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TORONTO,
ONTARIO--(Marketwire - Aug. 5, 2009) - Gabriel Resources Ltd. (TSX:GBU)
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Highlights
"The Company inaugurated the first resettlement site for the Rosia
Montana community during the second quarter. We built all of the
infrastructure and homes using local contractors and a total of 1970
people were directly employed, at one time or another, during the
construction of Recea and many more indirect jobs were created in the
community of Alba Iulia." said Keith Hulley, CEO. "We are
committed to the community and to Romania at large; this is a world
class project and the benefits it will bring to Romania are
significant, not just economically but socially, environmentally, and
culturally."
Financial performance
- Second quarter net loss was $1.8 million, or $0.01 per share. Year-to-date
loss was $8.8 million, or $0.03 per share.
- A total of $18.5 million was spent on our development projects during
the second quarter increasing the year-to-date amount to $34.8 million.
Liquidity and capital resources
- Cash, cash equivalents and short term investments at June 30, 2009
totaled $142.8 million.
- The base budget for 2009 to operate the corporate office, complete
EIA permitting activities, complete construction of Recea (resettlement
site), begin construction of Piatra Alba, and pay final installment
payments for long-lead-time equipment is $85 million of which $38
million remains to be spent over the second half of the year.
- On June 11, 2009, the Company closed a private placement and public
offering financing through the issuance of 51.8 million common shares
at $2.25 for aggregate gross proceeds of approximately Cdn$117 million.
The Company intends to put the net proceeds of the equity raise towards
costs associated with developing the Rosia Montana gold project and for
general corporate purposes.
- Once the EIA is approved, the activity level will increase, including
the acquisition of remaining surface rights, completion of a control
estimate, payment of land use taxes and other payments required to
obtain construction permits and mobilization for construction.
- These additional activities are expected to cost approximately US$70
million, which is over and above the equity raised in the second
quarter. These activities can only commence once additional financing
is raised.
- Management has been advised by its financial advisors that while
financing the Project will be challenging due to the financial crisis,
financing from government agencies and non traditional lenders should
be available even in the current environment because of the economic
and other benefits resulting from the Project.
Financing Plan
- Management began the process of executing on its financing plan
during the first quarter 2009. Based on the initial feedback, management believes
that the financing plan is achievable. However, management can not
advance financing discussions any further until the permitting process
recommences.
- The estimated cost to complete the development of the Rosia Montana
Project - including interest, financing and corporate costs - is US$1
billion, consisting of capital costs of US$876 million and interest,
financing and corporate costs of US$124 million.
- Once completed, the Project is expected to produce approximately
626,000 ounces of gold annually at an average total cash cost of
approximately $272/ounce over first five years.
Rosia Montana Project Development
Political Situation
- A new coalition government was formed on December 22nd 2008,
comprising the Democrat-Liberal Party ("PDL") and the Social
Democrat Party ("PSD"), the two largest parties in the
country. Together the two parties received over 70 percent of the
electoral seats in the new Parliament.
- The country held its elections for the European Parliament in early
June. The results evidenced no significant change in the support for
the various political parties. Political attentions are currently
focused on the Presidential elections anticipated in late 2009.
- The government anti-crisis measures remain a visible policy issue. The
Company continues to draw public and political attention to the
significant economic opportunity its project represents, while
conforming to the highest standards on environment, patrimony and
social matters.
- Since the beginning of the year the Project has received strong
support from members of the local and regional political leadership of
both coalition parties. This support has been manifested through, among
other things, a series of open letters to various Ministers of the
government, including the current Minister of Environment
("MOE"). These open letters have all requested that the
government restart the EIA review process immediately.
- In mid July there were two separate, official government visits made
to Rosia Montana, one by the President of Romania and the other by the
Minister of Culture. Both went on their own agendas, but with a common
theme of gathering information. Though no formal public statements were
made, we are encouraged by their interest in and comments on the
Project.
Environmental/Permitting
- Since the fall of 2007, review of the Project's Environmental Impact
Assessment (the "EIA") has been suspended as a result of a
decision taken by the former MOE. Since that time, management has
worked diligently to advocate in favour of a restart of the EIA review
process and advance the permitting process for the Project.
- Throughout the first two quarters of 2009 management has been focused
on initiating and maintaining dialogue with the various ministries in
the new government with respect to the EIA review process, but can not
predict when the process will restart.
- During the first quarter, the Company received a positive court
ruling compelling the MOE to issue our dam safety permits. Recently,
the reasons for this decision were issued by the Bucharest Court of
Appeal and the MOE exercised its right of appeal to the Supreme Court
of Justice - the first hearing is scheduled for December 2009.
- The Company is moving forward with the amended industrial zonal
urbanistic plan, having completed four public participation meetings
and prepared responses to the questions received from these public
consultations. In addition, the Local Council has initiated the process
for the zonal urbanistic plan for the protected area.
Rosia Montana Project Timeline
- Once the EIA for the Project is approved by the Romanian Government,
in the absence of any other extraordinary events, legal or otherwise,
management and its advisory team anticipates that it would take at
least 6 months to:
-- Complete the purchase of the outstanding properties;
-- Receive all other permits and approvals, including initial
construction permits; and
-- Complete the control estimate and complete the financing.
- Throughout the first two quarters management has been focused on
initiating and maintaining dialogue with the various ministries in the
new government with respect to the EIA review process, but can not
predict when the process will restart.
- The estimated time line could be extended due to the global financial
crisis, as the Company may pursue certain activities sequentially that
had previously been planned to run in parallel.
- Once construction of the mine begins, it is expected to take
approximately 24 months to complete. Ultimately, the Romanian Government
determines the timing of issuance of the EIA approval and all other
permits and approvals required for the Rosia Montana Project, subject
to the Romanian courts dealing with litigation from NGOs in a timely
manner.
Surface Rights
- As a result of the suspension of the EIA review process in September
2007, the home purchase program was suspended indefinitely in February
2008.
- The Company owns 77 percent of the homes in the industrial zone,
protected area and the buffer zone.
- Once we complete the agreements for institutional properties, our
ownership will rise to approximately 85 percent of the three zones of
the Project, further demonstrating strong local support for the
Project.
Resettlement Sites
- Construction of the Alba Iulia resettlement site, known as Recea,
began in summer 2007. Infrastructure was completed during the third
quarter 2008.
- To date, 92 of the 125 homes have been handed over to their
respective owners with the remaining 33 expected to be handed over by
year end, a delay of one quarter over previous guidance. Recent extreme
heavy rainfall delayed completion of the remaining homes and resulted
in some additional work being required to the homes which were already
completed. These repairs and rectifications are expected to be completed
by the fourth quarter.
- The Company is also working to obtain permits for the construction of
Piatra Alba. In the first quarter, the Company was hoping to begin
construction during the fall of 2009. Delays in the permitting process
have changed the expected time to obtaining the construction permit
towards the end of the year and because of the winter, the construction
start up pace is expected to be reduced and delayed.
Archaeology
- The Supreme Court annulled archaeological discharge certificate
number 4 ("ADC 4") in December 2008.
- The Company has reviewed the Court's written reasons for this
decision and intends to apply for a new ADC 4 through a revised
application that it believes will address all deficiencies identified
by the Court. The Company anticipates applying for a new ADC 4 once the
Company sees some positive momentum in the permitting process.
- The Company commissioned two independent audits (from highly regarded
UK based firms), one on archaeology and the other on architecture in
the third quarter of 2008. The overall conclusions of the reports were
positive and at the same time returned some constructive comments which
are currently being acted on and incorporated into the Company's
ongoing program.
CEO Search
- The Company has formed a selection committee and an executive search
firm has been engaged.
About Gabriel
Gabriel is a Canadian-based resource company committed to responsible
mining and sustainable development in the communities in which it
operates. Gabriel is currently engaged in the exploration and
development of mineral properties in Romania and is presently engaged
in the development of its 80% owned Rosia Montana gold project. For
more information please visit the Company's website at www.gabrielresources.com.
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-six-months ended June 30, 2009 and 2008. 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-six-months ended June 30, 2009 and 2008, as well
as the audited Consolidated Financial Statements of the Company as at
and for the year ended December 31, 2008 including notes thereto. The
Company's Consolidated Financial Statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles
("Canadian GAAP").
All amounts included in the MD&A are in Canadian dollars, unless otherwise
specified. This report is dated as of August 4, 2009. Readers are
encouraged to read the Company's Annual Information Form dated March 6,
2009 and the Company's other public filings, which can be viewed on the
SEDAR website (www.sedar.com).
Overview
Gabriel is a Canadian-based resource company committed to responsible
mining and sustainable development in the communities in which it
operates. Gabriel is engaged in the exploration and development of
mineral properties in Romania and is presently developing its 80%-owned
Rosia Montana gold project (the "Project").
Our mission is to create value for all of our stakeholders from
responsible mining. Our vision is to build the Project and to be a
catalyst for sustainable economic, environmental, cultural and
community development. As we develop the world-class Rosia Montana
Project, we will strive to set high standards through good governance,
good 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, we pledge to do it right.
Key Issues
Environmental/Permitting
Since the fall of 2007, review of the Project's Environmental Impact
Assessment (the "EIA") has been suspended as a result of a
decision taken by the former Minister of Environment (MOE). Since that
time, management has worked diligently to advocate in favour of a
restart of the EIA review process and advance the permitting process
for the Project. National elections were held in Romania at the end of
November 2008 and a new coalition government was formed shortly
thereafter. Throughout the first two quarters of 2009 management has
been focused on initiating and maintaining dialogue with the various
ministries in the new government with respect to the EIA review
process, but can not predict when the process will restart.
While the EIA is by far the most important project approval, there are
a number of other permits and approvals required to advance the Project
to construction, such as dam safety permits, zonal urbanistic plans for
the industrial and protected areas, forestry/agriculture, land use
change permits 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. During the first quarter, the Company received a
positive court ruling compelling the MOE to issue our dam safety
permits. Recently, the reasons for this decision were issued by the
Bucharest Court of Appeal and the MOE exercised its right of appeal to
the Supreme Court of Justice. The Company is moving forward with the
amended industrial zonal urbanistic plan, having completed four public
participation meetings and prepared responses to the questions received
from these public consultations. In addition, the Local Council has
initiated the process for the zonal urbanistic plan for the protected
area. The forestry and agricultural land use change permits will
proceed after the EIA has been approved and surface rights obtained. In
the absence of any other extraordinary events, legal or otherwise, we
expect these permitting processes to take at least six months from the
date the EIA is approved by the Romanian government.
Political Situation
Romania held national elections on November 30th, 2008. A new coalition
government was formed on December 22nd, 2008 comprising the
Democrat-Liberal Party ("PDL") and the Social Democrat Party
("PSD"). The process of appointing state secretaries and
other senior government officials was completed in early February 2009.
