|
August 8, 2007
|
|
Gabriel Resources Ltd.: Second Quarter Report
|
TORONTO, ONTARIO--(Marketwire - Aug. 8, 2007) - Gabriel Resources Ltd. (TSX:GBU) -
Highlights
"The second quarter was an active one for us," said Alan R. Hill, President and Chief Executive Officer. "We saw real momentum as we continue to move through the permitting process, with strong independent technical support for our EIA, and a growing number of third-party voices recognizing the strategic importance of the Rosia Montana Project as a model not just for Romania, but for all of Europe. We are also seeing the community make its voice heard in support of our project - raising questions about the real agenda of the anti-project activists," added Mr. Hill.
Financial performance
- Second quarter net loss was $6.0 million, or $0.02 per share. Year-to-date net loss was $8.4 million, or $0.04 per share.
- A total of $25.8 million was spent on our development projects during the quarter, $44.2 million for the first 6 months.
- Unrealized foreign exchange losses on US dollar cash balances held to finance planned future US dollar development activities, which accounted for a majority of the net loss, were $3.6 million in the quarter, while year-to-date unrealized foreign exchange losses were $3.8 million.
Liquidity and capital resources
- Cash and cash equivalents and short-term investments at June 30, 2007 totaled $212.2 million.
- Working capital at June 30, 2007 totaled $199.3 million.
- Gabriel Resources Ltd. ("Gabriel" or the "Company") raised a total of $170.1 million during the first six-months of 2007 through an equity offering and the exercise of warrants and stock options. The Company has now completed the required equity component as laid out in its expected financing plan.
- Project related expenditures for the balance of 2007 are expected to total approximately $124 million (US$116 million), based on fall 2007 construction start up.
- Financing discussions are well underway with a goal of completing final term sheets for both senior and mezzanine or high yield debt in parallel with our EIA approval expected in the summer 2007.
Rosia Montana Project Development
Environmental Impact Assessment
- On May 4, 2007, the Company responded to the official list of questions received from the Romanian Government judged to require a response.
- As required under Romanian law, the Romanian Government set up the Technical Assessment Committee ("TAC"), comprised of government officials from the various Ministries of the Romanian Government involved in the permitting process to review the project, the EIA and our responses to the questions asked during the public consultation.
- The Company met with the TAC on June 26, 2007, within the 40 business day time frame set out under Romanian law. The TAC advised the Company that because of the large volume of material to review (EIA - 5,000 pages and Annex - 13,000 pages) that more than one meeting would be required.
- The TAC committed to keeping the meeting schedule as tight as possible but indicated that it would be difficult given the summer holiday period. The TAC held a second meeting on July 10, 2007 and a third meeting on July 19, 2007. The fourth meeting is scheduled to take place on August 9, 2007. The meetings have covered the first four chapters of the EIA, including general overview of project, technologies, waste and potential impacts - which together comprise the bulk of the 10 Chapters.
- The remaining chapters to the EIA, include Chapter 5 - Assessment of Alternatives, Chapter 6 - Monitoring, Chapter 7 - Risk Cases, Chapter 8 - Description of Difficulties, Chapter 9 - Non Technical Summary and Chapter 10 - Transboundary Impacts.
- The fourth meeting of the TAC initially scheduled for August 2, 2007 was delayed until August 9, 2007 due to issues surrounding the Company's town planning urbanism certificate ("UC") issued by the Alba County Council. The UC, which is an information document listing the permits required to submit an application for a construction permit, expired in late July. The Ministry of Environment and Sustainable Development indicated that the TAC review process could not continue without a valid UC. The Company's position, supported by legal counsel, is that a UC is not required for the TAC review process and has communicated this to the Ministry of Environment. Notwithstanding this legal interpretation the Company submitted the new UC which replaced the previously expired certificate.
- The TAC has not announced the total number of meetings it intends to hold or the date of those meetings beyond the next scheduled meeting. The TAC meetings to date have been very constructive with a thorough analysis of the project.
- The Romanian Government, however, ultimately determines the timing of the decision and there is no certainty as to this timing.
- The Company also participated in intergovernmental meetings between the Romanian and Hungarian Governments on July 30 and 31, 2007, as required under the Espoo Convention. The two day meetings covered transboundary impacts in four key areas - ore processing and tailings management, stability of the tailings dam, accidents and risk assessment and water quality modeling.
- Certain members of the Romanian Government are being pressured by groups opposed to the development of the project ("opposition") to slow the permitting process down or stop the process entirely. In addition to initiating the court challenge of our UC, the opposition has orchestrated the tabling of a private members bill in the Romanian Parliament to ban the use of cyanide in Romania. This proposed bill is expected to be introduced in the fall Parliament session. This is the third time in three years that a private members bill has been brought forward to ban cyanide. The two previous bills were not supported by the Romanian Government and were rejected. The bill presently pending was initially opposed by the Government when introduced in April, which then changed to a position of support in June. As the current Government represents only a parliamentary minority, government support is discounted in a body where most legislators support a strong Romanian mining industry. For these reasons, management believes that the current proposal will also be rejected.
- The opposition is making every attempt it can to influence and pressure government officials to slow down or reject the approval of the Rosia Montana project. To date the opposition has been unsuccessful in stopping the permitting process and has only managed to slow the TAC permitting process down by a few days and as such our schedule does not reflect any delays they may cause in the future. The Romanian Government, however, ultimately determines the timing of the decision approving our EIA.
Acquisition of surface rights
- As of July 31, 2007 the Company has acquired or has options on 67 percent of the remaining homes within the industrial area needed to build and operate the project over its 16 year life.
- As of July 31, 2007 the Company owns or has options on approximately 70 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, which is expected in September, it would increase our ownership to approximately 80 percent of the three zones of the Project demonstrating the strong support for the project.
- The pace of acquisitions accelerated during the second quarter 2007 after the Company and the community reached a solution to a surge in the construction of illegal wood structures referred to as "cabins," for which sellers expected additional compensation. The commencement of construction of the Alba Iulia resettlement site early in the third quarter together with concern over the proposed private members bill to ban cyanide assisted with the increase in property sales to the Company.
- Ultimately, the Company's ability to obtain construction permits is predicated on securing the necessary surface rights.
Archaeological Discharge Certificate
- The opposition to our project has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. On July 11, 2006 the Company - along with the Minister of Culture and Religious Affairs - won an appeal when the Romanian Supreme Court (the "Court") decided that the series of lower court decisions that resulted in the annulment of the archaeological discharge certificate no. 4 ("Certificate No. 4") which was not conducted properly, and as a result, overturned the previous annulment. The Supreme Court referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. The retrial, which began in October 2006, should not delay the commencement of construction of the Rosia Montana project, as Certificate No. 4 relates to an area not required for construction start up.
- The opposition has also challenged the issuance of archaeological discharge certificate no. 5 on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts.
- All discharge certificates required to begin construction in 2007 have been secured.
Rosia Montana Project Timeline
- The timetable has not changed from the guidance given in March 2007 with the Company's year end financial results.
- The EIA was submitted in second quarter 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, in line with the spring 2007 target.
- TAC and Espoo Convention meetings are well underway during the third quarter.
- We continue to work to receive EIA approval during summer 2007.
- The Romanian Government, however, ultimately determines the timing of the decision approving our EIA.
- If we are able to purchase the necessary properties and obtain the other permits and approvals, we would expect receipt of the construction permit enabling us to begin construction in fall 2007.
- Overall, we expect first pour in fall 2009.
Expected Financing Plan
- The estimated cost to develop the Rosia Montana project - including capital, interest, financing and corporate costs - is approximately US$750 million.
- The Company anticipates financing these costs with approximately 20 percent equity - US$150 million - and 80 percent debt, which could include senior and mezzanine or high yield debt. The Company has now raised the target equity amount in its financing plan.
- In addition, it is likely that the financing plan may have to include (i) a cost overrun facility, (ii) a financial guarantee (reclamation deposit), or (iii) hedging program if required. These additional items could add US$100 million to the financing plan.
- Project financing discussions are well underway with a goal of completing final term sheets for both senior and subordinated debt in parallel with our EIA approval expected in the summer 2007.
