Company. In March 2010, one

of warrant holders exercised its option to receive a termination fee of US$1

million in respect of the warrants.

Warrants issued to BSG Number of Exercise

Capital Markets PCC warrants price Assigned

Limited (000's) (dollars) Value Expiry date

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Balance - December 31,

2008 - $ - $ -

July 18, 2011 to

$2.50-

Warrants issued (2) 30,000 3.00 $ 11,393 December 18, 2011

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Balance - December 31,

2009 and September 30, July 18, 2011 to

2010 30,000 $ 11,393 December 18, 2011

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(2) The assigned value of warrants represents relative fair value allocated

between the share capital and warrants based on the net proceeds from

private placement with BSG.

During the fourth quarter of 2006, the Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Project. The two institutions were to provide a committed underwriting in an amount up to US$350 million. As a result of the suspension of the EIA review process, the mandate letters terminated during 2008 and 1.125 million warrants vested while 1.5 million warrants were cancelled. Each warrant has a four year term and has an exercise price of $4.88. In March 2010, one of the two financial institutions exercised its option to receive a termination fee of US$1 million in respect of 750,000 warrants, which was fully paid during the first half of 2010.

During 2009, the Company closed a private placement with BSG. Pursuant to the private placement, BSG subscribed for 30 million Units at a subscription price of $2.25 per Unit. Each Unit consists of one common share of Gabriel and one common share purchase warrant entitling BSG to purchase one additional common share of Gabriel at $2.50 per share for 18 months rising to $3.00 per share for the final six months of the two year warrant. The net proceeds of the private placement were allocated between the share capital and share purchase warrants on the basis of their relative fair values. The amount allocated to share capital was $55.8 million while $11.4 million was allocated to share purchase warrants.

11. Stock Options

The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants. The exercise price of the options equals the five-day weighted average closing price prior to the option allotment. The majority of options granted vest over three years and are exercisable over five years from the date of issuance.

The Plan was amended on May 8, 2007 to allow for the maximum number of common shares issuable under the Plan to equal 10% of the issued and outstanding common shares of the Company at any point in time, and that options once exercised would be re-endorsed into the pool of ungranted options.

As at September 30, 2010, 11.7 million options are available for issuance under the Plan (December 31, 2009 - 6.6 million).

As at September 30, 2010, common share stock options held by directors,

officers, employees and consultants are as follows:

Outstanding Exercisable

-------------------------------------- ------------------------

Weighted Weighted Weighted

Range of average average average

exercise Number of exercise remaining Number of exercise

prices options price contractual options price

(dollars) (thousands) (dollars) life (Years) (thousands) (dollars)

-------------------------------------- ------------------------

$ 1.18 -

2.00 11,073 $ 1.76 2.4 4,222 $ 1.74

2.01 - 3.00 4,064 2.53 2.5 3,030 2.54

3.01 - 5.23 7,681 4.46 3.8 2,530 4.38

-------------------------------------- ------------------------

22,818 $ 2.81 2.9 9,782 $ 2.67

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During the year ended December 31, 2009 and the nine-month period ended

September 30, 2010, director, officer, employee and consultants stock

options were granted, exercised, forfeited and cancelled as follows:

Number of Weighted average

options exercise price

(thousands) (dollars)

----------------------------------------------------------------------------

Balance - December 31, 2008 22,514 $ 2.16

Options granted 3,870 3.05

Options forfeited / cancelled (496) 3.54

Options exercised (1,654) 1.84

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Balance - December 31, 2009 24,234 2.29

Options granted 4,250 4.65

Options forfeited / cancelled (52) 3.68

Options exercised (5,614) 1.95

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Balance - September 30, 2010 22,818 $ 2.81

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The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years. For those options which vest on a single date, either on issuance or on meeting milestones (the "measurement date"), the entire fair value of the vesting options is recognized immediately on the measurement date.

The fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.

During the year ended December 31, 2009, the Company granted 3.9 million options. Of the 3.9 million options issued, 2.1 million vest over a three-year period and the remainder vest based on achievement of certain milestones. The fair value of options that vest upon achievement of milestones will be recognized and capitalized as milestones are achieved and the value can be reasonably measured.

