TORONTO, Aug. 9 /CNW/ -
Highlights
----------
- Second quarter net loss was $2.3 million, or $0.02 per share,
including $0.5 million related to severance payments to senior
Romania based management
- Second quarter monthly expenditures averaged $1.6 million
per month, excluding severance payments, with a total of
$3.9 million invested in two development projects
- Working capital at June 30, 2005 totaled $32.8 million
- Appointment of new senior management team -- experienced in
building some of the largest gold mines in the world
- Restructured and appointed new senior management team in Romania
- Appointed Former Ambassador to Romania as a Director of
the Company
- Advanced the Rosia Montana EIA in accordance with the Terms of
Reference - to appoint independent EIA team during third quarter
of 2005
- Archeological discharge certificate number 4 annulled
- Updated timetable on project; target date to receive construction
permit -- second half of 2006, with first gold pour expected in
late 2008 or early 2009
- Romania signed Treaty of Accession with the European Union
Loss for the period
We incurred a loss of $2.3 million or $0.02 per share in the second
quarter of 2005 compared to a loss of $2.3 million in the year-earlier period.
For the six months ended June 30, 2005, we lost $4.7 million or $0.03 per
share compared to a loss of $4.7 million in the first half of 2004. Overall,
lower project financing costs in the second quarter and six-month period were
offset by reorganization severance costs, reversal of prior year accrual and
an increase in non-cash charges related to stock option compensation.
"With the changes we made during the second quarter, I believe your
Company now has in place a great team, dedicated to a single objective - to do
it right," said Alan R. Hill President and Chief Executive Officer. "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," added Mr. Hill.
Development activities
We invested $3.9 million in our two development projects during the
second quarter of 2005, compared to $14.0 million in the year earlier quarter.
The reduction in expenditures during 2005 reflects our decision to delay most
expenditures that are not directly related to the permitting process. As a
result, village relocation and engineering costs, as well as finance and
administration overheads were significantly lower than the year earlier
period.
Liquidity and capital resources
We have $32.8 million in working capital, as at the end of June 2005,
which could be bolstered by $30 million by year end if warrants currently
outstanding that expire at year end are exercised in full. We averaged
$1.6 million per month during the quarter, excluding severance payments, which
is in line with our expected monthly expenditure range of between $1.5 million
and $2.0 million per month through the balance of the year. We expect to have
about $20 million in working capital at year end, excluding warrants, based on
the current expenditure rate.
Appointment of new senior management team
During the second quarter, the corporate senior management team was
bolstered by the hiring of three former Barrick Gold Corporation employees, as
well as a new senior management group in Romania to lead the project
permitting and development efforts.
Alan R. Hill was appointed the President and Chief Executive Officer of
Gabriel upon the retirement of Oyvind Hushovd as the Chairman and Chief
Executive Officer. Mr. Hushovd continues as the Non-Executive Chairman of
Gabriel. Prior to his retirement from Barrick Gold Corporation in September
2003, Mr. Hill managed the development of Barrick's four latest projects: Alto
Chicama, Pascua, Veladero and Cowal. During his 20-year tenure at Barrick,
Mr. Hill also managed the development of that company's Goldstrike, Pierina
and Bulyanhulu projects.
Also during the second quarter, Richard Young was appointed as Vice
President and Chief Financial Officer of Gabriel upon the resignation of Paul
Martin. Mr. Young, a chartered accountant, brings financial, mine development
and capital markets experience to Gabriel. During his 13-year career with
Barrick Gold Corporation, he gained extensive financial experience through a
number of positions within the finance group, as well as mine development
experience as Barrick developed its Goldstrike and Pierina Properties.
In addition, Yani Roditis was appointed Vice President Projects of
Gabriel. Mr. Roditis, an engineer, brings extensive engineering, environmental
permitting and operations experience to Gabriel. During his 11-year career
with Barrick Gold Corporation, he gained extensive experience permitting,
constructing and operating a number of gold mines, primarily in South America.
In his new capacity, Mr. Roditis will be based in Romania and oversee the
permitting and construction of the Rosia Montana gold project.
Restructuring of and appointment of new senior management team in Romania
During the second quarter, we restructured and refocused our project
development activities for the Rosia Montana project by opening a corporate
office in Bucharest and appointing a new senior management team, which will be
based in the Romanian capital. Our expanded presence in Bucharest will enable
us to more effectively co-ordinate and communicate with the Romanian
Government, the regulatory authorities, as well as our consultants and
suppliers during the permitting, construction and operational phases of the
Rosia Montana project. We closed our existing office in Alba Iulia, reducing a
number of staff positions not immediately relevant to permitting and
development efforts, and relocated all remaining staff to either Bucharest or
the project site in Rosia Montana.