Romanian Support
- The community was very active during the second quarter. The community held a rally in Rosia Montana in support of the project, hosted by the mayor and the local doctor. Following that rally, the residents of Rosia Montana staged two rallies in Bucharest coinciding with our first TAC meeting on June 26, 2007, one in front of the Ministry of Environment's office during the TAC meeting and the second in front of the Parliament building. Later in the week the community protested while the Soros Foundation - Romania made speeches in the village of Rosia Montana. During an Alburnus Maior trip to the village, the community corrected inaccurate assertions whereby the NGO claimed that specific churches were being destroyed when in fact they were being restored by the Company.
- Meridian National Trade Union Confederation ("Meridian") organized on April 17, 2007 a high- level debate on "Economic and Social Coordinates of Romanian's Mining Sector in European Context" at the Parliament Palace. Our Rosia Montana project was highlighted by one senior member of the administration as "vital for the Romanian industrial sector," adding that its implementation would trigger even greater investor interest in Romania's mining sector.
- At the end of the conference, the participants in the debate decided that Euromines (an organization representing the mining industry) shall organize a similar conference in the European Parliament this fall, in partnership with Meridian, focusing on the synergies between the mining and energy sector, and on the importance of public-private partnerships.
- The fall conference date has now been set for early October 2007.
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.
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, 2007 and 2006. 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-months-ended June 30, 2007 and 2006, as well as the audited Consolidated Financial Statements of the Company as at and for the year ended December 31, 2006 including the 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. Readers are encouraged to read the Company's Annual Information Form dated March 5, 2007, which can be reviewed on the SEDAR website (www.sedar.com).
Overview
Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is engaged in the exploration and development of mineral properties in Romania and is presently developing its 80% owned Rosia Montana gold project ("Project").
Our vision is to create value for all of our stakeholders from responsible mining. Our mission is to build Rosia Montana and, as a result, to be a catalyst as Romania enters its EU era for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, and operations and reclamation based on Best Available Techniques -- all in the service of sustainable development. Whether the issue is corporate governance, community development, environmental responsibility or operational practices, we pledge to do it right.
Key Issues
Environmental/Permitting
During the second quarter, the Company responded to the official list of 5,610 questions and 93 statements received from the Romanian Government judged to require a response, which was in response to the public consultation process following the Environmental Impact Assessment ("EIA") filing in May 2006, in which the Company participated in 14 public consultation meetings in Romania, and two meetings in Hungary to meet Espoo Convention commitments.
As required under Romanian law, the Romanian Government set up the Technical Assessment Committee ("TAC"), comprised of government officials from the various Ministries of the Romanian Government involved in the permitting process to review the project, the EIA and our responses to the questions asked during the public consultation. The Company met with the TAC on June 26, 2007, within the 40 business day time frame set out under Romanian law. The TAC advised the Company that because of the large volume of material to review (EIA - 5,000 pages and Annex - 13,000 pages) that more than one meeting would be required. The TAC committed to keeping the meeting schedule as tight as possible but indicated that it would be difficult given the summer holiday period. The TAC held a second meeting on July 10, 2007. The topic of that meeting included a general overview of the project, the technologies used and our plans for dealing with waste material. Those topics are covered under the first three chapters of our EIA. The TAC scheduled and held a third meeting on July 19, 2007 to address the questions raised in the July 10, 2007 meeting as well as the topics covered in Chapter 4 - Potential Impacts. The fourth meeting is scheduled to take place on August 9, 2007, to complete the review of Chapter 4. Overall, there are 10 chapters to the EIA, which include Chapter 5 - Assessment of Alternatives, Chapter 6 - Monitoring, Chapter 7 - Risk Cases, Chapter 8 - Description of Difficulties, Chapter 9 - Non Technical Summary and Chapter 10 - Transboundary Impacts. The TAC has not announced the total number of meetings it intends to hold or the date of those meetings beyond the next scheduled meeting. The TAC meetings to date have been very constructive with a thorough analysis of the project. The Romanian Government, however, ultimately determines the timing of the decision and there is no certainty as to this timing.
Separately, the Company participated in intergovernmental meetings between the Romanian and Hungarian Governments on July 30 and 31, 2007, as required under the Espoo Convention. The two day meetings covered transboundary impacts in four key areas - ore processing and tailings management, stability of the tailings dam, accidents and risk assessment and water quality modeling.
Despite recent political events that resulted in the impeachment of the Romanian President during the first quarter and a subsequent referendum on May 19, 2007 that reconfirmed his Presidency, the Company has been largely unaffected to date as the various Government Ministries involved in the permitting process have in general been applying the law as it pertains to our project.
The fourth meeting of the TAC initially scheduled for August 2, 2007 was delayed until August 9, 2007 due to issues surrounding the Company's town planning urbanism certificate ("UC") issued by the Alba County Council. The UC, which is an information document listing the permits required to submit an application for a construction permit, expired in late July 2007. The Ministry of Environment and Sustainable Development has indicated that the TAC review process could not continue without a valid Urbanism Certificate. The Company's position, supported by legal counsel, is that a UC is not required for the TAC review process and has communicated this to the Ministry of Environment. Notwithstanding this legal interpretation, the Company submitted a new UC which replaced the previously expired certificate.
Certain members of the Romanian Government are being pressured by groups opposed to the development of the project ("opposition") to slow the permitting process down or stop the process entirely. In addition to initiating the court challenge of our UC, the opposition has orchestrated the tabling of a private members bill in the Romanian Parliament to ban the use of cyanide in Romania. This proposed bill is expected to be introduced in the fall Parliament session. This is the third time in three years that a private members bill has been brought forward to ban cyanide. The two previous bills were not supported by the Romanian Government and were rejected. The bill presently pending was initially opposed by the Government when introduced in April, which then changed to a position of support in June. As the current Government represents only a parliamentary minority, government support is discounted in a body where most legislators support a strong Romanian mining industry. For these reasons, management believes that the current proposal will also be rejected. The opposition is making every attempt it can to influence and pressure government officials to slow down or reject the approval of the Rosia Montana project. To date the opposition has been unsuccessful in stopping the permitting process and has only managed to slow the TAC permitting process down by a few days and as such our schedule does not reflect any delays they may cause in the future. The Romanian Government, however, ultimately determines the timing of the decision approving our EIA.
While the EIA is by far the most important project permit, there are a number of other permits and approvals required, such as the zonal urbanistic plans for the industrial and protected areas, the forestry and land use change permits, as well as other permits and approvals that follow the EIA approval, to obtain the construction permit. The process for each of these permits and approvals is currently underway and is running in parallel with the EIA review process and are expected to be received within approximately 60 days of EIA approval. As Gabriel, through Rosia Montana Gold Corporation, is the first company to permit a new mining project under the new European legislation, it is pioneering with the Government of Romania the permitting process. As a result, we along with the Government are working through new legislation that has never been applied.
Litigation
A number of foreign funded NGO's, including Alburnus Maior, the Soros Foundation - Romania (formerly Open Society Institute - Romania) and the Independent Centre for the Development of Environmental Resources, 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 Rosia Montana project. While few of the actions have been successful and most have been frivolous, they include both civil actions and criminal complaints against both the regulatory authorities and individuals within such regulatory authorities; in general, they claim that such regulatory authorities are acting in violation of Romanian laws and ask for cancellation of the permit or approval. Gabriel, through Rosia Montana Gold Corporation (RMGC), has intervened in the majority of these cases in order to ensure that the Romanian courts considering these actions are presented with a legally correct, fair and balanced analysis as to why the various Romanian regulatory authorities' actions are in accordance with the relevant and applicable laws. While our permitting and construction schedule does not make any allowance for legal challenges that may arise, we have been successful in the past in these legal challenges and have designed the project and attempted to follow all applicable laws to protect against and prevent, as much as possible, potential future legal challenges.
Surface Rights
On October 9, 2006, the Company recommenced purchasing homes in the project area, which is comprised of the industrial zone, the Protected Area and the buffer zone. While the Company only needs homes which are located in the industrial zone to build the project, as a consideration to community opinion, an offer to purchase homes in the Protected Area and buffer zone was made to those residents at their request. The focus of management's attention is to acquire the homes in the industrial zone, particularly those homes required for construction that are not already owned by the Company. However, since not all the homes in the industrial zone are necessary to start construction, this issue will be managed in the context of the phases of mining. Overall, as of July 31, 2007 the Company has acquired or has options on approximately 67 percent of the remaining homes within the industrial zone needed to build and operate the project over its 16-year life.