The new government spent its first three months focused on an
anti-crisis program to mitigate the impact of the financial and
economic crisis, completing the 2009 budget for the country and
negotiating the terms of an aid package worth approximately EUR 20
billion from the International Monetary Fund, the World Bank and the
European Bank for Reconstruction and Development (the "Financial
Aid Package"). On April 11, 2009, the Romanian government revised
its 2009 budget in order to meet the demands of the Financial Aid
Package.
The new coalition government is comprised of the two largest parties in
the country. Together the two parties received over 70 percent of the
electoral seats in the new Parliament. The ministerial portfolios of
the government have been almost evenly divided between the PDL and the
PSD.
The country held its elections for the European Parliament in early
June. The results evidenced no significant change in the support for
the various political parties. Political attentions are currently
focused on the Presidential elections anticipated in late 2009.
The government anti-crisis measures remain a visible policy issue. The
Company continues to draw public and political attention to the
significant economic opportunity its project represents, while
conforming to the highest standards on environment, patrimony and
social matters.
Since the beginning of the year the Project has received strong support
from members of the local and regional political leadership of both
coalition parties. This support has been manifested through, among
other things, a series of open letters to various Ministers of the
government (including the current MOE directly). These open letters
have all requested that the government restart the EIA review process
immediately.
In mid July there were two separate, official government visits made to
Rosia Montana, one by the President of Romania and the other by the
Minister of Culture. Both went on their own agendas, but with a common
theme of gathering information. Though no formal public statements were
made, we are encouraged by their interest in and comments on the
Project.
As reported previously, under the previous government, three "private
member bills" were introduced for consideration by the Romanian
Parliament. Each bill was intended to block the Project, either by
banning the use of cyanide in mining operations, or by creating a
protected status for the area designated for mining. One of the bills
related to the creation of protected areas was voted down and the other
two remain in the Parliamentary Committee process. The sponsors of the
bills are no longer members of Parliament. With a new Parliament in
place, it is not possible to determine when or if any of these bills
will be tabled for consideration and a vote taken in the Chamber of
Deputies. In the ordinary course of any Parliamentary session many
legislative bills are introduced for debate some of which, when passed
in their final form, could have an adverse impact on the Project from
an economic, permitting or operations perspective. At this time the
Company cannot predict what these potential outcomes may be given the
inherent unpredictability of the parliamentary review process, however
the two private members bills mentioned above are the only ones
currently before Parliament which have been expressly proposed to stop
the Project.
Throughout 2009 management has focused on meeting with stakeholders to
understand their issues and concerns and explain the benefits and
impacts of the Project. The strong local and regional support among
politicians is a direct result of our outreach. To further strengthen
our communications efforts, the Company retained an internationally
recognized public relations firm to assist with our ongoing
communications program. Through a multi-tiered and proactive public
communications program that includes both TV and print media amongst
other advocacy initiatives, we expect to improve public understanding
of the pros and cons of this Project. Our communication efforts have
been fact based, focusing on the critically-needed economic benefits
the Project will bring to Romania at a time when the country faces the
impact of the global financial crisis. In addition, we attempt to
demonstrate how modern mining methods and strict standards can help
Romania revitalize its resource sector creating an economic engine for
growth and sustainable development. Through these initiatives, it
appears that the Company is receiving more favourable media coverage.
Litigation
A number of foreign-funded and Romanian NGOs, including the
Hungarian-registered Alburnus Maior, the Soros Foundation Romania
(formerly Open Society Institute/Romania), the Independent Centre for
the Development of Environmental Resources (a "new" NGO
formed in 2007 by the members of Alburnus Maior), Terra Mileniul III
Foundation and the Center for Legal Resources (working in conjunction
with Alburnus Maior), have initiated a multitude of legal challenges
against virtually every local, regional and national Romanian
regulatory authority that has the administrative authority to grant
permits, authorizations and approvals for any aspect of the exploration
and development of the Project. While few of the actions have been
successful and most have been frivolous, they include civil actions
against both the regulatory authorities and individuals within such
regulatory authorities; in general, they claim that such regulatory
authorities are acting in violation of Romanian laws and ask for
cancellation of the license, permit or approval and archeological
discharged certificates. Gabriel, through RMGC, has intervened in all
cases in order to ensure that the Romanian courts considering these
actions are presented with a legally correct, fair and balanced
analysis as to why the various Romanian regulatory authorities' actions
are in accordance with the relevant and applicable laws.
While we have designed the Project to follow all applicable laws to
protect against permitting delays of the Project, multiple legal
challenges brought forward by NGOs in Romania may continue to cause
potential setbacks to the Project timeline.
During the second quarter, the Suceava Court of Appeal dismissed an NGO
case seeking the suspension of Archaeological Discharge Certificate No.
5 ("ADC No. 5"), a decision which remains appealable by the
NGO in question. A separate claim seeking the cancellation of ADC No. 5
remains suspended before the courts since October 2007. Litigation
concerning the Urbanism Certificates ("UC") granted to RMGC
(UC No. 68 granted in 2004, UC No. 78 granted in 2006, and UC No. 105
granted in 2007) continues through the Romanian courts. While UC No.
105 was irrevocably suspended in March of 2009, litigation related to
the cancellation of UC No. 105 and No. 68 remains outstanding. As
previously reported UC No. 78 was annulled by Romanian courts in March
of 2008 No other definitive decisions related to outstanding litigation
files were issued during the quarter.
Subsequent to the end of the quarter, the Bucharest Court of Appeal
issued a decision on the EIA suspension case initiated by RMGC in
November 2007. This decision dismissed RMGC's claim based on a
preliminary ruling on a procedural matter but failed to address the
merits of RMGC's lawsuit. The reasons for this decision have not been
released by the court. The decision is appealable, and once the Company
analyzes the rationale for the decision it will decide its further
actions. Also in July, RMGC was made aware that the Ministry of
Environment filed a final appeal to the Supreme Court of Justice in the
case concerning our dam safety permits and the first hearing is
scheduled for December, 2009.
Surface Rights
As a result of the suspension of the EIA review process in September
2007, the home purchase program was suspended indefinitely in February
2008. 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 35 percent of the surface area of the
Project), which are owned by institutions, including the local
administrations of Rosia Montana and Abrud, as well as certain churches
and state-owned mining companies. The process to acquire the
institutional properties is well underway and expected to be completed
after the approval of the EIA.
Once we complete the agreements for institutional properties, our
ownership will rise to approximately 85 percent of the three zones of
the Project, further demonstrating strong local support for the
Project. Ultimately, the Company's ability to obtain construction
permits for the mine and plant is predicated on securing 100 percent of
the surface rights in the industrial zone, 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. Infrastructure was completed during the third quarter
2008. To date, 92 of the 125 homes have been handed over to their
respective owners with the remaining 33 expected to be handed over by
year end, a delay of one quarter over previous guidance. Recent extreme
heavy rainfall delayed completion of the remaining homes and resulted
in some additional work being required to the homes which were already
complete. These repairs and rectifications are expected to be completed
by the fourth quarter.
The Company is also working to obtain permits for the construction of
Piatra Alba. In the first quarter, the Company was hoping to begin
construction during the fall of 2009. Delays in permitting process have
changed the expected time to obtaining the construction permit towards
the end of the year and because of the winter, the construction start
up pace is expected to be reduced and delayed.
Archaeology
An archaeological review of historic mining activity at Rosia Montana
is a critical step in the granting of the construction permit to build
the Project. An archaeological discharge is required for all of the area
under the footprint of the proposed mine.
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 Supreme Court of Romania in December
2008. The Company has reviewed the Court's written reasons for this
decision and intends to apply for a new ADC 4 through a revised
application that it believes will address all deficiencies identified
by the Court. The Company anticipates applying for a new ADC 4 once the
Company sees some positive momentum in the permitting process.
Archaeological discharge Certificate No. 5 ("ADC 5") has also
been challenged (April 2006) on grounds similar to the challenge of ADC
4, and this matter is currently before the Romanian courts. ADC 5 is a
compilation of the four previously issued discharge certificates and
was obtained for administrative convenience only. The Company has been
advised by its Romanian legal counsel that the annulment of ADC 5 does
not automatically result in the annulment of the underlying discharge
certificates.
The Company commissioned two independent audits (from highly regarded
UK based firms), one on archaeology and the other on architecture. The
archaeological audit report concluded that the "National Research
Programme, set up in response to proposals for the Rosia Montana gold
mine project, represents one of the largest cultural heritage projects
ever undertaken in Romania. The large body of data created will be
invaluable in further understanding of Roman Dacia, and as a basis for
future studies." In addition, the report concluded that the
Project was compliant with the applicable regulatory framework and best
practice. The architectural expert audit, though positive, returned
some constructive comments. The report commented that there was
inadequate attention being paid to the preservation of some peripheral
buildings in the protected area, the majority of which are owned by the
Company, and in some instances inappropriate materials and techniques were
being used in the conservation work. A preservation program is now
underway. A plan for next stage restoration is in final preparatory
stage for review by such experts and repairs, appropriate materials and
techniques for restoration of the buildings (including training of
craftsmen in the necessary skills) are being organized.
CEO Search
The Company has formed a selection committee and an executive search
firm has been engaged to identify a CEO.
Liquidity and Capital Resources
Cash, cash equivalents and short term investments at June 30, 2009
totaled $142.8 million. The base budget for 2009 to operate the
corporate office, complete EIA permitting activities, complete
construction of Recea, begin construction of Piatra Alba, and pay final
installment payments for long-lead-time equipment is $85 million of
which $38 million remains to be spent over the second half of the year.
The majority of expenditures for long-lead-time equipment and the new
resettlement site in Alba Iulia were completed in the first half of the
year.
On June 11, 2009 the Company closed a private placement and public
offering financing through the issuance of 51.8M common shares at $2.25
for aggregate gross proceeds of approximately Cdn$117M. Pursuant to the
private placement, each of Electrum Strategic Holding LLC and Paulson
& Co. Inc increased their percentage ownerships to 19.99% of the
issued and outstanding common shares of the Company.
The Company intends to put the net proceeds of the equity raise towards
costs associated with developing the Rosia Montana gold project and for
general corporate purposes. Sixty-one million dollars is for surface
rights acquisition, which at this time will only advance on EIA
approval. This financing is expected to advance the Project to the point
of receipt of construction permits (subject only to payment of various
taxes).
Once the EIA is approved, our activity level will increase, including
the acquisition of remaining surface rights, completion of a project
cost control estimate, payment of land use taxes and other payments
required to obtain construction permits and mobilization for
construction.
These additional activities are expected to cost approximately US$70
million, which is over and above the equity raised in the second
quarter. These activities can only commence once additional financing
is raised.