In addition to Alan R. Hill's role as President and Chief Executive
Officer of the Company, he is also assuming the role of Chief Executive
Officer of our Romanian subsidiary Rosia Montana Gold Corporation ("RMGC"),
committing a significant portion of his time and effort to be the lead person
in Romania during the permitting and construction of Rosia Montana. Joining
Mr. Hill are three new appointments to RMGC.
Mr. John Aston - Vice President Responsible Development and
Communications;
Mr. Greg Duras - Vice President Finance and Administration; and
Mr. Liviu Popa - Vice President Community Relations.
"This new team has the energy and the enthusiasm to provide real momentum
to our project development efforts," said Mr. Hill.
Election of Former Canadian Ambassador to Romania as Director of Gabriel
At Gabriel's annual general meeting, held during the second quarter,
Mr. Raphael Girard, the Former Canadian Ambassador to Romania from 2000 to
2003, was elected as a member of Gabriel's Board of Directors. Prior to
serving as Canada's ambassador to Romania, Mr. Girard served as Canada's
ambassador to Yugoslavia. "Mr. Girard, with his knowledge, experience and
relationships, has been invaluable during the short time he has been on the
Board of the Company," said Mr. Hill.
Rosia Montana Project Development
Mineral Resource Estimate Update
We have initiated the process of updating our mineral resource estimate
for the Rosia Montana project, to include all exploration drilling and
sampling results generated since the last resource estimate was completed in
2003. The updated resource estimate is expected to be completed during the
third quarter of 2005. Once we have the updated resource estimate, we will be
updating the capital and operating cost estimates for the project, which we
expect to announce at year end. Once we have updated parameters for the
project, we will be in a position to restart project financing activities.
Environmental Impact Assessment
During the second quarter, the Romanian Ministry of Environment issued
the terms of reference (the "TOR") for the environmental impact assessment
("EIA") for the Rosia Montana project. The TOR provides an outline of the
matters that must be addressed in the EIA and, after an initial review, are as
we expected. Our experienced team of Romanian, European Union and
international environmental consulting firms will now proceed to finalize the
EIA in compliance with requirements specified in the TOR, relevant Romanian
laws and regulations, both current and draft European Union directives as well
as the Equator Principles. Based on our current estimate, we do not expect to
file our EIA with the Romanian Government until the end of the first quarter
2006, as the specialist team we wish to hire, to complete, finalize and
submit, is currently engaged in other projects into the fourth quarter of
2005. Our goal is to obtain our construction permits as quickly as possible,
which implies having the right team in place to facilitate that permitting
process.
Archaeological Discharge Certificate
On June 20, 2005 the Alba Iulia Court of Appeal (the "Court") granted
Alburnus Maior's (a Romanian NGO opposing the development of a new mine at
Rosia Montana) petition against the Romanian Ministry of Culture (the
"Ministry") for the annulment of archaeological discharge certificate no. 4
for a portion of the Carnic massif, issued by the Ministry on January 15, 2004
pursuant to RMGC's application. We are awaiting receipt of a copy of the
Court's decision in this matter and expect to appeal the decision to a higher
court after its receipt. The ruling of the Court does not prevent us from
continuing our archaeological discharge program and we can reapply for a new
archaeological discharge certificate at any time either before or after an
appeal of the Court's decision is heard.
Over the past year, Alburnus Maior has 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. These actions include both civil actions and
criminal complaints against both the regulatory authorities and individuals
within such regulatory authorities and, in general, claim that such regulatory
authorities are acting in violation of Romanian laws. Generally, the sanction
requested is cancellation of the permit or authorization. We, through RMGC,
have 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
Romanian laws.
Rosia Montana Project Timeline Update
Our goal is to submit our EIA by the end of the first quarter 2006. If we
are able to complete the village relocation and obtain our archaeology
discharges in parallel with the EIA, as we intend to do, we would expect to
receive our construction permit in the second half of 2006. This timetable
firms up previous guidance issued by the Company that construction may not be
possible during 2006. We would only begin construction in the second half of
2006 if we receive our construction permits early enough in the fall to
complete sufficient work to allow us to work through the winter, which can be
severe. Otherwise, we would take the additional time to prepare for
construction, order long-lead-time equipment and be ready to break ground as
soon as we can in the spring of 2007. The project should take approximately
two years to construct, putting our projected first pour in the second half of
2008 or early 2009.
"During the second half of this year we will focus on assembling an
independent specialist team to complete, finalize and submit the EIA, defining
a community development strategy and advancing our archeology program, all in
an effort to meet our target date of obtaining our construction permits in the
second half of 2006," said Mr. Hill.