The pace of acquisitions accelerated during the second quarter 2007 after the Company and the community reached a solution to a surge in the construction of illegal wood structures referred to as "cabins," for which sellers expected additional compensation. The commencement of construction of the Alba Iulia resettlement site early in the third quarter together with concern over the proposed private members bill to ban cyanide assisted with the increase in property sales to the Company. The Company has completed construction of the access road to the Piatra Alba resettlement site, and has tenders for construction of the new village at Piatra Alba, while awaiting final construction permits expected to be issued in the fall.
In addition to the private properties required, the Company needs to acquire properties (about 35% of the project area) 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 we expect to obtain access rights to those properties required for construction and the operations by the time the EIA is approved.
As of July 31, 2007 the Company owns or has options on approximately 70 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, which is expected in September, it would increase our ownership to approximately 80 percent of the three zones of the Project demonstrating the strong support for the project.
Ultimately, the Company's ability to obtain construction permits is predicated on securing the necessary surface rights.
Romanian Support
The community was very active during the second quarter. The community held a rally in Rosia Montana in support of the project, hosted by the mayor and the local doctor. Following that rally, the residents of Rosia Montana staged two rallies in Bucharest coinciding with our first TAC meeting on June 26, 2007, one in front of the Ministry of Environment's office during the TAC meeting and the second in front of the Parliament building. Later in the week the community protested while the Soros Foundation - Romania made speeches in the village of Rosia Montana. During an Alburnus Maior trip to the village, the community corrected inaccurate assertions whereby the NGO claimed that specific churches were being destroyed when in fact they were being restored by the Company.
Meridian National Trade Union Confederation ("Meridian") organized on April 17, 2007 a high-level debate on "Economic and Social Coordinates of Romanian's Mining Sector in European Context" at the Parliament Palace. Meridian is one of the largest trade unions in Romania and represents the 300,000 miners who have lost their jobs over the past decade due to restructuring of the Romanian mining industry. The debate was attended by senior officials from the ministries involved in permitting and regulating the mining industry, as well as, trade unions, local and foreign mining companies, local authorities, Euromines (an organization representing the mining industry) and NGO's. Participants highlighted the importance of coal as an essential raw material for worldwide energy security and agreed that the revival of the mining sector is an objective of strategic national interest - with public-private partnership as a solution. Our Rosia Montana project was highlighted by one senior member of the administration as "vital for the Romanian industrial sector," adding that its implementation would trigger even greater investor interest to this country's mining sector.
At the end of the conference, the participants to the debate decided that Euromines shall organize a similar conference in the European Parliament this fall, in partnership with Meridian, focusing on the synergies between the mining and energy sector, and on the importance of public-private partnerships. The fall conference date has now been set for early October 2007.
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. The area has been mined for at least two thousand years and, in spite of damage done by 20th Century mining, continues to provide traces of the earlier activity. We have spent more than US$10 million sponsoring a program of archaeology rescue to recover and document the remaining evidence which would otherwise have been lost or remained inaccessible for all time. Over the past five years we have been granted several discharge permits to acknowledge completion of the program.
Here as on other issues, the opposition has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. On July 11, 2006 we -- along with the Minister of Culture and Religious Affairs -- won our appeal when the Romanian Supreme Court (the "Court") decided that the series of lower court decisions that resulted in the annulment of our archaeological discharge certificate no. 4 ("Certificate No. 4") was not conducted properly, and as a result, overturned the previous annulment. Certificate No. 4 relates to the Cirnic pit, one of the two pits required for the first eight years of operations. The Supreme Court referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. The retrial, which began in October 2006, should not delay the commencement of construction of the Rosia Montana project, as Certificate No. 4 relates to an area not required for construction start up. The opposition has also challenged the issuance of archaeological discharge certificate no. 5 ("Certificate No. 5") on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts. All discharge certificates required to begin construction in 2007 have been secured. There can be no assurance that the validity of Certificate No. 4 and Certificate No. 5 will be upheld by the courts and there can be no assurance that other previously obtained discharge certificates will not be challenged. Any successful challenges could negatively impact the Company's development plans, require additional work and re-application for discharge certificates, or result in additional delays and expenses on our part.
Financing
Cash, cash equivalents and short-term investments at June 30, 2007 totaled $212.2 million. At June 30, 2007, we had $199.3 million in working capital. Our rate of expenditure for project development activities was $24.0 million during the second quarter of 2007. This rate is higher than 2006 when we spent $8.3 million, largely due to the commencement of the acquisition of properties, which began in the fourth quarter of 2006 and ordering of long-lead-time equipment. The expenditure rate is expected to rise through second half of 2007 as we continue to acquire properties, complete detailed engineering, order long-lead-time equipment and begin construction of the new village at Alba Iulia and Piatra Alba. Once the Company receives the construction permit, which is expected in fall 2007, the nature and rate of expenditure changes significantly as site construction begins. Based on fall 2007 construction permit receipt, we expect to spend approximately US$165 million in 2007; for corporate activities (US$10 million) and project related activities (US$155 million). The strong demand for mining and process equipment has forced the Company to accelerate the ordering of long-lead-time equipment and has resulted in larger deposits than was historically the case. Long-lead-time equipment, permitting and financing are the critical path items in meeting our schedule for first pour of gold in fall 2009.
Project financing discussions with traditional lenders are well underway with the goal of completing a final term sheet for both senior and subordinated debt during summer 2007 to coincide with the expected timing of EIA approval. A key condition to accessing the debt facilities will be our progress on surface rights acquisition. An independent Risk Assessment Report ("Report") was completed by the banks' technical consultants during third quarter 2006. The Report confirms that the Project is Equator Principle compliant, which is a necessary pre-condition for project debt financing. Based on discussions with financial institutions and our target debt financing requirements, some form of price guarantee (hedging) will be required. The level and type of price guarantee has not been discussed. The final amount will be a function of negotiations with lenders and spot gold prices at the time.
Expected Financing Plan
- The estimated current cost to develop the Rosia Montana project - including capital, interest, financing and corporate costs is approximately US$750 million.
- The Company anticipates financing these costs with approximately 20 percent equity - US$150 million - and 80 percent debt, which could include senior and mezzanine or high yield debt.
- In addition, it is likely that the financing plan may have to include (i) a cost overrun facility, (ii) a financial guarantee (reclamation deposit), or (iii) hedging program if required. These additional items could add US$100 million to the financing plan.
The cost to construct the project is estimated at US$638 million based on a definitive feasibility study updated in early 2006. The estimated total cash cost to produce gold over the first five years is expected to average US$181 per ounce and average US$237 per ounce over the life of the project. While the cost estimate to build and operate the project contains contingencies, continued strengthening of currencies against the Canadian dollar and escalating costs may exceed the estimated project contingencies. The Company's EPCM contractor SNC Lavilin expects to complete the control estimate in the fourth quarter of this year based on additional detailed engineering undertaken since the update of the definitive feasibility study as well as incorporating the Company's actual experience to date in the placing of the long-lead-time equipment orders.
The lenders requirement for gold price guarantee could be accomplished through a variety of instruments, some of which would be at no cost to the Company, however, those instruments may limit our participation in rising gold prices. Hedging in the form of gold puts is the only gold price guarantee that would not limit the Company's participation in higher gold prices but comes with a cash cost. On the positive side, gold prices are at their highest level in 25 years, which overall have increased the return and the profitability of the Rosia Montana project. Based on the 2006 definitive feasibility study, the estimated internal rate of return of the project based on US$500 per ounce gold is 18% and the estimated return increases to 26% at US$600 per ounce gold. Gold is currently trading in the US$670 per ounce range.
The Company raised US$140 million (Cdn$148.7 million) during the first quarter of 2007 bring the total equity raised for the project to US$220 million, exceeding the target equity component by US$70 million. The Company has benefited from the strengthening of the Canadian dollar versus the US dollar during the second quarter, providing a larger surplus than expected to offset some of the additional funding requirements previously identified.
Project Timeline
- The EIA was submitted in second quarter 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, in line with the spring 2007 target.
- TAC and Espoo Convention meetings are well underway during the third quarter.
- We continue to work to receive EIA approval during summer 2007.
- If we are able to purchase the necessary properties and obtain the other permits and approvals, we would expect receipt of the construction permit enabling us to begin construction in fall 2007.