The value of the stock options granted in the three-and-nine-month periods ended September 30, 2010 and 2009 was calculated with the following assumptions:

3 months ended 9 months ended

September 30, September 30,

2010 2009 2010 2009

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Weighted average risk-free interest

rate 1.49% - 1.68% 1.49%

Volatility of the expected market

price of share 103% - 103% 100%

Weighted average expected life of 2.6 2.6 2.7

options years - years years

Weighted average cost per option $ 3.00 - $ 2.79 $ 1.12

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As of September 30, 2010, the remaining fair value of outstanding measurable unvested options to be expensed and capitalized is $6.4 million and $4.0 million, respectively. For the three-and-nine-month periods ended September 30, 2010 and 2009, the fair value of stock options expensed and capitalized is as follows:

3 months ended 9 months ended

September 30, September 30,

2010 2009 2010 2009

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Expensed $ 749 $ 707 $ 4,140 $ 3,558

Capitalized $ 395 $ 252 $ 988 $ 778

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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, 2008 $ 15,051

Stock-based compensation 5,403

Exercise of stock options (1,399)

Purchase of minority interest shares (1,005)

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Balance - December 31, 2009 18,050

Stock-based compensation 5,128

Exercise of stock options (4,924)

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Balance - September 30, 2010 $ 18,254

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13. Income Taxes

On September 2, 2010 the Company received the equivalent of $6.9 million from the fiscal authorities in Alba Iulia and Abrud in Romania as a result of the cancelled fiscal assessment. The full recovered amount was recognized in the Statements of Income and Loss.

14. Segmented Information

The Company has one operating segment: the acquisition, exploration and development of precious metal projects located in Romania.

Geographic segmentation of capital assets and mineral properties is as

follows:

September 30, December 31,

2010 2009

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Romania $ 520,244 $ 493,697

Canada 269 312

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Total $ 520,513 $ 494,009

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15. Financial Instruments

The recorded amounts for cash, cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair values based on the short-term nature of those instruments.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

Credit risk

The Company's credit risk is primarily attributable to cash, cash equivalents, and short-term investments that are held in investment accounts with Canadian banks and invested in sovereign debt. The Company has adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by France and Germany with the balance of cash being invested in short-term Term Deposits issued by Canadian banks.

The Company strives to maintain at least 85-90% of its cash, cash equivalents, and short-term investments in sovereign debt.

The Company is exposed to the credit risk of Romanian banks that hold and disburse cash on behalf of its Romanian subsidiaries. The Company manages its Romania bank credit risk by centralizing custody, control and management of its surplus cash resources in Canada at the corporate office and only transferring money to its Romanian subsidiary based on short-term cash requirements, thereby mitigating exposure to Romania banks.

The Company's credit risk is also attributable to value-added taxes receivable. Value-added taxes receivable are collectable from the Romanian government.

Liquidity risk

The Company has sufficient funds as at September 30, 2010 to settle current and long-term liabilities.

Market risk

(a) Interest rate risk

The Company has significant cash balances and no debt. As discussed above in the section entitled "Credit Risk", the Company's policy is to primarily invest excess cash in sovereign guaranteed investments.

With the Company maintaining a short-term investment horizon, typically less than 12 months, for its cash, cash equivalent, and short-term investment balances, it minimizes the risk of interest rate volatility as investments mature and are rolled over.

With a short-term investment horizon and the intent to hold all investments until maturity, the Company is only marginally exposed to capital erosion should interest rates rise and cause its fixed yield investments to devalue.

The Company's primary objective with respect to cash, cash equivalents, and short-term investments is to mitigate credit risk. The Company has elected to forego yield in favour of capital preservation.

(b) Foreign currency risk

The Company's functional currency is the Canadian dollar and its operations expose it to significant fluctuations in foreign exchange rates. The Company has monetary assets and liabilities denominated in Romanian Ron, United States Dollars and European Union Euros, and is therefore, subject to exchange variations against the functional and reporting currency, the Canadian Dollar.