Financing Plan
Project finance planning was restarted during third quarter of 2008 in
preparation for financing the Project in 2009. The global financial
crisis has negatively impacted most of the international banking
system, restricting credit and increasing the cost of credit. As a
result, the conventional bank debt market and the high-yield bond
market are both currently restricted; however, there are now signs of
modest improvement. The updated financing plan assumes that neither the
conventional bank debt market nor the bond market will be available in
time to meet the Company's financing needs. Management has been advised
by its financial advisors that while financing the Project will be
challenging due to the financial crisis, financing from government
agencies and non traditional lenders should be available even in the
current environment because of the economic and other benefits
resulting from the Project. Management began the process of executing
on its financing plan during the first two quarters of 2009. Based on
the initial feedback, management believes that the financing plan is
achievable. However, management can not advance financing discussions
any further until the permitting process recommences.
- The estimated cost to complete the development of the Rosia Montana
Project - including interest, financing and corporate costs is US$1
billion, consisting of capital costs of US$876 million and interest,
financing and corporate costs of US$124 million.
- The Company anticipates financing these costs with approximately 25
percent equity - US$250 million of which, the Company raised US$80
million in the second quarter 2009, leaving US$170 million left to be
raised.
- The Company anticipates financing the balance with approximately 75
percent debt - US$750 million, including senior debt, subordinate debt,
by-product off-take agreements, vendor loans and possibly EU grants.
- The estimated capital cost to complete does not include a provision
for (i) a cost overrun facility, (ii) a financial guarantee
(reclamation deposit), (iii) hedging program if required by the banks
and agencies and (iv) initial working capital. These additional items
could add US$200 million to the financing plan.
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 ("TAC") and Espoo Convention
meetings went well during the third quarter of 2007, until TAC meetings
were suspended in September 2007.
Once the EIA for the Project is approved by the Romanian Government, in
the absence of any other extraordinary events, legal or otherwise,
management and its advisory team anticipates that it would take at
least 6 months to:
- Complete the purchase of the outstanding properties;
- Receive all other permits and approvals, including initial
construction permits; and
- Complete the control estimate and complete the financing.
Throughout the first two quarters management has been focused on
initiating and maintaining dialogue with the various ministries in the
new government with respect to the EIA review process, but can not
predict when the process will restart. The estimated time line could be
extended due to the global financial crisis, as the Company may pursue
certain activities sequentially that had previously been planned to run
in parallel.
Once construction of the mine begins, it is expected to take
approximately 24 months to complete. Ultimately, the Romanian
Government determines the timing of issuance of the EIA approval and
all other permits and approvals required for the Rosia Montana Project,
subject to the Romanian courts dealing with litigation from NGOs in a
timely manner.
Outlook
Our key objectives include:
1. Obtaining approval of our EIA and all other required permits, which
require acquisition of all surface rights:
2. Beginning construction of the new resettlement village at Piatra
Alba;
3. Raising the required debt and equity to build the Project;
4. Beginning Project construction; and
5. Maximizing 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 generally accepted
accounting principles:
Results of Operations in thousands of Canadian dollars, except per share amounts 2009 Q2 2009 Q1 2008 Q4 2008 Q3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Statement of Loss (Income) Loss (Income) $ 1,798 $ 6,969 $ (3,958) $ 2,782 Loss (Income) per share - basic and diluted 0.01 0.03 (0.02) 0.01 ---------------------------------------------------------------------------- Balance Sheet Working capital 109,518 7,401 29,172 50,324 Total assets 624,991 522,618 530,135 508,010 ---------------------------------------------------------------------------- Statement of Cash Flows Investments in development and exploration including working capital changes 11,194 11,159 8,171 19,237 Cash flow provided by financing activities 112,908 3 - 82 ---------------------------------------------------------------------------- in thousands of Canadian dollars, except per share amount 2008 Q2 2008 Q1 2007 Q4 2007 Q3 ---------------------------------------------------------------------------- Statement of Loss (Income) Loss (Income) $ 16,241 $ (10,970) $ 7,821 $ 6,785 Loss (Income) per share - basic and diluted 0.06 (0.04) 0.03 0.03 ---------------------------------------------------------------------------- Balance Sheet Working capital 80,513 110,021 118,299 147,157 Total assets 513,965 521,269 507,955 513,490 ---------------------------------------------------------------------------- Statement of Cash Flows Investments in development and exploration including working capital changes 4,375 17,211 24,708 15,448 Cash flow (used in) provided by financing activities 1,015 - - (31) ---------------------------------------------------------------------------- Statement of Loss in thousands of Canadian 3 months ended 6 months ended dollars, except per share June 30, June 30, amounts 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total operating expenses for the period $ 4,344 $ 4,149 $ 11,062 $ 6,633 Loss for the period 1,798 16,241 8,767 5,271 Loss per share - basic and diluted 0.01 0.06 0.03 0.02
Total operating expenses for the second
quarter 2009 remained comparable to the corresponding 2008 period. For
the six-month period ended June 30, 2009, total operating expenses
increased from 2008 primarily due to $4.9 million resulting from
non-recurring retiring allowances and settlement payments, including
the expensing of share-based compensation, for the former CEO and two
employees who departed the Company during the first half of 2009. The
increase is partially offset by the cost savings in most departments
from cost-cutting initiatives.
Loss for the second quarter 2009 decreased from the same period in 2008
mainly due to decrease in income taxes of $10.7 million and a swing of
$4.8 million in foreign currency movement. For the six-months ended
June 30, 2009, the Company reported a higher loss compared to 2008 due
to higher operating expenses of $4.4 million, lower interest income of
$2.2 million, and lower foreign exchange gain of $7.6 million,
partially offset by lower income taxes of $10.7 million.
We expect to incur operating losses until commercial production
commences and revenues are generated.
Expenses
Corporate, General and Administrative 3 months ended 6 months ended in thousands of Canadian June 30, June 30, dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- Finance $ 237 $ 353 $ 434 $ 699 External communications 123 210 288 497 Information technology 124 142 200 271 Legal 192 586 376 703 Payroll 798 684 3,985 1,424 Other 573 376 927 746 ---------------------------------------------------------------------------- Corporate, general and administrative expense $ 2,047 $ 2,351 $ 6,210 $ 4,340 ----------------------------------------------------------------------------
Corporate, general and administrative costs
are those costs incurred by the corporate office in Toronto. Second
quarter 2009 costs were lower than the year earlier second quarter due
to cost savings initiatives. For the six-month period ended June 30, 2009,
a $3.4 million charge for the non-recurring retiring allowance to the
former CEO increased corporate costs overall compared to the same
periods in 2008. Corporate, general and administrative costs are
anticipated to rise once the Rosia Montana Project is permitted and the
Company increases its staffing for construction and operations.
Stock Based Compensation
3 months ended 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- DSUs - expensed (recovered) $ (432) $ 570 $ 521 $ 447 Stock option compensation - expensed 1,462 471 2,851 990 ---------------------------------------------------------------------------- Stock based compensation - expensed $ 1,030 $ 1,041 $ 3,372 $ 1,437 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- DSUs - capitalized (capital reduction) $ (48) $ 60 $ 47 $ 45 Stock option compensation - capitalized 263 282 526 547 ---------------------------------------------------------------------------- Stock based compensation - capitalized $ 215 $ 342 $ 573 $ 592 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- DSU Compensation Number of DSUs issued 22,668 - 36,389 14,793 Average value ascribed to each DSU issued $ 1.93 $ - $ 2.13 $ 1.69
DSU costs for the second quarter 2009
reflect the issuance of 23 thousand units during the period offset by a
decrease in the DSU liability due to a lower share price at quarter end
compared to the Company's share price at the beginning of the period.
For the six-months ended June 30, 2009, DSU costs increased in
comparison to same period 2008. The increase in DSU costs reflects the
issuance of 36 thousand units and the increase in the Company's share
price since the beginning of the period. The Company's closing share
price at the end of the second quarter 2009 was $1.95 per share while
at March 31, 2009 and December 31, 2008 the closing share price was
$2.40 and $1.52 respectively.
Initially valued at the market price of the stock at date of issue,
DSUs are revalued each period based on the closing share price at the
period end, with the difference between the total value of the DSUs at
period end compared to the value at the end of the previous period. If
the share price declines, the lower value of the DSUs is credited
against costs during the period. If the value is higher, the difference
is charged to the Statement of Loss, increasing costs for the period.
Overall, for the three-and-six-month periods ended June 30, 2009, our
share price decreased by $0.45 compared to March 31, 2009 and increased
by $0.43 compared to December 31, 2008, while for the same period in
2008, our share price increased by $1.07 from March 31, 2008 and $0.79
compared to December 31, 2007.
3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 ---------------------------------------------------------------------------- Stock option compensation Number of stock options granted 1,550,000 5,935,000 2,150,000 5,935,000 Average value ascribed to each regular vesting option granted $ 1.08 $ 1.05 $ 1.12 $ 1.05 Options granted to corporate employees, consultants, officers, and directors 1,350,000 1,900,000 1,350,000 1,900,000 Options granted to development project employees and consultants 200,000 4,035,000 800,000 4,035,000
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 a 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.
Of the 1.6 million options issued in the second quarter 2009, 0.6
million vest over a three-year period while the remaining 1.0 million
options vest upon completion of certain milestones. Of the 2.2 million
options issued during the six-months ended June 30, 2009, 0.7 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. As of
June 30, 2009, the amount recognized was $0.4 million.
Project Financing Costs
3 months ended 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Project Financing Costs $ 236 $ 12 $ 386 $ 34
Project financing activities were placed on
hold in the fall of 2007 after the suspension of the permitting process
but resumed in September 2008 in anticipation of the restart of
permitting activities and the requirement to complete the financing.
The higher costs in the three-and-six-month period ended June 30, 2009
reflect the higher activity levels compared to the same periods in
2008.
Project financing activities include advisory services for the various
facilities under our financing plan.
Severance and Termination Costs
Second quarter 2009 costs include the cost settlement paid or accrued
to departed employees.
On December 4, 2007, in light of the suspension of the EIA review
process, the Company announced and enacted plans to scale back
activities.
The Company paid $1.3 million in termination benefits in 2008. The
remaining balance of $0.8 million was paid in full during the second
quarter 2009.
Interest Income
3 months ended 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Interest Income $ 67 $ 991 $ 131 $ 2,334
Lower interest income in the
three-and-six-month period ended June 30, 2009 compared to the same
periods in 2008 is the result of lower average cash balances and
substantially lower interest rates. During 2008 and 2009 the Company's
cash balances declined due to ongoing resettlement site development
costs, installment payments made under our long-lead-time equipment
orders and corporate and Romanian overhead costs. Over the course of
2008, the global financial crisis led to a dramatic decline in interest
rates for government securities in each currency the Company holds.