This timetable is in line with the guidance given in March 2007 with the Company's year end financial results. It should however be noted that while the permitting process is moving forward, the TAC has not announced the total number of meetings required or the date of those meetings beyond the next scheduled meeting date. As a result, there is less certainty to our stated timetable. In addition, certain members of the Romanian Government are being pressured by the opposition to slow down the EIA review process until the private members bill to ban cyanide in the mining industry is voted on in Parliament as scheduled in September 2007. To date the opposition has been unsuccessful in stopping the permitting process and has only managed to slow the TAC permitting process down by a few days and as such our schedule does not reflect any delays they may cause. The Romanian Government, however, ultimately determines the timing of the decision and there is no certainty as to this timing. Overall, we expect first pour in fall 2009.
Romania's Accession to European Union
Romania became a full member of the European Union on January 1, 2007. The robust economic growth that characterized the five years preceding accession is projected to continue at levels exceeding five percent. The inflow of foreign direct investment, although reduced from the record levels of 2006, is also expected to continue at higher than average levels into the post accession period.
This relatively bright economic picture is not matched however, in the political arena. Since accession, the ruling coalition has disintegrated with the departure of two of the partners while open disputes between the elected government officials dominate the political agenda. A new coalition government, representing approximately 15 percent of the Parliament, has been formed under the Prime Minister with support from the Opposition. Parliamentary elections are scheduled for fall 2008, however if the new coalition were to fall, elections would be accelerated. The President was impeached in April by Parliament and a referendum took place on May 19, 2007 to determine his fate. The President received approximately 75% support for his reinstatement. While the political environment is uncertain, to date it has not had any impact on the permitting of our project. It is unclear, what effect, if any this may have in the future as we seek our permits through the course of the summer and fall of 2007. Members of the Romanian Government are being pressured by the opposition to slow down the process until the private members bill to ban cyanide use in the mining industry is voted on by Parliament which is expected to be introduced in September 2007.
We have adjusted our permitting and construction schedule to reflect, based on our current best estimate, past experience, the workings of the permitting and construction schedule, but no allowance has been made in our schedule for any delay that may result from the current political environment.
2007 Outlook
Our key objectives for 2007 are similar to those of 2006, and include:
1. Continuously improving communications with all stakeholders;
2. Gaining approval of the EIA by the Romanian Government;
3. Gaining reinstatement of the archaeological discharge currently before courts;
4. Acquiring the surface rights necessary to begin initial construction;
5. Obtaining the project construction permit; and
6. Obtaining funding to begin project construction.
We made solid strides in meeting each one of our key objectives in the second quarter and our aim in 2007 is to obtain all permits and approvals, as well as financing, to begin project construction.
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:
/
Cdn $ thousands 2007 Q2 2007 Q1 2006 Q4 2006 Q3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Statement of Loss
Loss $5,966 $2,471 $5,103 $2,156
Loss per share 0.02 0.01 0.03 0.01
--------------------------------------------------------------------------
Balance Sheet
Working capital 199,257 213,623 79,903 120,360
Total assets 503,381 491,356 338,056 330,489
--------------------------------------------------------------------------
Statement of Cash Flows
Investments in exploration and development 24,107 13,318 31,447 6,663
including working capital changes
Cash flow from financing activities 18,239 152,091 1,954 94,640
--------------------------------------------------------------------------
Cdn $ thousands 2006 Q2 2006 Q1 2005 Q4 2005 Q3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Statement of Loss
Loss $ 3,587 $ 1,767 $ 2,037 $ 1,745
Loss per share 0.02 0.01 0.01 0.01
--------------------------------------------------------------------------
Balance Sheet
Working capital 34,803 44,272 52,870 28,908
Total assets 235,685 238,026 238,343 208,906
--------------------------------------------------------------------------
Statement of Cash Flows
Investments in exploration and development 8,460 6,445 4,369 3,631
including working capital changes
Cash flow from financing activities 1,190 361 30,539 576
-------------------------------------------------------------------------- Statement of Loss
Loss for the Period
For the quarter ended June 30, 2007, the Company incurred losses of $6.0 million or $0.02 per share, compared to a loss of $3.6 million, or $0.02 per share for the second quarter 2006. For the six-months ended June 30, 2007, we lost $8.4 million or $0.04 per share, compared to a loss of $5.4 million or $0.03 per share during the comparable 2006 period.
The higher loss in 2007 relates to higher foreign exchange losses on US dollar cash balances held to finance planned US dollar long-lead-time equipment expenditures and higher corporate, general and administrative costs partially offset by higher interest income and lower project financing and stock option compensation costs.
We expect to incur losses until commercial production commences and revenues are generated.
Expenses
Corporate General and Administrative
During second quarter 2007, we incurred a total of $3.2 million for corporate general and administrative expenses ("G&A"), compared to $2.2 million in second quarter 2006. Excluding the effect of the change in value of the deferred share units ("DSUs"), costs increased by $1.1 million due primarily to higher communications, information technology and overhead costs. For the six-months ended June 30, 2007, G&A costs increased to $5.4 from $4.0 million in the same period of 2006. Corporate general and administrative costs are anticipated to remain at current levels, excluding the impact of DSUs, for the foreseeable future.
DSU costs for second quarter 2007 increased corporate general and administrative costs by $130 thousand, compared to an increase of $293 thousand in second quarter 2006. The 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 value is higher, as it was at the end of the second quarter of 2006 and 2007, the difference is charged to the Statement of Loss, increasing costs for the period. If the share price declines, the lower value of the DSUs is credited against costs during the period. For the six-month period ended June 30, 2007, we credited $11 thousand compared to expensing $251 thousand in the year earlier six-month period. Overall, for 2007 our share price decreased (by $0.29) compared to last year when our share price increased from the close of the previous year end (by $0.05).
Stock Based Compensation
Stock option compensation expensed for second quarter 2007 was $0.5 million, compared to $0.7 million for the second quarter 2006, while stock option compensation for the six-month period decreased to $0.8 million compared to $1.1 million in the six-month period ended June 30, 2006. While more stock options were granted in the first six-months of 2007 (1,405 thousand) compared to first six-months 2006 (1,125 thousand), and the value ascribed to the options under the Black-Scholes option pricing model is higher in 2007 ($1.88 per option) compared to 2006 ($1.23 option) was lower because fewer options were being amortized in 2007, resulting in lower expense for the 2007 period. The higher value of the options in 2007 is due to the higher share price, interest rates and expected life. Of the options granted in 2007, 475 thousand were granted to personnel working on development projects.
The fair value of stock options when granted is amortized over the period in which the options vest. For those options that vest on issuance, the entire fair value of the options is recognized immediately. Fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.
Project Financing Costs
We incurred $0.2 million in project financing costs in second quarter 2007 compared to $1.0 million in the second quarter of 2006, while we incurred $0.5 million in project financing costs in the six-months ended June 30, 2007 compared to $1.1 million in the comparable 2006 period. We restarted project financing activities in January 2006, toward a goal of finalizing project financing term sheets in parallel with EIA approval, which is expected in the summer 2007. Overall, we expect to incur costs of approximately $1 million for project financing activities in 2007, leading up to the finalization of the term sheets. The activities include advisory services and completion of term sheet negotiations for the various facilities under our financing plan.
Interest Income
Interest income for second quarter 2007 increased to $2.4 million, compared to $0.4 million in second quarter 2006, while interest income for the six-month period increased to $3.3 million compared to $0.8 million in the year earlier period. The higher interest income in 2007 relates to the higher cash balance due to two equity issues, one during the third quarter of 2006 and the second during the first quarter of 2007, as well as, higher interest rates earned on our cash balances. Interest income should decrease in the last two quarters of 2007, as our cash balance declines due to continued permitting and development activities at our Rosia Montana project.
Foreign Exchange
For second quarter 2007, we reported a loss of $4.5 million compared to $5 thousand in second quarter 2006, while the foreign exchange loss for the six-month period increased to $4.8 million compared to $2 thousand in the year earlier period. During the year, we converted a portion of our Canadian dollar cash balances to US dollars to hedge the risk of adverse US dollar exchange movements which would increase the cost of US dollar denominated planned expenditures. In the second quarter of 2007 the Canadian dollar strengthened relative to the US dollar, therefore causing an unrealized foreign exchange loss for the Canadian dollar results of operations.
However, the Company continued to maintain (approximately $154 million) Canadian dollars. Holding a strengthening Canadian dollar cash balance benefited the Company because it provided the ability to purchase more foreign currencies. Therefore, the Company while reporting a loss for accounting purposes benefited by US$10 million in its ability to acquire US dollars which are needed for planned activities.