The Company maintains cash, cash equivalents, and short-term investments in the currency of planned expenditures and is therefore susceptible to market volatility as foreign cash balances are revalued to the functional currency of the Company. Therefore, the Company may report significant foreign exchange gains or losses if significant market volatility continues.

Financial Instruments

As at September 30, 2010 and December 31, 2009, the Company's financial instruments consisted of cash and cash equivalents, short-term investments, other current assets, accounts payable and accrued liabilities, and other long-term liabilities. With respect to all of these financial instruments, the Company estimates that their fair values approximate their carrying values at September 30, 2010 and December 31, 2009, respectively.

The following table illustrates the classification of the Company's

financial instruments within the fair value hierarchy as at September 30,

2010 and December 31, 2009:

Financial assets and liabilities as at

September 30, 2010(i)

-----------------------------------------

Level 1 Level 2 Level 3 Total

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Cash $ - $ 8,747 $ - $ 8,747

Cash Equivalents - 48,932 - 48,932

Short-term investments (note 3) - 73,604 - 73,604

Deferred Share Units (note 7) (623) - - (623)

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$ (623) $ 131,283 $ - $ 130,660

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Financial assets and liabilities as at

December 31, 2009(i)

-----------------------------------------

Level 1 Level 2 Level 3 Total

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Cash $ - $ 13,674 $ - $ 13,674

Cash Equivalents - 102,436 - 102,436

Short-term investments (note 3) - 46,201 - 46,201

Deferred Share Units (note 7) (2,617) - - (2,617)

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$ (2,617) $ 162,311 $ - $ 159,694

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(i) at fair value

Sensitivity analysis

The Company has designated its cash, cash equivalents, and short-term investments as held-for-trading, which are measured at fair value. As of September 30, 2010, the carrying amount of the financial instruments equals fair market value. Based on management's knowledge and experience of the financial markets, the Company believes the following movements are "reasonably possible" over a three month period.

-- For a cash and cash equivalents a plus or minus 1% change in earned

interest rates would affect net income from deposits by $0.1 million.

-- For short-term investments a plus or minus 1% change in earned interest

rates would affect net income by $0.2 million.

-- As of September 30, 2010 a plus or minus 1% change in foreign exchange

rates of the Company's significant balances in foreign currencies would

affect net income by $0.3 million.

16. Capital Management

The Company's objective when managing capital is to safeguard its accumulated capital (cash on hand) in order to fund development of its Rosia Montana Project. The Company manages its capital structure and makes adjustments to it based on the level of funds on hand and anticipated future expenditures.

To safeguard capital and to mitigate currency risk, the Company invests its surplus capital in highly liquid, highly rated financial instruments that reflect the currency of the planned expenditure.

17. Commitments and Contingencies

The following is a summary of contractual commitments of the Company including payments due for each of the next five years and thereafter.

2014 and

Total 2010 2011 2012 2013 thereafter

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Baisoara exploration

license (note 5) $ 2,690 $ 182 $ 2,508 $ - $ - $ -

Resettlement (note 6) 4,628 - 4,628 - - -

Goods and services (a) 9,585 6,735 1,210 1,332 7 301

Long lead time equipment

(b) 1,766 1,702 64 - - -

Rosia Montana exploitation

license (c) 1,584 198 198 198 198 792

Surface concession rights

(d) 832 5 21 21 21 764

Lease agreements (e) 397 125 272 - - -

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Total commitments $21,482 $8,947 $ 8,901 $ 1,551 $ 226 $ 1,857

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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 totalled $9.6 million at September 30, 2010 (December 31, 2009 - $14.7 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

(b) During 2007, the Company entered into purchase agreements for long-lead-time equipment, the cost of which is to be paid over several years beginning 2007. The following is a summary of the long-lead- time equipment orders and the payment status:

September 30, December 31,

2010 2009

----------------------------------------------------------------------------

Total purchase agreements:

Grinding area systems $ 42,032 $ 41,731

Crusher facilities 3,961 3,961

Foreign exchange movement 1,647 3,023

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47,640 48,715

Amount paid to date:

Grinding area systems (40,425) (37,011)

Crusher facilities (3,881) (3,881)

Foreign exchange movement (1,568) (2,676)

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Outstanding payment obligation $ 1,766 $ 5,147

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(c) Under the terms of the Company's exploitation mineral license for the Rosia Montana Project, an annual fee is required to be paid to maintain the license in good standing. The current annual fee is approximately $0.2 million. These fees are indexed annually by the Romanian Government and the license has 9 years remaining.

(d) RMGC has approximately 42 years remaining on a concession agreement with the Local Council of Rosia Montana Commune by which it is granted exploitation rights to property located on and around the proposed Cirnic pit for an annual payment of $20,000.

(e) The Company has entered into agreements to lease premises for various periods until May 31, 2011. The annual rent of premises consists of minimum rent plus realty taxes, maintenance and utilities.

The Company has an agreement with a consulting firm to provide financial advisory services in relation to defining and implementing the financing plan for development of the Project. A success fee of up to US$4 million will be payable on execution of definitive credit agreements and/or financing documents for the senior, mezzanine and cost overrun debt facilities for the Project. No amount has been accrued for these services.

In March, 2009 the Company entered into a professional service agreement with an international communications firm providing services in media planning and related activities. The term of the agreement is 3 years from the commencement date of March 1, 2009 until February 29, 2012. The agreed fee consists of annual fee of 450,000 EUR and success fee of 800,000 EUR payable at the end of the 3 -year agreement and upon fulfillment of certain criteria. The Company has paid or accrued 337,000 EUR for the 2010 annual fee as at September 30, 2010.

Notes to Consolidated Financial Statements

For the three-and-nine-month periods ended September 30, 2010 and 2009

(Unaudited - Tabular amounts in thousands of Canadian Dollars, unless

otherwise stated)

18. Supplemental Cash Flow Information

3 months ended 9 months ended

September 30, September 30,

(a) Net changes in non-cash working

capital 2010 2009 2010 2009

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Operating activities:

Accounts receivable, prepaid

expenses and supplies $ (70) $ (102) $ (244) $ (281)

Accounts payable and accrued

liabilities (1,171) (187) (1,171) 1

Unrealized gain on working capital 20 179 22 327

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$ (1,221) $ (110) $ (1,393) $ 47

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Investing activities:

Accounts receivable, prepaid

expenses and supplies $ (709) $ (671) $ 184 $ 2,670

Accounts payable and accrued

liabilities 1,002 (3,719) (3,353) (9,361)

Unrealized gain (loss) on short-

term investments 4,116 (2,446) (314) (546)

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$ 4,409 $ (6,836) $ (3,483) $ (7,237)

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Financing activities:

Accrued share issue costs $ - $ (227) $ - $ -

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(b) Exploration and development

expenditures

Balance sheet change in mineral

properties $ (9,330) $ (6,689) $(25,994) $(21,429)

Reclassification of mineral

properties from construction in

progress - 3,853 - 7,417

Decrease in resettlement

liabilities (139) (6,285) (695) (14,063)

Non-cash depreciation and disposal

capitalized 192 100 1,155 332

Stock based compensation

capitalized 395 274 988 847

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Development and exploration

expenditures per cash flow

statement $ (8,882) $ (8,747) $(24,546) $(26,896)

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comprised of:

Cash $ 8,747 $ 30,691 $ 8,747 $ 30,691

Short- term investments (less than

90 days) - weighted average

interest of 0 .44% (2009 - 0.21%) 48,932 32,653 48,932 32,653

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$ 57,679 $ 63,344 $ 57,679 $ 63,344

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19. Reclassification of Comparative Figures

Certain comparative figures have been reclassified to conform to the current period's presentation.

Contacts:

Gabriel Resources Ltd.

Jonathan Henry

President and Chief Executive Officer

+ 44 7798 801783

Legends
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