As of June 30, 2009, the average yield to maturity on the Company's
cash, cash equivalents, and short-term investments was 0.59% versus
3.1% as of June 30, 2008.
With the current global financial crisis, the Company is focused on
capital preservation 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 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Foreign exchange gain (loss) - realized $ (759) $ 3,752 $ (868) $ 4,168 Foreign exchange gain (loss) - unrealized 3,240 (6,115) 3,034 5,580 ---------------------------------------------------------------------------- Total foreign exchange gain (loss) $ 2,481 $ (2,363) $ 2,166 $ 9,748 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
During the second quarter 2009, we
converted the majority of the cash raised from a private and a public
offering to foreign currencies to match anticipated foreign denominated
expenditures. Since the purchase of foreign currencies, the Canadian
dollar weakened relative to the foreign currencies acquired, resulting
in unrealized foreign exchange gains for the three-and-six-month
periods ended June 30, 2009. For the second quarter 2008, both the US
dollar and the Euro weakened against the Canadian dollar, resulting in
foreign exchange losses, while for the six-months ended June 30, 2008,
the US dollar and the Euro strengthened against the Canadian dollar,
resulting in foreign exchange gains for the six-month period.
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.
We would expect to continue to report foreign currency gains and losses
as we continue to hold foreign currencies.
Taxes
During the first quarter of 2008, the Company received a tax assessment
for $4.8 million related to a Romanian tax audit completed during the
first quarter of 2008. The Company, having accrued in 2006 its then
estimated tax liability, accrued an additional $3.7 million in respect
of the assessment, which arose from the disallowance of the application
of state tax incentives related to unrealized foreign exchange gains on
inter-company debt.
On June 24, 2008, the Company received a tax assessment for $9.8
million related to another tax audit, for the years 2003 and 2004,
initiated and completed during the second quarter of 2008. This
assessment also arose from the disallowance of the application of state
tax incentives related to unrealized foreign exchange gains on
inter-company debt.
All tax assessments have been paid and provided for in the 2007 and
2008 financial statements. Based on the advice of its professional tax
advisors, the Company believes that the tax authorities have misapplied
the legislation and we are vigorously contesting the State's position
through the courts.
Investing Activities
The most significant ongoing investing activities are for our Rosia
Montana development project in Romania. Most of the expenditures to
date have been for identifying and defining the size of the four ore
bodies, for engineering to design the size and scope of the Project,
for environmental assessment and permitting, as well as surface
rights/property acquisition. Once we receive our construction permit, the
nature and magnitude of the expenditures will increase as we build
roads, production facilities, open pits, tailings management facilities
and associated infrastructure.
Mineral Properties
We capitalize all costs incurred in Romania related to our development
and exploration projects - Rosia Montana, Bucium and Baisoara - to
mineral properties.
Listed below is a summary of expenditures at Rosia Montana for the
three-and-six months ended June 30, 2009 and 2008.
3 months ended 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Finance and administration $ (1,436) $ 3,007 $ 1,173 $ 6,688 External communications 3,875 1,360 5,087 2,402 Legal 1,205 1,239 2,396 1,887 Permitting 616 594 1,371 1,250 Community development 225 3,158 1,374 12,237 Project management and engineering 1,373 2,128 2,903 4,654 Exploration - Rosia Montana 178 111 350 214 Exploration - Bucium - 41 - 82 Exploration - Baisoara 51 52 86 92 Capitalized depreciation net of disposals (101) (130) (232) (261) Capitalized stock based compensation (215) (342) (573) (592) Reclassification to mineral properties (3,564) - (3,564) (25) Decrease (increase) in resettlement liabilities 8,631 (750) 7,778 (4,320) ---------------------------------------------------------------------------- Total exploration and development expenditures $ 10,838 $ 10,468 $ 18,149 $ 24,308 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
During the three-and-six-months ended June
30, 2009, finance and administration costs decreased compared to the
corresponding 2008 period primarily due to foreign exchange gains on
trade payables and a decrease in resettlement obligations. During the
three-and-six months ended June 30, 2009, both the US dollar and the
Euro strengthened against the Canadian dollar resulting in foreign
exchange gains capitalized by the Romanian subsidiary. As at June 30,
2009 and 2008, the Company's Romanian subsidiary had outstanding
foreign denominated liabilities for long-lead equipment and
resettlement obligations.
External communications costs increased for the three-and-six-months
ended June 30, 2009 compared to the same periods last year mainly due
to the media campaign initiated in the second quarter 2009. In the
first half of 2009 the Company entered into a professional service
agreement with an international communication firm. The term of the
agreement is 3 years from the commencement date of March 1, 2009 until
February 29, 2012. The agreed fee comprises of annual fee and success
fee payable at the end of 3 years agreement upon fulfillment of certain
criteria.
Community development costs decreased for the three-and-six-months
ended June 30, 2009 compared to the same periods in 2008 due to the
hand-over of houses to property owners. When the legal title of the
resettlement properties are transferred to property owners, the Company
reduces its resettlement liabilities and corresponding assets
(resettlement houses) recorded as mineral properties. The reduction in
community development costs is also due to suspension of the surface
rights acquisition program in February 2008.
The base budget for 2009, approved by the Company's board of directors,
includes only those expenditures and commitments to maintain the value
of our investment in mineral properties and capital assets and to move
the Project through EIA approval. Our updated budget for 2009 for
mineral properties and capital assets totaled $72 million, consisting
of $31 million for the final installment payments for long-lead
equipment, transportation and storage costs, $10 million to complete
Recea resettlement site and begin construction of Piatra Alba, with the
balance of $31 million for engineering and Romanian overhead costs
(which includes the cost to maintain the Company's mining license). As
at June 30, 2009 the Company spent $36 million within the budget with
another $36 million to be spent during the second half of the year.
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 Rosia Montana Project
is made.
Purchase of Capital Assets
3 months ended 6 months ended June 30, June 30, in thousands of Canadian dollars 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Resettlement site development costs $ 2,620 $ 2,368 $ 4,738 $ 3,681 Investment in long-lead-time equipment 5,081 1,041 11,889 1,902 Other 13 43 43 63 ---------------------------------------------------------------------------- Total investment in capital assets $ 7,714 $ 3,452 $ 16,670 $ 5,646 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Depreciation and disposal - expensed $ 61 $ 77 $ 124 $ 154 Depreciation and disposal - capitalized to mineral properties $ 101 $ 130 $ 232 $ 261
As at June 30, 2009, all houses in the
Recea resettlement site in Alba Iulia were under construction out of
which 92 houses have been handed over to the property owners and 33
houses were in the process of being handed over to the property owners
in the fourth quarter.
We continue to make the installment payments for long-lead-time mill
equipment orders which are proceeding, subject to satisfying our
quality assurance criteria. The Company expects to make $10.1 million
in long-lead-time equipment payments in the remainder of 2009 and $1.7
million in 2010 at which point we would have made all payments for the
long-lead equipment and own the mill equipment outright. The plan is to
transport and store completed equipment at central locations.
Cash Flow Statement
Liquidity and Capital Resources
Our only sources of liquidity until we receive our environmental
permits for Rosia Montana are our cash balance, bridge financing,
exercise of stock options outstanding, and the equity markets. We
updated the estimated cost to completion for construction of the
Project in first quarter 2009 to US$876 million, excluding working
capital and sunk costs of approximately US$90 million for surface
rights, $13 million for engineering and project management and US$44
million for long-lead-time mill equipment. Our updated cost estimate
also reflects higher operating costs but these are more than offset by
expected higher gold prices which result in improved cash margins and
therefore project returns and faster payback. The estimated total cash
cost(1) to produce gold over the first five years is estimated at
US$272 per ounce and is expected to average US$335 per ounce over the
life of the Project.
To complete the development of the Project, the Company will need
additional external financing of approximately US$1 billion, to fund
capital costs of US$876 million and interest, financing and corporate
costs of US$124 million, comprised of an estimated debt (approximately
75%) and equity (approximately 25%) financing. The ability to develop
Rosia Montana hinges on our ability to raise the necessary financing
for construction. If we were unable to raise the required funds, we
would seek strategic alternatives to move the Project toward
development.
Having restarted project financing planning during the third quarter
2008, management has developed a financing plan that assumes neither
the conventional bank debt market nor the bond market will be available
in time to meet the Company's financing needs. Management has been
advised by its financial advisors that while financing the Project will
be challenging due to the financial crisis, financing from government
agencies and non traditional lenders should be available even in the
current environment because of the economic and other benefits
resulting from the Project.
On June 11, 2009 the Company closed a private placement and a public
offering financing through the issuance of 51.8 million common shares
for aggregate gross proceeds of approximately $116.6 million.
As at June 30, 2009, we had cash, cash equivalents, and short-term
investments of $142.8 million compared to $72.2 million at December 31,
2008. Substantially all of these amounts are invested in government
guaranteed investments.
For mineral properties and capital assets, the 2009 updated budgeted
expenditure totals $72 million and includes expenditures and
commitments to maintain the value of our investment in mineral
properties and capital assets, and to move the Project through EIA
approval. Budgeted corporate expenditures for 2009 are expected to
total $13 million resulting in a total spend of $85 million for 2009.
Once the EIA is approved, the activity level will increase, including
completing the acquisition of remaining surface rights, development of
a control estimate, payment of land use taxes and other payments
required to obtain construction permits and mobilization for
construction. These additional activities are expected to cost
approximately US$70 million which is over and above the equity raised
in the second quarter. These activities can only commence once
additional financing is raised.
The Company manages its foreign currency risks through matching its
expected foreign denominated expenditures with foreign currency
investments. The Company has not entered into any derivatives hedging
activities. The Company maintains Canadian dollar investments to fund
corporate costs while most investments are denominated in either US
dollars or Euros to match planned foreign currency expenditures. The
Company incurs foreign currency gains and losses on those foreign
denominated investments as the currencies move against each other.
Accordingly, the Company will continue to experience foreign exchange
gains and losses as long as it maintains foreign currency investments.
(1) Total cash cost is a non-GAAP financial measure. Total cash costs
represent all costs absorbed into inventory, plus royalties and
production taxes, less by-product revenues and exclude amortization and
accretion.
Based on management's knowledge and experience of the financial
markets, the Company believes the following movements are
"reasonably possible" over a "typical" three month
period. The current global financial crisis has resulted in dramatic
interest rate, commodity and currency volatility. The Company does not
view these market conditions as "typical" and therefore the
effect of interest rate changes and currency valuation changes on net
income may be more dramatic than deemed "reasonably
possible". Nonetheless, the Company has taken steps to reduce its
risks as discussed above.