Subsequent to the second quarter of 2007, the Company purchased additional foreign currency positions, thereby crystallizing the benefit from a stronger Canadian dollar. The Company now maintains a relatively small Canadian dollar cash position as future development expenditures are expected to be denominated in foreign currencies.
We would expect to continue to see foreign currency gains and losses as we continue to hold foreign currencies.
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, 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.
During 2007, expenditures at Rosia Montana increased in all the major project areas as permitting and development activities moved ahead in anticipation of construction permits being received in fall 2007.
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Finance and administration $ 4,093 $ 3,435 $ 8,822 $ 6,990
Permitting 2,051 2,164 3,006 3,650
Community development 13,416 1,468 20,632 2,329
Project management and engineering 4,163 516 6,537 1,142
Exploration - Rosia Montana 168 81 272 341
Exploration - Bucium 416 262 798 373
Exploration - Baisoara 34 - 64 -
Capitalized depreciation and disposal (146) (249) (304) (390)
Capitalized stock based compensation (313) - (597) -
---------------------------------------------------------------------------
Total exploration and development
expenditures $23,882 $ 7,677 $39,230 $14,435
---------------------------------------------------------------------------
---------------------------------------------------------------------------During the second quarter of 2007, finance and administration costs increased due to a higher level of legal and communication activities related to ongoing public relations and consulting efforts with respect to the EIA. The increase in community development costs relates to purchasing of homes and associated properties in the first and second quarters of 2007 compared to the three percent option payments in the same periods of 2006 under the option program for homes and associated properties. Project management and engineering costs which primarily relate to project development and permitting increased in 2007 due to increased site and facility planning and long-lead time equipment procurement compared to 2006.
Capital Assets
During the second quarter of 2007 the Company invested $2.0 million in capital assets including $0.7 million for long-lead-time equipment compared to $0.4 million for the same period last year, while capital expenditures for the six-month period increased to $5.0 million, including $2.1 million for long-lead time equipment, from $1.2 million in the comparable 2006 period.
Depreciation for the second quarter 2007 was $222 thousand (2006 - $186 thousand) of which $76 thousand (2006 - $17 thousand) was charged to the Statement of Loss and $146 thousand (2006 - $169 thousand) was capitalized to mineral properties. For the six-month period of 2007 depreciation totaled $443 thousand (2006 - $422 thousand) of which $139 thousand (2006 - $32 thousand) was charged to the Statement of Loss and $304 thousand (2006 - $390 thousand) was capitalized to mineral properties.
Expenditures for project construction are expected to total US$155 million in 2007, as we acquire properties, continue detailed engineering, order long-lead-time equipment, begin construction of the new village at Piatra Alba and subdivision in Alba Iulia and begin site construction, which is scheduled for fall 2007.
Cash Flow Statement
Liquidity and Capital Resources
Our only sources of liquidity until we receive our environmental permits for Rosia Montana -- at which point we will be in a position to move toward completion of debt financing -- are our cash balance, bridge financing, exercise of warrants and stock options outstanding, and the equity markets. We updated the cost to construct the project in first quarter 2006 at US$638 million and expect to update this cost estimate in the fourth quarter of 2007. To complete the development of the project, the Company will need additional external financing. The ability to develop Rosia Montana hinges on our ability to raise the necessary financing for construction. If we were unable to raise the required funds, we would seek strategic alternatives to move the project toward development. We remain confident, however, that we will be able to obtain the necessary financing to construct the mine on reasonable commercial terms.
Working Capital
As at June 30, 2007, we had working capital of $199.3 million versus $79.9 million as at December 31, 2006. The increase in working capital in 2007 relates to an equity offering and exercise of warrants totaling $169 million, partially offset by the loss incurred and the investment in capital assets and mineral properties during the period. In 2005, we issued share purchase warrants. Each warrant entitled the holder to acquire one common share at a price of Cdn$2.75 on or before March 31, 2007 and during the first half of 2007 a total of 7.5 million warrants were exercised for total proceeds of $20.5 million.
Net Change in Non-Cash Working Capital
The net change in operating non-cash working capital decreased for the quarter ended June 30, 2007 compared to the same quarter last year, due to accrued advisory service fees in 2006.
The net change in investing non-cash working capital increased for the three-months ended June 30, 2007, primarily as a result of higher accruals related to a higher level of activity related to the Rosia Montana project and the addition of resettlement liabilities related to those residents of Rosia Montana who have sold their homes in exchange for a new home in one of the two development sites the Company is building.
The increase in financing non-cash working capital in the three-month period ended June 30, 2007, is due to the collection of receivables related to exercised warrants offset by accrued legal costs related to the equity offering during March 2007.
Related Party Transactions
During the second quarter of 2006, the Company provided an employee with an interest free loan of $50 thousand which was repaid in the second quarter of 2007.
The Company paid nil (2006 - $8 thousand) during the second quarter to a director of the Company for consultation services provided to the Company. For the six-months ended June 30, 2007 the Company paid $5 thousand (2006 - $15 thousand)
In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, 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.
Resettlement Liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in the project area. Residents have two choices. They can either chose to take the sales proceeds and move to a new location of their choosing or they can exchange their properties for a new property to be built by the Company at one of the two new resettlement sites. At June 30, 2007, the Company had entered into resettlement contracts totaling $6.7 million, obligating the Company to deliver a new property under those contracts by September 30, 2007. A penalty of 0.5% per month of delay past September 30 will have to be paid. As at June 30, 2007 the Company has accrued $0.3 million (December 31, 2006 - Nil) in respect of delay penalties.
Contractual Obligations
During third quarter 2006, the Company received the Baisoara exploration license which obligates the Company to spend US$3.2 million over its five-year term, which expires July 2011. As at June 30, 2007, the remaining expenditure commitment was US$3.1 million (December 31, 2006 - US$3.2).
The Company has a number of agreements with arms-length third parties who provide a wide range of goods, services and long-lead-time equipment. Typically, these 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, other than for long-lead-time equipment for which the commitments may extend beyond one year and are binding for the full value of the equipment. As at June 30, 2007 commitments under such agreements totaled $62.5 million (December 31, 2006 - $6 million). The increase in the year reflects the ordering of machinery including processing equipment totaling US$50 million. Contractual obligations are expected to continue to rise as we order additional long-lead-time equipment in 2007.
During the fourth quarter of 2005, RMGC initiated a program whereby owners of property in the impacted area of the Project could agree (the "Promissory Agreement") to either: (a) sell their property for cash consideration, or (b) exchange their property for property owned by RMGC in Piatra Alba or Alba Iulia within 180 days of the issuance by the Romanian authorities of the environmental impact assessment ("EIA") for the Project. The agreements expired June 30, 2007. RMGC agreed to pay owners who signed the Promissory Agreement an immediate up-front payment of 3% of the Property Value (as agreed in the Promissory Agreement).
CEO/CFO Certification
Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded at June 30, 2007 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at June 30, 2007 that management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting as required by the Ontario Securities Commission Internal Control certification requirements.
New Accounting Policies
Effective January 1, 2007, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments -Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income; see note 2 of our Consolidated Financial Statements. The adoption of these new standards had no impact on the Company's consolidated financial statements.
Outstanding Share Data
The Company's fully diluted share capital as at the report date was:
Outstanding
---------------------------------------------------------------------------
Preferred shares Nil
Common shares 254,870,701
Common stock options 8,515,783
Common stock warrants 2,625,000
Deferred share units - common shares 248,913
---------------------------------------------------------------------------
Fully diluted share capital 266,260,397
---------------------------------------------------------------------------
---------------------------------------------------------------------------Forward-Looking Statements
Certain statements included herein, including capital costs estimates, future ability to finance the project and other statements that express management's expectations or estimates regarding the timing of completion of various aspects of the projects' development or of our future performance, constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule", and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, the Management's Discussion and Analysis includes many such forward-looking statements and such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements and its forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the worldwide price of precious metals; fluctuations in exchange rates; legislative, political or economic developments including changes to mining and other relevant legislation in Romania; operating or technical difficulties in connection with exploration, development or mining; environmental risks; the speculative nature of gold exploration and development, including the risks of diminishing quantities or grades of reserves; and the Company's requirements for substantial additional funding.
Gabriel Resources Ltd. expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise.
Gabriel Resources Ltd.
Interim Consolidated Financial Statements
(Unaudited)
For the period ended June 30, 2007
Consolidated Balance Sheets
Gabriel Resources Ltd.
As at June 30, 2007 and December 31, 2006
(Unaudited and expressed in thousands of Canadian dollars)
2007 2006
---------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 202,896 $ 12,598
Short-term investments (note 3) 9,273 77,717
Accounts receivable 1,015 2,326
Prepaid expenses and supplies 827 583
---------------------------------------------------------------------------
214,011 93,224
Capital assets (note 4) 7,898 3,491
Mineral properties (note 5) 281,472 241,341
---------------------------------------------------------------------------
$ 503,381 $ 338,056
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 8,092 $ 8,928
Resettlement liabilities (note 6) 6,662 4,393
---------------------------------------------------------------------------
14,754 13,321
Other Liabilities (note 7) 2,141 1,387
---------------------------------------------------------------------------
16,895 14,708
---------------------------------------------------------------------------
Shareholders' Equity
Capital Stock (note 9) 558,083 385,444
Common Share Purchase Warrants (note 10) - 1,946
Contributed Surplus (note 12) 6,786 5,904
Accumulated Other Comprehensive Income (note 2) - -
Deficit (78,383) (69,946)
---------------------------------------------------------------------------
486,486 323,348
---------------------------------------------------------------------------
$ 503,381 $ 338,056
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Nature of operations and going concern (note 1)
Minority interest (note 8(c))
Commitments and contingencies (note 14)
Approved by the Board of Directors
Michael Parrett, Director Alan Thomas, Director
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Loss and Deficit
Gabriel Resources Ltd.
For the three-and-six-month periods ended June 30, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars,
except per share data)
3 months ended June 30, 6 months ended June 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Expenses
Corporate, general and
administrative $ 3,158 $ 2,237 $ 5,440 $ 3,962
Stock based
compensation (note 11) 451 725 840 1,099
Project financing costs 214 998 536 1,083
Amortization 76 17 139 32
---------------------------------------------------------------------------
3,899 3,977 6,955 6,176
---------------------------------------------------------------------------
Other income (loss)
Interest 2,446 395 3,339 823
Foreign exchange (4,513) (5) (4,821) (2)
---------------------------------------------------------------------------
Loss for the period 5,966 3,587 8,437 5,355
Deficit - beginning of
period 72,417 59,100 69,946 57,333
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Deficit - end of period $ 78,383 $ 62,687 $ 78,383 $ 62,687
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Loss per share (basic
and diluted) $ 0.02 $ 0.02 $ 0.04 $ 0.03
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average
number of shares 254,463,284 177,719,221 234,372,735 177,454,113
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Consolidated Statement of Comprehensive Loss
Gabriel Resources Ltd.
For the three-and-six-month periods ended June 30, 2007
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended 6 months ended
June 30, 2007 June 30, 2007
------------------------------------------------------------------------
------------------------------------------------------------------------
Loss for the period $ 5,966 $ 8,437
Other comprehensive loss - -
------------------------------------------------------------------------
Comprehensive loss $ 5,966 $ 8,437
------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
Gabriel Resources Ltd.
For the three-and-six-month periods ended June 30, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended June 30, 6 months ended June 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash flows used in
operating activities
Loss for the period $ (5,966) $ (3,587) $ (8,437) $ (5,355)
Items not affecting cash
Amortization 76 17 139 32
Stock option compensation 451 725 840 1,099
Unrealized foreign exchange
loss on cash and
cash equivalents 3,618 - 3,773 -
Deferred share units 130 293 (11) 251
---------------------------------------------------------------------------
(1,691) (2,551) (3,696) (3,973)
Net changes in non-cash
working capital (note 15) 493 1,289 958 642
---------------------------------------------------------------------------
(1,198) (1,262) (2,738) (3,331)
---------------------------------------------------------------------------
Cash flows (used in) provided
by investing activities
Decrease in short-term
investments 231 20,965 68,444 22,970
Exploration and development
expenditures (note 15) (23,882) (7,677) (39,230) (14,435)
Purchase of capital assets (1,963) (431) (4,953) (1,211)
Net changes in non-cash
working capital (note 15) (225) (827) 2,069 (514)
---------------------------------------------------------------------------
(25,839) 12,030 26,330 6,811
---------------------------------------------------------------------------
Cash flows from financing
activities
Proceeds from issuance of
capital stock, net
of issue costs (173) 1,190 148,543 1,551
Proceeds from the exercise
of share purchase warrants 16,100 - 20,489 -
Proceeds from the exercise
of stock options 807 - 1,102 -
Net changes in non-cash
working capital (note 15) 1,655 - 346 -
---------------------------------------------------------------------------
18,389 1,190 170,480 1,551
---------------------------------------------------------------------------
Increase in cash and cash
equivalents (8,648) 11,958 194,072 5,031
Effect of foreign exchange on
cash and cash equivalents (3,356) - (3,774) -
Cash and cash equivalents -
beginning of period 214,900 18,379 12,598 25,306
---------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 202,896 $ 30,337 $ 202,896 $ 30,337
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Supplemental cash flow information (note 15)
The accompanying notes are an integral part of these consolidated
financial statements.Notes to Consolidated Financial Statements
For the three-and-six-month periods ended June 30, 2007 and 2006
(Unaudited and tabular amounts in thousands of Canadian dollars, unless otherwise shown)
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 as well as 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 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 stability, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. These may adversely affect the investment and may result in the impairment or loss of all or part of the Company's investment.
The Company does not have sufficient cash to fund the development of the Project and therefore will require additional funding which if not raised would result in the curtailment of activities and result in Project development delays. Management expects that additional financing will be available and may be sourced in time to allow the Company to continue its planned activities in the normal course. While the Company has been successful in the past, there can be no assurance it will be able to raise sufficient funds in the future.
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. However, there can be no assurances that the Company's activities will be successful and as a result there is substantial doubt regarding the "going concern" assumption. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, may be necessary.
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, 2006, except as described below in note 2. 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, 2006.
2. Adoption of new accounting standards
Financial Instruments and Comprehensive Income
Effective January 1, 2007, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments -- Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income.
Under these new standards, all financial instruments, including derivatives, included on the consolidated balance sheet are either classified as held for trading, held-to-maturity investments, loans and receivables or available-for-sale categories and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. After initial recognition, the financial instruments are measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which are measured at amortized cost. The gain or loss arising from a change in the fair value of a financial asset or financial liability classified as held for trading is included in earnings for the period in which it arises. If a financial instrument is classified as available-for-sale, the gain or loss is recognized in other comprehensive income until the financial instrument is derecognized and the cumulative gains or losses are then recognized in earnings. The Company has classified its cash and cash equivalents and short-term investments as held for trading. The accounts receivable and deposits were classified as loans and receivables, and the accounts payable were classified as other financial liabilities.
Transaction costs, related to financial assets and liabilities, are accounted for as financial expenses. An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host contract and accounted for as a derivative in the balance sheet, at its fair value. The Company has elected to recognize embedded derivatives in its consolidated balance sheet, if applicable. This accounting change had no impact in the financial statements of the Company.
Derivatives that qualify as hedging instruments must be designated as either a "cash flow hedge," when the hedged item is a future cash flow, or a "fair value hedge," when the hedged item is the fair value of a recognized asset or liability. The effective portion of unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value in the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings. The Company has not entered into any forward exchange contracts.
The adoption of these new standards had no impact on the Company's consolidated financial statements.
3. Short-term investments
June 30, December 31,
2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Money market investments with maturities from the
date of acquisition of
4 - 6 months $ - $ 68,446
7 - 12 months 9,089 8,763
Restricted cash 184 508
---------------------------------------------------------------------------
$ 9,273 $ 77,717
---------------------------------------------------------------------------
Money market investments yield average interest of 4.4% (2006 - 4.3%).
Maturities under 90 days are included in cash and cash equivalents.
Restricted cash represents collateral of Nil (2006 - $325 thousand) on
corporate credit cards and environmental guarantees for future clean up
costs of $184 thousand (2006 - $183 thousand).