- Cash and cash equivalents include deposits which are at floating
interest rates. A plus or minus 1% change in earned interest rates
would affect net income from deposits by $0.2 million.
- For short-term investments a plus or minus 1% change in earned
interest rates would affect net income by $0.1 million.
- The Company holds significant balances in foreign currencies, and
this gives rise to exposure to foreign exchange risk. A plus or minus
1% change in foreign exchange rates would affect net income by $1.2
million.
The Company's objective when managing capital is to safeguard its
accumulated capital in order to fund development of its Rosia Montana
Project. The Company manages its capital structure and makes adjustments
to it based on the level of funds on hand and anticipated future
expenditures. While the Company expects that it will be able to obtain
equity, long-term debt and/or project-based financing sufficient to
build and operate the Rosia Montana Project, there are no assurances
that these initiatives will be successful. To safeguard capital and to
mitigate currency risk, the Company invests its surplus capital in
highly liquid, highly rated financial instruments that reflect the
currency of the planned expenditure.
Working Capital
As at June 30, 2009, we had working capital of $109.5 million versus
$29.2 million as at December 31, 2008. The working capital increased
mainly as a result of the equity financing completed in the second
quarter with net proceeds of $113 million.
As at June 30, 2009, we had current liabilities of $36.1 million of
which $22.4 million relates to our resettlement obligations stemming
from the acquisition of homes in the Project area. The majority of the
resettlement homes for the Recea resettlement site are expected to be
completed during the third quarter of 2009. As a result of delay in
finishing the construction due to the recent extreme rainfall, the
process of title and utility transfer are expected to be completed in
the fourth quarter. Our current obligation will then decrease as the
handover process unfolds, thereby increasing our working capital
balance.
Net Change in Non-Cash Working Capital
Operating non-cash working capital decreased for the three-months ended
June 30, 2009 compared to the same period in 2008 due to a decrease in
payables and accrued liabilities.
The decrease in investing non-cash working capital for the three-months
ended June 30, 2009 compared to the same period in 2008 is primarily
due to unrealized foreign exchange gain on short-term investments. For
the six-months ended June 30, 2009, the decrease in investing non-cash
working capital is caused by a decrease in accounts payable and accrued
liabilities, foreign exchange gain on short-term investments, partially
offset by the collection of $3 million VAT receivable from the Romanian
government.
Related Party Transactions
For the three-and-six-month period ended June 30, 2009, the Company
paid $Nil (2008 - $6 thousand) to a director of the Company for consultation
services provided to the Company.
In December 2004, the Company loaned a total of US$971 thousand to the
four minority shareholders, who hold an aggregate of 20 percent of the
shares of RMGC, to facilitate a statutory requirement to increase RMGC's
total share capital. The loans are non-interest bearing and are to be
repaid as and when RMGC distributes dividends to its shareholders.
The loans and related minority interest contribution have been offset
on the balance sheet until such time as the loans are repaid. Once the
loans are repaid the minority interest component will be reflected on
the balance sheet.
Resettlement Liabilities
During the fourth quarter of 2006, the Company recommenced purchasing
homes in the Project area. Residents had two choices. They could either
choose to take the sale proceeds and move to a new location of their
choosing or they could exchange their properties for a new property to
be built by the Company at one of the two new resettlement sites. At
June 30, 2009, the Company had accrued resettlement liabilities
totaling $22.4 million (December 31, 2008 - $30.2 million), which
represents the cost of building the new homes for the local residents
and delay penalties.
Under the original contracts, the Company was required to deliver homes
by August 1, 2008, a date which was not met. As a result, the Company
either signed extension agreements or will deliver the new homes within
the penalty period for the 125 residents who chose the Recea
resettlement site option in Alba Iulia. All 24 property owners who
chose the Piatra Alba resettlement site have signed a three year
extension contract. As a result of the delay in delivery of homes, the
Company is accruing a penalty of 9% (for Recea) and up to 20% (for
Piatra Alba) of the agreed upon unpaid property value per year of delay
as required by the agreement including all amendments.
As at June 30, 2009, the Company has accrued $0.8 million (December 31,
2008 - $1.2 million) representing its total estimated delay penalty.
During the three-and-six-month period ended June 30, 2009, the Company
paid $0.3 and $0.4 million respectively of delay penalties (2008 -
$Nil).
Contractual Obligations
The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom
Aur"), holds an exploration license with respect to the Baisoara
property in Western Romania. The license is for an initial term of 5
years and expires in July 2011. The Company is obligated to spend
US$3.2 million over the term of the license. Field work commenced in
the fourth quarter of 2006, and a total of $473 thousand has been spent
through June 30, 2009. In 2008, due to the delay in the Rosia Montana
permitting process, the Company 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 arms-length
agreements with third parties who provide a wide range of goods and
services which totaled $16.7 million at June 30, 2009 (December 31,
2008 - $6.6 million). Typically, the service agreements are for a term
of not more than one year and permit either party to terminate for
convenience on notice periods ranging from 15 to 90 days. Upon
termination, the Company has to pay for services rendered and costs
incurred to the date of termination.
During 2007, the Company entered into purchase agreements for
long-lead-time equipment, the cost of which is to be paid over three
years beginning 2007. As at June 30, 2009 outstanding commitments under
such agreements totaled $11.8 million (December 31, 2008 - $27.7
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:
2013 and Total 2009 2010 2011 2012 thereafter ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Baisoara exploration license $ 3,217 $ 32 $ 736 $ 1,509 $ 940 $ - Resettlement 22,430 22,430 - - - - Goods and services 16,685 12,228 2,044 741 1,311 361 Long lead time equipment 11,827 10,131 1,696 - - - Rosia Montana exploitation license 2,321 232 232 232 232 1,393 Surface concession rights 957 12 23 23 23 876 Lease agreements 1,099 264 546 289 - - ---------------------------------------------------------------------------- Total commitments $ 58,536 $ 45,329 $ 5,277 $ 2,794 $ 2,506 $ 2,630 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The following is a summary of the
long-lead-time equipment orders and the payment status:
June 30, December 31, 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total purchase agreements: Grinding area systems $ 41,266 $ 41,237 Crusher facilities 3,962 3,923 Foreign exchange movement 7,157 9,681 ---------------------------------------------------------------------------- 52,385 54,841 Amount paid to date: Grinding area systems (32,563) (20,436) Crusher facilities (2,558) (1,896) Foreign exchange movement (5,437) (4,769) ---------------------------------------------------------------------------- Outstanding payment obligation $ 11,827 $ 27,740 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
New Accounting Pronouncements
Goodwill and Intangible Assets
The Canadian Institute of Chartered Accountants ("CICA")
issued accounting standard Section 3064 - Goodwill and Intangible
Assets which replaces Section 3062 - Goodwill and Other Intangible
Assets, Section 3450 - Research and Development and EIC27 - Revenues
and Expenditures during the Pre-operating Period. The new standard
provides guidance on the recognition, measurement, presentation and
disclosure of goodwill and intangible assets. This standard is
effective for interim and annual financial statements for fiscal years
beginning on or after October 1, 2008. The adoption of this standard
has no impact on the Company's financial statements.
Mining Exploration Costs
On March 27, 2009, the Emerging Issues Committee of the CICA approved
an abstract EIC-174, "Mining Exploration Costs", which
provides guidance on capitalization of exploration costs related to
mining properties in particular, and on impairment of long-lived assets
in general. The Company has applied this new abstract for the year
ended December 31, 2008 and there was no impact on its financial
statements as a result of applying this abstract.
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. The
Company evaluated the requirements of the new standards with no impact
on its financial statements.
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. It is equivalent to the corresponding provisions
of IFRS International Accounting Standard 27 - Consolidated and
Separate Financial Statements and applies to interim and annual
consolidated financial statements relating to fiscal years beginning on
or after January 1, 2011.
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 cease to apply for Gabriel Resources Ltd. and 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, with one period of comparative information
also compiled under IFRS.
Management has developed a project plan for the conversion to IFRS
based on our 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. The Project is progressing as planned. Management has
finalized phase one, IFRS diagnostic assessment, which includes
preliminary Canadian GAAP and IFRS comparison on key accounting issues
applicable to the Company and we have entered the early education phase
of our plan.
Due to anticipated changes in International Accounting Standards prior
to our transition to IFRS, we are not in a position to determine the
impact on our financial results. The most significant impact identified
to date 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.
CEO/CFO Certification
The Company's Chief Executive Officer and Chief Financial Officer 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.
Our CEO and CFO certify that, as at June 30, 2009, 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 the Canadian GAAP.
The control framework the Company's CEO and CFO used to design the
Company's ICFR is COSO.