4. Capital Assets
June 30, December 31,
2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Office equipment $ 3,871 $ 3,508
Buildings 1,082 1,015
Vehicles 1,269 1,269
Leasehold improvements 202 131
Construction in progress 4,347 -
---------------------------------------------------------------------------
10,771 5,923
---------------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 1,747 1,552
Buildings 39 35
Vehicles 969 736
Leasehold improvements 118 109
---------------------------------------------------------------------------
2,873 2,432
---------------------------------------------------------------------------
Net book value
Office equipment 2,124 1,956
Buildings 1,043 980
Vehicles 300 533
Leasehold improvements 84 22
Construction in progress(1) 4,347 -
---------------------------------------------------------------------------
$ 7,898 $ 3,491
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Amounts included in construction in progress are not subject to
amortization.
5. Mineral Properties
Rosia Montana Bucium Baisoara Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance - December 31, 2005 $ 172,988 $ 8,337 $ - $ 181,325
Development costs 58,024 - - 58,024
Exploration costs 898 1,053 41 1,992
-------------------------------------------------------------------------
Balance - December 31, 2006 231,910 9,390 41 241,341
Development costs 38,997 - - 38,997
Exploration costs 272 798 64 1,134
-------------------------------------------------------------------------
Balance - June 30, 2007 $ 271,179 $ 10,188 $ 105 $ 281,472
-------------------------------------------------------------------------
-------------------------------------------------------------------------The Company's principal asset is its 80% direct ownership interest in a Romanian company, Rosia Montana Gold Corporation ("RMGC"), which holds two mineral licences 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 the Company holds the pre-emptive right to acquire the 20% minority interest. The Company is required to fund 100% of all expenditures related to the exploration and development of these properties and holds a preferential right to recover all funding plus interest from future cash flows prior to the shareholders receiving dividends.
An exploitation license is held by RMGC as the titleholder in respect of the Rosia Montana property. RMGC has the exclusive right to conduct mining operations at the Rosia Montana property for an initial term of 20 years commencing in 1998, and thereafter with successive five-year renewal periods.
RMGC holds an exploration license over the Bucium property. The license, which was extended in 2004, expired May 19, 2007. The Company was obliged to and spent US$3.4 million over the term of the license extension period. The expiring exploration license can be converted into an exploitation license upon submission and approval of a feasibility study. Subsequent to the quarter, the Company filed the necessary documentation to request conversion of the exploration license into an exploitation license.
The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), received an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. The Company is obligated to spend US$3.2 million over the term of the license. Field work commenced in the fourth quarter of 2006.
6. Resettlement liabilities
The Company entered into resettlement agreements with certain property owners in the Project area. Under the agreements, some property owners have sold their properties to the Company in exchange for a new property to be constructed by the Company. The Company is obligated to deliver the new property by September 30, 2007. If the Company fails to deliver these new properties, the Company will incur a penalty of 0.5% of the agreed upon property value per month of delay, to a maximum of 12 months. If the Company fails to fulfill its obligation by the end of the 12-month penalty period, the Company shall pay the owners the agreed upon property value, plus the related penalties, and the owners retain the property possession until alternative housing is made available. As at June 30, 2007 the Company has accrued $0.3 million (December 31, 2006 -- Nil) representing its total estimated delay penalty.
The total value of resettlement contracts entered into amounted to $6.7 million as at June 30, 2007 (December 31, 2006 - $4.4 million).
7. Other liabilities
Price per
Common Share
Deferred Share Units ("DSU") (a) DSU's (dollars) Value
----------------------------------------------------------------------
----------------------------------------------------------------------
Outstanding - December 31, 2005 158 $ 2.84 $ 449
Granted 205 4.07 833
Settled (125) 2.75 (344)
Change in value - - 265
----------------------------------------------------------------------
Outstanding - December 31, 2006 238 5.06 1,203
Granted 11 4.48 50
Change in value - - (66)
----------------------------------------------------------------------
Balance - June 30, 2007 249 $ 4.77 $ 1,187
----------------------------------------------------------------------
----------------------------------------------------------------------
Fidelity bonus and other benefits (b)
----------------------------------------------------------------------
----------------------------------------------------------------------
Balance accrued - December 31, 2005 $ -
Additions 184
----------------------------------------------------------------------
Balance accrued - December 31, 2006 184
Additions 770
----------------------------------------------------------------------
Balance accrued - June 30, 2007 954
----------------------------------------------------------------------
Other liabilities $ 2,141
----------------------------------------------------------------------
----------------------------------------------------------------------(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. 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 DSUs has been recorded in corporate, general and administrative expense except for costs relating to personnel working on projects in Romania, which is capitalized.
3 months ended 6 months ended
June 30, June 30,
2007 2006 2007 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
In thousands
Expensed (recovered) $ 130 293 $ (11) 251
Capitalized (recovered) $ 9 - $ (5) -(b) Fidelity Bonus and other benefits
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, 2007, $954 thousand (December 31, 2006 - $184 thousand) has been accrued for these benefits.
8. Related Party Transactions
The Company had related party transactions, with directors and employees of the Company or associated corporations, which were in the normal course of operations and were measured at the exchange amounts as follows:
(a) During the second quarter of 2006, the Company provided an employee with an interest free loan of $50 thousand. The employee left the Company in the second quarter of 2007 and the loan was repaid.
(b) The Company paid nil (2006 - $8 thousand) during the second quarter to a director of the Company for consultation services provided to the Company. For the six months ended June 30, 2007 the Company paid $5 thousand (2006 - $15 thousand).
(c) In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, 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
Common shares issued and outstanding
Number of
shares Amount
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balance -- December 31, 2005 177,074 $ 284,987
Shares issued from a public offering (a) 31,050 97,808
Less: Share issue costs - (4,780)
Shares issued on the exercise of stock options (note
11) 2,628 5,079
Exercise of stock options - transfer from contributed
surplus (note 12) - 1,963
Stock-based compensation - settlement of DSUs (note
7(a)) 125 344
Shares issued from the exercise of share purchase
warrants (10 (a)) 14 39
Exercise of share purchase warrants - transfer from
common share purchase warrants - 4
---------------------------------------------------------------------------
Balance - December 31, 2006 210,891 385,444
Shares issued from a public offering (b) 35,938 156,328
Less: Share issue costs (a)(b) - (7,785)
Shares issued on the exercise of stock options (note
11) 547 1,102
Exercise of stock options - transfer from contributed
surplus (note 12) - 568
Shares issued from the exercise of share purchase
warrants (note 10 (a)) 7,450 20,489
Exercise of share purchase warrants -- transfer from
common share purchase warrants - 1,937
---------------------------------------------------------------------------
Balance - June 30, 2007 254,826 $ 558,083
---------------------------------------------------------------------------
---------------------------------------------------------------------------(a) In the third quarter of 2006, the Company issued 31.1 million common shares at $3.15 per share to a syndicate of underwriters and Newmont Canada Limited ("NCL") for aggregate net proceeds of $93 million, after deducting underwriting fees of $4.3 million plus various professional fees related to the offering of $0.7 million of which $0.2 million was recorded in 2007.
(b) In the first quarter of 2007, the Company issued 35.9 million common shares at $4.35 per share to a syndicate of underwriters. Aggregate net proceeds of $148.7 million were received, after deducting underwriting fees of $6.9 million plus various professional fees related to the offering of $0.7 million. The Company intends to use the net proceeds of the offering to advance the development of the Rosia Montana gold deposit in Romania including completing surface rights acquisition, advancing detailed engineering, purchasing of long lead-time equipment, development of the new resettlement sites, site mobilization costs and general corporate purposes.
As of the closing of the offering, NCL held 46.9 million common shares or 18.4% of the issued and outstanding common shares.
10. Common Share Purchase Warrants
(a) In first quarter 2005, the Company issued 15 million units priced at $2.00 per unit by way of a public offering for gross proceeds of $30 million. Each unit consisted of one common share and one half of one common share purchase warrant with an exercise price of $2.75 and expiry date of March 31, 2007. The purchase warrants had an assigned value of $1.95 million.
Share purchase warrants were outstanding and exercised as follows:
Exercise
Number of price
warrants (dollars) Expiry date
-------------------------------------------------------------------
-------------------------------------------------------------------
Balance - December 31, 2005 7,500 $ 2.75 March 31, 2007
Warrants exercised (14) 2.75 March 31, 2007
-------------------------------------------------------------------
Balance - December 31, 2006 7,486 2.75 March 31, 2007
Warrants exercised (7,451) 2.75 March 31, 2007
Warrants expiring unexercised (35) 2.75 March 31, 2007
-------------------------------------------------------------------
Balance - June 30, 2007 - - -
-------------------------------------------------------------------
-------------------------------------------------------------------Under the terms of the common share purchase warrant indenture the expiry dates of these warrants were extended to April 2, 2007, as March 31, 2007 was a non-business day.