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 first quarter 2009 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 307,257,323 Common stock options 24,125,945 Common stock warrants 1,125,000 Deferred share units - common shares 1,145,971 ---------------------------------------------------------------------------- Fully diluted share capital 333,654,239 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Proven and Probable Mineral Reserves
The Company maintains an 80 percent economic interest in the Rosia
Montana Project which, at year end 2008, has aggregate proven and
probable reserves as follows, calculated using a gold price of $735 per
ounce:
--------------------------------------------- Grade (g/t) In Situ (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 June 30, 2009 Consolidated Balance Sheets As at June 30, 2009 and December 31, 2008 (Unaudited and expressed in thousands of Canadian dollars) 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 90,025 $ 72,233 Short-term investments (note 3) 52,752 - Accounts receivable 2,131 5,221 Prepaid expenses and supplies 697 769 --------------------------------------------------------------------------- 145,605 78,223 Restricted cash (note 3) 137 153 Capital assets (note 4) 57,425 44,675 Mineral properties (note 5) 421,824 407,084 --------------------------------------------------------------------------- $ 624,991 $ 530,135 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Liabilities Current Liabilities Accounts payable and accrued liabilities $ 13,657 $ 18,843 Resettlement liabilities (note 6) 22,430 30,208 --------------------------------------------------------------------------- 36,087 49,051 Other Liabilities (note 7) 3,508 3,065 --------------------------------------------------------------------------- 39,595 52,116 --------------------------------------------------------------------------- Shareholders' Equity Capital stock (note 9) 672,820 560,052 Contributed surplus (note 12) 18,427 15,051 Deficit (105,851) (97,084) --------------------------------------------------------------------------- 585,396 478,019 --------------------------------------------------------------------------- $ 624,991 $ 530,135 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Nature of operations and going concern (note 1) Minority interest (note 8(b)) Commitments and contingencies (note 17) The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Loss and Deficit For the three-and-six-month periods ended June 30, 2009 and 2008 (Unaudited and expressed in thousands of Canadian dollars, except per share data) 3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Expenses Corporate, general and administrative $ 2,047 $ 2,351 $ 6,210 $ 4,340 Stock based compensation (note 7 & 11) 1,030 1,041 3,372 1,437 Project financing costs 236 12 386 34 Severance costs (note 7(c)) 970 668 970 668 Amortization 61 77 124 154 --------------------------------------------------------------------------- 4,344 4,149 11,062 6,633 --------------------------------------------------------------------------- Other (income) expense Interest (67) (991) (131) (2,334) Foreign exchange (gain) loss (2,481) 2,363 (2,166) (9,748) --------------------------------------------------------------------------- Loss (income) before income taxes 1,796 5,521 8,765 (5,449) Income tax expense (note 13) 2 10,720 2 10,720 --------------------------------------------------------------------------- Loss for the period 1,798 16,241 8,767 5,271 Deficit - beginning of period 104,053 82,019 97,084 92,989 --------------------------------------------------------------------------- Deficit - end of period $ 105,851 $ 98,260 $ 105,851 $ 98,260 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Loss per share (basic and diluted) $ 0.01 $ 0.06 $ 0.03 $ 0.02 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Weighted average number of shares 266,267,772 254,958,552 262,300,192 254,928,519 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Consolidated Statements of Comprehensive Loss For the three-and-six-month periods ended June 30, 2009 and 2008 (Unaudited and expressed in thousands of Canadian dollars) 3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Loss for the period $ 1,798 $ 16,241 $ 8,767 $ 5,271 Other comprehensive loss - - - - --------------------------------------------------------------------------- Comprehensive loss $ 1,798 $ 16,241 $ 8,767 $ 5,271 --------------------------------------------------------------------------- --------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Cash Flows For the three-and-six-month periods ended June 30, 2009 and 2008 (Unaudited and expressed in thousands of Canadian dollars) 3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Cash flows from (used in) operating activities Loss for the period $ (1,798) $ (16,241) $ (8,767) $ (5,271) Items not affecting cash Amortization 61 77 124 154 Stock-based compensation 1,030 1,041 3,372 1,437 Unrealized foreign exchange loss (gain) on cash and cash equivalents (1,113) 5,718 (984) (5,595) --------------------------------------------------------------------------- (1,820) (9,405) (6,255) (9,275) DSU cash settlement - - - (52) Net changes in non-cash working capital (note 18) (2,737) (188) (139) (780) --------------------------------------------------------------------------- (4,557) (9,593) (6,394) (10,107) --------------------------------------------------------------------------- Cash flows provided by (used in) investing activities Decrease (increase) in short-term investments (52,751) 10,157 (52,736) (23) Development and exploration expenditures (10,838) (10,468) (18,149) (24,308) Purchase of capital assets (7,714) (3,452) (16,670) (5,646) Net changes in non-cash working capital (note 18) (356) 6,093 (4,204) 2,723 --------------------------------------------------------------------------- (71,659) 2,330 (91,759) (27,254) --------------------------------------------------------------------------- Cash flows from (used in) financing activities Proceeds from issuance of capital stock, net of issue costs 112,681 - 112,681 - Proceeds from the exercise of stock options - 1,127 3 1,127 Net changes in non-cash working capital (note 18) 227 (112) 227 (112) --------------------------------------------------------------------------- 112,908 1,015 112,911 1,015 --------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 36,692 (6,248) 14,758 (36,346) Effect of foreign exchange on cash, cash equivalents, and non-cash working capital 3,240 (6,114) 3,034 5,580 Cash and cash equivalents - beginning of period 50,093 128,840 72,233 147,244 --------------------------------------------------------------------------- Cash and cash equivalents - end of period $ 90,025 $ 116,478 $ 90,025 $ 116,478 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Supplemental cash flow information (note 18) The accompanying notes are an integral part of these consolidated financial statements
1. Nature of operations and going concern
Gabriel Resources Ltd. (the "Company") is a Canadian-based
resource company engaged in the exploration and development of mineral
properties in Romania and is presently developing its 80%-owned Rosia
Montana gold project (the "Project"). Since acquiring the
exploitation license, the Company has been focused on identifying and
defining the size of the four ore bodies, engineering to design the
size and scope of the Project, environmental assessment and permitting,
rescue archaeology and surface rights acquisitions.
The underlying value of the Company's mineral properties is dependent
upon the existence and economic recovery of such reserves in the future
and the ability of the Company to obtain all necessary permits and
raise long-term financing to complete the development of the
properties. In addition, the Project may be subject to sovereign risk,
including political and economic instability, changes in existing
government regulations, for example, a ban on the use of cyanide in
mining, re-designation of the Project area as a archeological site of
national importance, government regulations relating to mining which
may withhold the receipt of required permits or impede the Company's
ability to acquire the necessary surface rights, as well as currency
fluctuations and local inflation. The suspension of the EIA process by
the former Minister of Environment and Sustainable Development in
September 2007 demonstrates the significant risks that this Project
faces. These risks may adversely affect the investment and may result
in the impairment or loss of all or part of the Company's investment.
These consolidated financial statements have been prepared on the basis
of Canadian generally accepted accounting principles ("Canadian
GAAP") applicable to a "going concern", which assume
that the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities in
the normal course of operations. As at June 30, 2009 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 project delays.
Management has prepared a financing plan that assumes neither the
conventional debt market nor the bond market will be available in time
to meet the Company's financing needs. The current global financial
crisis may cause the time line from the restart of the permitting
process until receipt of construction permits to be extended as the
Company may pursue certain activities sequentially that had previously
been planned to run in parallel or, alternatively, construction may not
begin immediately after receipt of construction permits if financing is
not complete. In the second quarter of 2009, the Company raised $113
million net of acquisition costs through a private and a public equity
offering and at June 30, 2009 had $109 million in working capital.
There can be no assurances that the Company's financing plans will be
successful or sufficient 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
our audited consolidated financial statements and notes thereto for the
year ended December 31, 2008. To ensure comparability of financial
information, certain prior period amounts have been reclassified to
conform to the current year presentation.
In the opinion of management, the accompanying interim financial
statements include all adjustments considered necessary for fair and
consistent presentation of financial statements. These interim
consolidated financial statements should be read in conjunction with
the Company's audited annual consolidated financial statements and
notes for the year ended December 31, 2008.
Goodwill and Intangible Assets
The Canadian Institute of Chartered Accountants ("CICA")
issued accounting standard Section 3064 -Goodwill and Intangible Assets
which replaces Section 3062 - Goodwill and Other Intangible Assets,
Section 3450 - Research and Development and EIC27 - Revenues and
Expenditures during the Pre-operating Period. The new standard provides
guidance on the recognition, measurement, presentation and disclosure
of goodwill and intangible assets. This standard is effective for
interim and annual financial statements for fiscal years beginning on
or after October 1, 2008. The adoption of this standard has no impact
on the Company's financial statements.
Mining Exploration Costs
On March 27, 2009, the Emerging Issues Committee of the CICA approved
an abstract EIC-174, "Mining Exploration Costs", which
provides guidance on capitalization of exploration costs related to
mining properties in particular, and on impairment of long-lived assets
in general. The Company has applied this new abstract for the year
ended December 31, 2008 and there was no impact on its financial
statements as a result of applying this abstract.
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. The
Company evaluated the requirements of the new standards with no impact
on its financial statements.
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. It is equivalent to the corresponding provisions
of IFRS International Accounting Standard 27 - Consolidated and
Separate Financial Statements and applies to interim and annual consolidated
financial statements relating to fiscal years beginning on or after
January 1, 2011.
New Accounting Pronouncements not yet adopted
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board ("AcSB") has
announced its decision to replace Canadian generally accepted
accounting principles ("GAAP") with IFRS for all Canadian
Publicly Accountable Enterprises ("PAEs"). The effective
changeover date is January 1, 2011, at which time Canadian GAAP will
cease to apply for Gabriel Resources Ltd. and 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. The Company is currently assessing the impact of transition to
IFRS on its consolidated financial statements.
3. Short-term investments and restricted cash Short-term investments June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Money market investments with maturities from the date of acquisition of 4 - 12 months $ 52,752 $ - --------------------------------------------------------------------------- --------------------------------------------------------------------------- Short-term investments held at period end yielded an average interest rate of 0.78% in 2009 (2008 - Nil). Restricted cash June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Restricted cash(1) $ 137 $ 153 --------------------------------------------------------------------------- --------------------------------------------------------------------------- (1) Restricted cash represents environmental guarantees for future clean up costs. 4. Capital Assets June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Cost Office equipment $ 4,091 $ 4,069 Building 1,082 1,082 Vehicles 1,282 1,282 Leasehold improvements 215 215 Construction in progress(1) 55,019 41,956 --------------------------------------------------------------------------- 61,689 48,604 --------------------------------------------------------------------------- Less: Accumulated amortization Office equipment 2,847 2,566 Building 58 53 Vehicles 1,193 1,156 Leasehold improvements 166 154 Construction in progress(1) - - --------------------------------------------------------------------------- 4,264 3,929 --------------------------------------------------------------------------- Net book value Office equipment 1,244 1,503 Building 1,024 1,029 Vehicles 89 126 Leasehold improvements 49 61 Construction in progress(1) 55,019 41,956 --------------------------------------------------------------------------- $ 57,425 $ 44,675 --------------------------------------------------------------------------- --------------------------------------------------------------------------- (1) Amounts included in construction in progress are not subject to amortization. Construction in progress includes the following amounts: June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Resettlement site development costs $ 11,005 $ 9,831 Long-lead-time equipment 44,014 32,125 --------------------------------------------------------------------------- $ 55,019 $ 41,956 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 5. Mineral Properties Rosia Montana Bucium Baisoara Total --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance - December 31, 2007 $ 328,804 $ 10,375 $ 182 $ 339,361 Development costs 66,760 - - 66,760 Exploration costs 675 83 205 963 --------------------------------------------------------------------------- Balance - December 31, 2008 396,239 10,458 387 407,084 Development costs(1) 14,304 - - 14,304 Exploration costs(1) 350 - 86 436 --------------------------------------------------------------------------- Balance - June 30, 2009 $ 410,893 $ 10,458 $ 473 $ 421,824 --------------------------------------------------------------------------- --------------------------------------------------------------------------- (1) Mineral property additions of $14.7 million includes $3.4 million of non-cash items, which decreased the amount recorded in mineral properties, principally related to reclassification from construction in progress, resettlement liabilities, stock based compensation, and amortization, therefore the net cash investment during the six-month period ended June 30, 2009 was $18.1 million (see details in note 18).
The Company's principal asset is its 80%
direct ownership interest in a Romanian company, Rosia Montana Gold
Corporation ("RMGC"), which holds two mineral licenses in
Romania, being Rosia Montana and Bucium. Minvest S.A.