(b) The Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project during fourth quarter 2006. As part of the proposed compensation of the financial institutions, the Company is prepared to issue up to a total of 2.625 million common share purchase warrants (the "Warrants"). The Warrants have an exercise price of $4.88 per warrant, a four year term and will vest upon achievement of project financing milestones, including public announcement of a committed underwriting by such financial institutions of a syndicated bank credit facility in an amount up to US$350 million (the "Facility"), execution of definitive credit documentation for the Facility, and first draw-down under the Facility.
11. Stock Options
The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants. The exercise price of the options equals the closing price on the day prior to the option allotment. For options granted during a blackout period, the exercise price of the options equals the closing price on the day after the date the blackout is cleared. The majority of options granted vest over three years and are exercisable over five years from the date of issuance.
The Plan was amended on May 8, 2007 to allow for the maximum number of common shares issuable under the Plan to equal 10% of the issued and outstanding common shares of the Company at any point in time, and that options once exercised would be re-endorsed into the pool of ungranted options.
As at June 30, 2007, 16.9 million options remain available for issuance under the Plan (December 31, 2006 - 1.7 million).
As at June 30, 2007, common share stock options held by directors, officers, employees and consultants are as follows:
Outstanding Exercisable
--------------------------------- -----------------------
Weighted
Weighted average Weighted
average remaining Average
Range of exercise exercise contractual Exercise
prices Number of price life Number of Price
(dollars) options (dollars) (Years) options (dollars)
----------------- --------------------------------- -----------------------
$1.48 - $2.00 3,052 $ 1.55 2.7 2,291 $ 1.56
2.01 - 3.00 2,638 2.50 3.2 1,526 2.48
3.01 - 5.00 2,872 4.53 4.2 641 4.61
--------------------------------- -----------------------
8,562 $ 2.84 3.3 4,458 $ 2.31
--------------------------------- -----------------------
--------------------------------- -----------------------
During the periods ended 2007 and 2006, 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, 2005 10,293 $ 2.59
Options granted 2,450 3.71
Options expired (50) 2.65
Options cancelled (482) 4.34
Options exercised (2,628) 1.93
------------------------------------------------------------------
Balance - December 31, 2006 9,583 2.96
Options granted 1,405 4.48
Options expired (855) 5.50
Options cancelled (1,024) 4.46
Options exercised (547) 2.02
------------------------------------------------------------------
Balance - June 30, 2007 8,562 $ 2.84
------------------------------------------------------------------
------------------------------------------------------------------
The exercise of the outstanding stock options would be anti-dilutive in
the loss per share calculation.
The fair value of 1,405 thousand options granted during the six-month
period ended June 30, 2007 (June 30, 2006 --1,125 thousand) has been
estimated at the date of grant using a Black-Scholes option pricing model.
The current period's valuation was calculated with the following
assumptions:
6 months ended June 30,
2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average risk-free interest rate 4.22% 4.06%
Volatility of the expected market price of share 61% 69%
Weighted average expected life of options 2.7 years 2.6 years
Weighted average cost per option $1.88 $1.23The estimated fair value of the options is amortized over the vesting period and expensed to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet.
12. Contributed Surplus
The following table identifies the changes in contributed surplus for the periods indicated:
Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance - December 31, 2005 $ 5,687
Stock-based compensation 2,180
Exercise of stock options (1,963)
---------------------------------------------------------------------
Balance - December 31, 2006 5,904
Stock-based compensation 1,441
Exercise of stock options (note 11) (568)
Warrants expiring unexercised (note 10) 9
---------------------------------------------------------------------
Balance - June 30, 2007 $ 6,786
---------------------------------------------------------------------
---------------------------------------------------------------------13. Segmented Information
The Company has one operating segment: the acquisition, exploration and development of precious metals. All costs incurred in Romania related to our three development and exploration projects, Rosia Montana, Bucium and Baisoara are capitalized to mineral properties.
Geographic segmentation of capital assets and mineral properties is as follows:
June 30, December 31,
2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Romania $ 287,882 $ 243,899
Canada 1,488 933
--------------------------------------------------------------------------
$ 289,370 $ 244,832
--------------------------------------------------------------------------
--------------------------------------------------------------------------14. 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.
2011 and
Total 2007 2008 2009 2010 thereafter
--------------------------------------------------------------------------
Baisoara exploration
license (note 5) $ 3,305 $ 99 $ 263 $ 680 $ 1,395 $ 869
Goods, services and
long lead equipment
(a) 62,469 25,407 33,134 3,476 10 442
Rosia Montana
exploitation license
(b) 324 27 27 27 27 216
Surface concession
rights (c) 927 11 21 21 21 852
Lease agreements (d) 1,091 245 285 241 225 95
--------------------------------------------------------------------------
Total commitments $ 68,116 $ 25,789 $ 33,730 $ 4,445 $ 1,678 $ 2,474
--------------------------------------------------------------------------
--------------------------------------------------------------------------(a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods, services and long-lead equipment which totaled $62.5 million at June 30, 2007 (December 31, 2006 -- $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 the year, the Company entered into several purchase agreements for various machinery including processing equipment for a total value of US$50 million. The cost of the equipment will be paid over three years, 2007 to 2009. As of June 30, 2007, US$2 million of deposits have been made.
(b) 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 $27 thousand. These fees are indexed annually by the Romanian Government and the license has 12 years remaining.
(c) RMGC has approximately 44 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 $21 thousand.
(d) 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 following is a summary of contingencies of the Company.
(a) During the fourth quarter of 2005, RMGC initiated a program whereby owners of property in the impacted area of the Project could agree (the "Promissory Agreement") to either: (a) sell their property for cash consideration, or (b) exchange their property for property owned by RMGC in Piatra Alba or Alba Iulia within 180 days of the issuance by the Romanian authorities of the environmental impact assessment ("EIA") for the Project. Although the agreements expired June 30, 2007, the Company notified all homeowners of its intention to exercise its purchase right. RMGC agreed to pay owners who signed the Promissory Agreement an immediate up-front payment of 3% of the Property Value (as agreed in the Promissory Agreement).
(b) 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.
15. Supplemental Cash Flow Information
(a) Net changes in non-cash working capital
3 months ended 6 months ended
June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid
expenses and supplies $ 25 $ 210 $ 1,005 $ 2
Accounts payable and
accrued liabilities 467 1,079 (48) 640
Unrealized foreign exchange
loss on working capital 1 - 1 -
---------------------------------------------------------------------------
$ 493 $ 1,289 $ 958 $ 642
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Investing activities:
Accounts receivable,
prepaid expenses and
supplies $ 90 $ 216 $ 166 $ (669)
Accounts payable and
accrued liabilities (1,689) (1,042) (366) 155
Resettlement liabilities 1,638 - 2,269 -
Unrealized foreign exchange
loss (gain) on short term
investments (264) - - -
---------------------------------------------------------------------------
$ (225) $ (826) $ 2,069 $ (514)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Financing activities:
Accounts receivable for
exercise of purchase
warrants $ 1,709 - $ - -
Accrued legal costs for
public issue equity (54) - 346 -
---------------------------------------------------------------------------
$ 1,655 - $ 346 -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(b) Exploration and
development expenditures
Balance sheet change in
Mineral properties $ (24,341) $ (7,926) $ (40,131) $ (14,825)
Non-cash depreciation and
disposal capitalized 146 249 304 390
Stock based compensation
capitalized 313 - 597 -
---------------------------------------------------------------------------
Exploration and development
expenditures per cash flow
statement $ (23,882) $ (7,677) $ (39,230) $ (14,435)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(c) Cash and cash equivalents is comprised of:
June 30, December 31,
2007 2006
---------------------------------------------------------------------------
Cash $ 9,867 $ 8,611
Short-term investments (less than 90 days)
weighted average interest of 4.6% (2006 - 4.4%) 193,029 3,987
---------------------------------------------------------------------------
$ 202,896 $ 12,598
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The Company did not pay any interest or income taxes during the periods
ended June 30, 2007 and 2006.
|
|