("Minvest"), a Romanian state-owned mining company, together
with three other private Romanian companies, hold a 20% interest in
RMGC, and RMGC holds the pre-emptive right to acquire the 20% minority
interest. RMGC is required to fund 100% of all expenditures related to
the exploration and development of these properties and holds a
preferential right to recover all funding plus interest from future
cash flows prior to the shareholders receiving dividends.
An exploitation license is held by RMGC as the titleholder in respect
of the Rosia Montana property. RMGC has the exclusive right to conduct
mining operations at the Rosia Montana property for an initial term of
20 years commencing in 1998, and thereafter with successive five-year
renewal periods.
RMGC holds an exploration license over the Bucium property. The license
was extended in 2004 and expired on May 19, 2007. The Company spent
US$3.4 million over the term of the license extension period. 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 response from the authorities on this item. No additional work
on Bucium's project economics is planned until the license is converted
from an exploration to an exploitation license and until the Rosia
Montana EIA is approved.
The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom
Aur"), holds an exploration license with respect to the Baisoara
property in Western Romania. The license is for an initial term of 5
years and expires in July 2011. The Company is obligated to spend
US$3.2 million over the term of the license. Due to the delay in the
Rosia Montana permitting process, the Company has reduced the
exploration expenditure for Baisoara to a level required to maintain
the license and permit in good standing.
6. Resettlement liabilities
During the fourth quarter of 2006, the Company recommenced purchasing
homes in the Project area. Residents had two choices. They could either
choose to take the sale proceeds and move to a new location of their
choosing or they could exchange their properties for a new property to
be built by the Company at one of the two new resettlement sites. Upon
the purchase of homes in the project area, 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 June 30, 2009, the Company had accrued resettlement liabilities
totaling $22.4 million (December 31, 2008 - $30.2 million), which
represents the cost of building the new homes for the local residents
and delay penalties.
Under the original contracts, the Company was required to deliver homes
by August 1, 2008, which was not met. As a result, the Company either
signed extension agreements or will deliver the new homes within the
penalty period for the 125 residents who chose the Recea resettlement
site option in Alba Iulia. All 24 property owners who chose the Piatra
Alba resettlement site have signed a three year extension contract. As
a result of the delay in delivery of homes, the Company is accruing a
penalty of 9% (for Recea) and up to 20% (for Piatra Alba) of the agreed
upon unpaid property value per year of delay as required by the
agreement including all amendments.
As at June 30, 2009, the Company has accrued $0.8 million (December 31,
2008 - $1.2 million) representing its total estimated delay penalty. During
the three-and-six-month period ended June 30, 2009, the Company paid
$0.3 and $0.4 million respectively of delay penalties (2008 - $Nil).
7. Other liabilities Price per DSU's Common Share Deferred Share Units ("DSU") (a) (000's) (dollars) Value--------------------------------------------------------------------------- --------------------------------------------------------------------------- Outstanding - December 31, 2007 603 $ 1.97 $ 1,188 Issued 580 1.26 728 Settled (28) 1.82 (52) Change in fair value - - (109) --------------------------------------------------------------------------- Outstanding - December 31, 2008 1,155 1.52 1,755 Issued 36 2.14 77 Change in fair value - - 490 --------------------------------------------------------------------------- Balance - June 30, 2009 1,191 $ 1.95 $ 2,322 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Fidelity bonus and other benefits (b) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance accrued - December 31, 2007 $ 849 Additions 461 --------------------------------------------------------------------------- Balance accrued - December 31, 2008 1,310 Foreign exchange movement (124) --------------------------------------------------------------------------- Balance accrued - June 30, 2009 $ 1,186 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Total Other Liabilities $ 3,508 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
(a) DSUs
The Company implemented a DSU Plan under which qualifying participants
receive certain compensation in the form of DSUs in lieu of cash. On
retirement, participants may redeem their DSUs for common shares of the
Company, cash, or a combination of common shares and cash. It is at the
holder's discretion as to whether he/she elects to settle the DSU in
cash or shares of Gabriel. If the holder elects to settle the DSU in
shares of Gabriel, the Company, at its sole discretion, can elect to
pay the amount in common shares either purchased from the open market,
or issued from treasury.
The change in the fair market value of the DSU liability has been
recorded in stock based compensation expense except for costs relating
to personnel working on projects in Romania, which are capitalized.
3 months ended 6 months ended June 30, June 30, Deferred Share Units ("DSUs") 2009 2008 2009 2008--------------------------------------------------------------------------- --------------------------------------------------------------------------- Expensed (recovered) $ (432) 570 $ 521 447 Capitalized (capital reduction) $ (48) 60 $ 47 45 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
Initially valued at the market price of the
stock at date of issue, DSUs are revalued each period based on the
closing share price at the period end, with the difference between the
total value of the DSUs at period end compared to the value at the end
of the previous period. If the share price declines, the lower value of
the DSUs is credited against costs during the period. If the value is
higher, the difference is charged to the Statement of Loss, increasing
costs for the period.
(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
June 30, 2009, $1.2 million (December 31, 2008 - $1.3 million) has been
accrued for these benefits.
(c) Severance and Termination Costs
On December 4, 2007, in light of the suspension of the EIA review
process, the Company announced and enacted plans to scale back
activities. The Company paid $1.3 million in termination benefits in
2008. The remaining balance of $0.8 million was paid in full during the
second quarter 2009.
During the second quarter 2009, two employees left the Company. As per
their employment contract, $1.0 million settlement payments were paid
or accrued as at June 30, 2009.
8. Related Party Transactions
The Company had related party transactions, with directors of the
Company or associated corporations, which were in the normal course of
operations and were measured at the exchange amounts as follows:
(a) For the three-and-six-month period ended June 30, 2009, the Company
paid $Nil (2008 - $6 thousand) to a director of the Company for consultation
services provided to the Company.
(b) In December 2004, the Company loaned a total of US$971 thousand to
the four minority shareholders of RMGC, who hold an aggregate of 20% of
the shares of RMGC, to facilitate a statutory requirement to increase RMGC's
total share capital. The loans are non-interest bearing and are to be
repaid as and when RMGC distributes dividends to its shareholders.
The loans and related minority interest contribution have been offset
on the balance sheet until such time as the loans are repaid. Once the
loans are repaid the minority interest component will be reflected on
the balance sheet.
9. Capital Stock
Authorized
Unlimited number of common shares without par value
Unlimited number of preferred shares, issuable in series, without par
value
Number of Common shares issued and outstanding shares (000's) Amount --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance - December 31, 2007 254,898 $ 558,277 Shares issued on the exercise of stock options (note 11) 551 1,209 Stock-based compensation - exercise of stock options (note 12) - 566 --------------------------------------------------------------------------- Balance - December 31, 2008 255,449 $ 560,052 Shares issued from a public and private offering(a) 51,806 116,564 Less: Share issue costs - (3,800) Shares issued on the exercise of stock options (note 11) 2 3 Transfer from contributed surplus - exercise of stock options (note 12) - 1 --------------------------------------------------------------------------- Balance - June 30, 2009 307,257 $ 672,820 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
On June 11, 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
$116.6 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. After giving effect to the transactions contemplated herein,
each of Electrum and Paulson have increased their percentage ownerships
to 19.99% of the issued and outstanding common shares of the Company.
The Company plans to use the net proceeds of the Public Offering and
the Private Placement towards developing the Company's 80% owned Rosia
Montana gold project.
10. Share Purchase Warrants
As at June 30, 2009, the following share purchase warrants were issued and outstanding: Exercise Number of price warrants (dollars) Expiry date --------------------------------------------------------------------------- --------------------------------------------------------------------------- Warrants issued 1,125 $ 4.88 November 28, 2010 --------------------------------------------------------------------------- Balance - June 30, 2009 1,125 $ 4.88 November 28, 2010 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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 Rosia Montana 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. The Company continues to work with the
international financial institutions to secure a new agreement whereby
the institutions would arrange but not underwrite a bank facility.
The fair value of the warrants vested, being US$1.5 million, represents
their cash settlement value. The Company has accrued this amount in
accounts payable and accrued liabilities. It is at the holders'
discretion as to whether they elect to settle the warrants in cash or
shares of the Company.
11. Stock Options
The Incentive Stock Option Plan (the "Plan") authorizes the
Directors to grant options to purchase shares of the Company to
directors, officers, employees and consultants. The exercise price of
the options equals the five-day weighted average closing price prior to
the option allotment. The majority of options granted vest over three
years and are exercisable over five years from the date of issuance.
The Plan was amended on May 8, 2007 to allow for the maximum number of
common shares issuable under the Plan to equal 10% of the issued and
outstanding common shares of the Company at any point in time, and that
options once exercised would be re-endorsed into the pool of un-granted
options.
As at June 30, 2009, 1.2 million options are available for issuance
under the Plan (December 31, 2008 - 3.0 million).
As at June 30, 2009, common share stock options held by directors,
officers, employees and consultants are as follows:
Outstanding Exercisable ----------------------------------- ----------------------- Weighted Weighted average Weighted Range of average remaining average exercise Number of exercise contractual Number of exercise prices options price life options price (dollars) (thousands) (dollars) (Years) (thousands) (dollars) ------------- ----------- ---------- ------------ ----------- --------- $ 1.18 - 2.00 15,937 $ 1.70 3.2 9,677 $ 1.62 2.01 - 3.00 6,304 2.50 3.3 3,743 2.49 3.01 - 5.00 2,085 4.47 2.6 1,700 4.48 ----------------------------------- ----------------------- 24,326 $ 2.14 3.2 15,120 $ 2.16 ----------------------------------- ----------------------- ----------------------------------- ----------------------- During the year ended 2008 and the six-month period ended June 30, 2009, director, officer, employee and consultants stock options were granted, exercised and cancelled as follows: Weighted average Number of exercise price options (dollars) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance - December 31, 2007 12,926 $ 2.44 Options granted 11,240 1.95 Options expired (279) 4.51 Options forfeited / cancelled (822) 2.99 Options exercised (551) 2.19 --------------------------------------------------------------------------- Balance - December 31, 2008 22,514 2.16 Options granted 2,150 2.32 Options forfeited / cancelled (336) 4.31 Options exercised (2) 1.56 --------------------------------------------------------------------------- Balance - June 30, 2009 24,326 $ 2.14 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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 2008, the Company granted 3 million options with a fair value of
$2.6 million ($0.87 per share option) that vested and were charged to
Mineral Properties during the fourth quarter of 2008.
During the fourth quarter 2008, the Company granted 5 million options
one-third of which vested upon issuance with the remainder vesting upon
completion of certain milestones or under certain conditions of
termination. The estimated fair value of the unvested options will be
recognized and capitalized at the measurement date as the milestones
are achieved and the value can be reasonably measured. As of June 30, 2009,
the amount capitalized was $1.0 million ($0.60 per share option). The
valuation was calculated with the following assumptions: risk-free
interest rate of 1.51%, expected annual volatility of 84.58%, and
expected life of options of 4 years. The remaining fair value of
outstanding unvested options to be capitalized cannot be reasonably
measured as of June 30, 2009.
During the six-month period ended June 30, 2009, the Company granted
2.2 million options. Of the 2.2 million options issued, 0.7 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. As of
June 30, 2009, the amount recognized was $0.4 million.
The current period's valuation was calculated with the following assumptions: 3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Weighted average risk-free interest rate 1.51% 3.16% 1.49% 3.16% Volatility of the expected market price of share 100% 67% 100% 67% Weighted average expected life of options 2.7 years 2.7 years 2.7 years 2.7 years Weighted average cost per option $ 1.08 $ 1.05 $ 1.12 $ 1.05 --------------------------------------------------------------------------- --------------------------------------------------------------------------- As of June 30, 2009, the remaining fair value of outstanding measurable unvested options to be expensed is $3.0 million, to be capitalized is $1.3 million. For the three-and-six-month periods ended June 30, 2009 and 2008, the fair value of stock options expensed and capitalized is as follows: 3 months ended 6 months ended June 30, June 30, 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Expensed $ 1,462 $ 471 $ 2,851 $ 990 Capitalized $ 263 $ 282 $ 526 $ 547 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 12. Contributed Surplus The following table identifies the changes in contributed surplus for the periods indicated: Total --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance - December 31, 2007 $ 8,807 Stock-based compensation 6,810 Exercise of stock options (566) --------------------------------------------------------------------------- Balance - December 31, 2008 15,051 Stock-based compensation 3,377 Exercise of stock options (1) --------------------------------------------------------------------------- Balance - June 30, 2009 $ 18,427 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
13. Income Taxes
During the first quarter of 2008, the Company received a tax assessment
for $4.8 million related to a Romanian tax audit completed during the
first quarter of 2008. The Company, having accrued in 2006 its then
estimated tax liability, accrued an additional $3.7 million in respect
of the assessment, which arose from the disallowance of the application
of state tax incentives related to unrealized foreign exchange gains on
inter-company debt.
On April 10, 2008, the Company was advised by the Romanian tax authorities
that they were re-opening and auditing fiscal years 2003 and 2004 which
had been previously audited.
On June 24, 2008, the Company received a tax assessment for $9.8
million related to another tax audit, for the years 2003 and 2004,
initiated and completed during the second quarter of 2008. This
assessment also arose from the disallowance of the application of state
tax incentives related to unrealized foreign exchange gains on
inter-company debt.
All tax assessments have been paid and provided for in the 2007 and
2008 financial statements. Based on the advice of its professional tax
advisors, the Company believes that the tax authorities have misapplied
the legislation and we are vigorously contesting the State's position
through the courts.
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:
June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Romania $ 478,891 $ 451,280 Canada 358 479 --------------------------------------------------------------------------- Total $ 479,249 $ 451,759 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
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 major Canadian banks and invested in sovereign debt. As a
consequence of the global financial crisis that began impacting the
financial markets in the summer 2007, the Company adopted a strategy to
minimize its credit risk by substantially investing in sovereign debt
issued by Canadian Agencies, Provinces and the Federal Governments of
Canada, the United States and France, with the balance of cash being
invested in short-term Term Deposits issued by major Canadian banks.
The Company strives to maintain at least 85-90% of its cash, cash
equivalent, and short-term investments in sovereign debt. With the
ongoing global financial crisis it is becoming increasingly difficult
to source short-term sovereign debt that meets the Company's credit
risk criteria and maturities schedule.
The Company is exposed to the credit risk of Romanian banks that hold
and disburse cash on behalf of its Romanian subsidiaries. The Company
manages its Romania bank credit risk by centralizing custody, control
and management of its surplus cash resources in Canada at the corporate
office and only transferring money to its Romanian subsidiary based on
immediate cash requirements, thereby mitigating exposure to Romania
banks.
The Company's credit risk is also attributable to value-added taxes receivable.
Value-added taxes receivable are collectable from the Romanian
government.
Liquidity risk
The Company has sufficient funds as at June 30, 2009 to settle current
and long-term liabilities.
Market risk
(a) Interest rate risk
The Company has significant cash balances and no interest-bearing debt.
As discussed above in the section entitled 'Credit Risk', the Company's
policy is to primarily invest excess cash in sovereign guaranteed
investments.
With the Company maintaining a short-term investment horizon, typically
less than 90 days, for its cash, cash equivalent, and short-term
investment balances, it is highly susceptible to 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 global financial crisis has led to dramatic volatility in the
foreign currency markets. The Company maintains cash, cash equivalents,
and short-term investments in the currency of planned expenditures and
is therefore highly susceptible to market volatility as foreign cash
balances are revalued to the functional currency of the Company.
Therefore, the Company may report significant foreign exchange gains or
losses as significant market volatility continues.
Sensitivity analysis
The Company has designated its cash, cash equivalents, and short-term
investments as held-for-trading, which are measured at fair value. As
of June 30, 2009, the carrying amount of the financial instruments
equals fair market value. Based on management's knowledge and
experience of the financial markets, the Company believes the following
movements are "reasonably possible" over a
"typical" three month period. The current global financial
crisis has resulted in dramatic interest rate, commodity and currency
volatility. The Company does not view these market conditions as
"typical" and therefore the effect of interest rate changes
and currency valuation changes on net income may be more dramatic than
deemed "reasonably possible". Nonetheless, the Company has
taken steps to reduce its risks as discussed above.
- Cash and cash equivalents include deposits which are at floating
interest rates. A plus or minus 1% change in earned interest rates
would affect net income from deposits by $0.2 million.
- For short-term investments a plus or minus 1% change in earned
interest rates would affect net income by $0.1 million
- The Company holds significant balances in foreign currencies, and
this gives rise to exposure to foreign exchange risk. As of June 30,
2009 a plus or minus 1% change in foreign exchange rates would affect
net income by $1.2 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.
While the Company expects that it will be able to obtain equity,
long-term debt and/or project-based financing sufficient to build and
operate the Rosia Montana Project, there are no assurances that these
initiatives will be successful. To safeguard capital and to mitigate
currency risk, the Company invests its surplus capital in highly
liquid, highly rated financial instruments that reflect the currency of
the planned expenditure.
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.
2013 and Total 2009 2010 2011 2012 thereafter --------------------------------------------------------------------------- --------------------------------------------------------------------------- Baisoara exploration license (note 5) $ 3,217 $ 32 $ 736 $ 1,509 $ 940 $ - Resettlement (note 6) 22,430 22,430 - - - - Goods and services(a) 16,685 12,228 2,044 741 1,311 361 Long lead time equipment(b) 11,827 10,131 1,696 - - - Rosia Montana exploitation license(c) 2,321 232 232 232 232 1,393 Surface concession rights(d) 957 12 23 23 23 876 Lease agreements(e) 1,099 264 546 289 - - --------------------------------------------------------------------------- Total commitments $ 58,536 $ 45,329 $ 5,277 $ 2,794 $ 2,506 $ 2,630 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
(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 $16.7 million at June 30,
2009 (December 31, 2008 - $6.6 million). Typically, the service
agreements are for a term of not more than one year and permit either
party to terminate for convenience on notice periods ranging from 15 to
90 days. Upon termination, the Company has to pay for services rendered
and costs incurred to the date of termination.
(b) During 2007, the Company entered into purchase agreements for
long-lead-time equipment, the cost of which is to be paid over three
years beginning 2007. The following is a summary of the long-lead-time
equipment orders and the payment status:
June 30, December 31, 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Total purchase agreements: Grinding area systems $ 41,266 $ 41,237 Crusher facilities 3,962 3,923 Foreign exchange movement 7,157 9,681 --------------------------------------------------------------------------- 52,385 54,841 Amount paid to date: Grinding area systems (32,563) (20,436) Crusher facilities (2,558) (1,896) Foreign exchange movement (5,437) (4,769) --------------------------------------------------------------------------- Outstanding payment obligation $ 11,827 $ 27,740 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
(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 10
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 in property located on and around the proposed
Cirnic pit for an annual payment of $23 thousand.
(e) The Company has entered into agreements to lease premises for
various periods until May 31, 2011. The annual rent of premises
consists of minimum rent plus realty taxes, maintenance and utilities.
The Company has an agreement with a consulting firm to provide
financial advisory services in relation to defining and implementing
the financing plan for development of the Rosia Montana gold project. A
success fee of up to US$4 million will be payable on execution of
definitive credit agreements and/or financing documents for the senior,
mezzanine and cost overrun debt facilities for the Project. No amount
has been accrued for 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 comprises of annual fee of 450,000 EUR and success
fee of 800,000 EUR payable at the end of 3 years agreement upon
fulfillment of certain criteria. The Company paid or accrued 150,000
EUR for the annual fee as at June 30, 2009.
18. Supplemental Cash Flow Information 3 months ended 6 months ended June 30, June 30, (a) Net changes in non-cash working capital 2009 2008 2009 2008 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Operating activities: Accounts receivable, prepaid expenses and supplies $ (33) $ (5) $ (179) $ (323) Accounts payable and accrued liabilities (2,478) (168) 188 (472) Unrealized foreign exchange loss (gain) on working capital (226) (15) (148) 15 --------------------------------------------------------------------------- $ (2,737) $ (188) $ (139) $ (780) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Investing activities: Accounts receivable, prepaid expenses and supplies $ 418 $ (275) $ 3,341 $ (1,718) Accounts payable and accrued liabilities 1,129 5,958 (5,642) 4,441 Unrealized foreign exchange loss (gain) on short-term investments (1,903) 410 (1,903) - --------------------------------------------------------------------------- $ (356) $ 6,093 $ (4,204) $ 2,723 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Financing activities: Accrued share issue costs $ 227 $ (112) $ 227 $ (112) --------------------------------------------------------------------------- --------------------------------------------------------------------------- (b) Exploration and development expenditures Balance sheet change in mineral properties $ (6,087) $ (11,690) $(14,740) $ (29,506) Reclassification of mineral properties from prepaid expenses - - - 25 Reclassification of mineral properties from construction in progress 3,564 - 3,564 - Increase (decrease) in resettlement liabilities (8,631) 750 (7,778) 4,320 Non-cash depreciation and disposal capitalized 101 130 232 261 Stock based compensation capitalized 215 342 573 592 --------------------------------------------------------------------------- Exploration and development expenditures per cash flow statement $(10,838) $ (10,468) $(18,149) $ (24,308) --------------------------------------------------------------------------- ---------------------------------------------------------------------------
19. Reclassification of Comparative
Figures
Certain comparative figures have been reclassified to conform to the
current year's presentation.
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