Romanian Developments - Romania Signs Accession Treaty with
European Union
During the second quarter, Romania signed the Treaty of Accession (the
"Treaty") with the European Union providing for Romania to join the European
Union on January 1, 2007. Romania also entered into the Accession Protocol and
its Annexes, which form an integral part of the Treaty and which contain most
of the detailed conditions and arrangements for accession to the European
Union. The signing of the Treaty followed the European Parliament's vote on
April 13, 2005 approving the entry of Romania into the European Union in 2007.
<<
Gabriel Resources Ltd.
Consolidated Balance Sheets
As at June 30, 2005 and December 31, 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
2005 2004
$ $
Assets
Current assets
Cash and cash equivalents 34,218,825 16,371,543
Accounts receivable 449,925 294,160
Prepaid expenses and supplies 889,376 1,217,008
----------------------------
35,558,126 17,882,711
Capital assets (note 2) 1,923,662 2,162,500
Mineral properties (note 3) 172,734,328 164,457,139
----------------------------
210,216,116 184,502,350
----------------------------
----------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 2,708,270 2,600,147
Other liabilities (note 4) 238,067 220,823
----------------------------
2,946,337 2,820,970
----------------------------
Shareholders' Equity
Capital stock (note 6) 253,337,410 227,157,729
Common share purchase warrants
(note 6 and 7) 1,950,000 -
Contributed surplus (note 9) 5,533,217 3,375,933
Deficit (53,550,848) (48,852,282)
----------------------------
Nature of operations and going
concern (note 1) 207,269,779 181,681,380
----------------------------
Minority interest (note 5(c)) 210,216,116 184,502,350
----------------------------
----------------------------
Approved by the Board of Directors
"Michael Parrett" Director "Alan R. Hill" Director
The accompanying notes are an integral part of these
consolidated financial statements.
Gabriel Resources Ltd.
Consolidated Statements of Loss and Deficit
For the three and six-month periods ended June 30, 2005 and 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
3 months ended June 30 6 months ended June 30
2005 2004 2005 2004
$ $ $ $
Expenses
Corporate general
and administrative 1,126,917 1,222,927 2,334,673 2,327,934
Stock option
compensation (note 8) 934,141 268,571 2,157,284 535,952
Reorganization severance
costs 546,755 - 546,755 -
Project financing costs - 827,035 - 2,055,629
Amortization 13,904 21,216 30,569 30,458
----------------------------------------------------
2,621,717 2,339,749 5,069,281 4,949,973
----------------------------------------------------
Other income (expense)
Interest 217,637 74,578 284,052 245,676
Foreign exchange 64,220 (25,653) 86,663 6,934
----------------------------------------------------
281,857 48,925 370,715 252,610
----------------------------------------------------
Loss for the period 2,339,860 2,290,824 4,698,566 4,697,363
Deficit - Beginning
of period 51,210,988 42,671,386 48,852,282 40,264,847
----------------------------------------------------
Deficit -
End of period 53,550,848 44,962,210 53,550,848 44,962,210
----------------------------------------------------
----------------------------------------------------
Loss per share
(basic and diluted) 0.02 0.02 0.03 0.04
----------------------------------------------------
----------------------------------------------------
Weighted average
number of shares 154,037,175 131,175,016 154,037,175 131,175,016
----------------------------------------------------
----------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
Gabriel Resources Ltd.
Consolidated Statements of Cash Flows
For the three and six-month periods ended June 30, 2005 and 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
3 months ended June 30 6 months ended June 30
2005 2004 2005 2004
$ $ $ $
Cash flows used in
operating activities
Loss for the period (2,339,860) (2,290,824) (4,698,566) (4,697,363)
Items not affecting
cash
Amortization 13,904 21,216 30,569 30,458
Stock option
compensation 934,141 268,571 2,157,284 535,952
Deferred share units (24,207) (181,926) 17,244 (268,057)
---------------------------------------------------
(1,416,022) (2,182,963) (2,493,469) (4,399,010)
Net changes in
non cash working
capital (note 13a) 346,859 197,666 201,777 (626,577)
---------------------------------------------------
(1,069,163) (1,985,297) (2,291,692) (5,025,587)
---------------------------------------------------
Cash flows used in
investing activities
Exploration and
development
expenditures
(note 13b) (3,901,694) (13,981,007) (7,965,376) (22,990,511)
Purchase of capital
assets (79,384) (474,384) (103,544) (827,699)
Net changes in
non cash working
capital (note 13a) (340,583) 2,357,668 (92,557) 1,171,579
---------------------------------------------------
(4,321,661) (12,097,723) (8,161,477) (22,646,631)
---------------------------------------------------
Cash flows from
(used in) financing
activities
Proceeds from the
exercise of
stock options - - - 1,111,617
Issuance of capital
stock and common
share purchase
warrants net of
issue costs (note 6) - - 28,129,681 -
Net changes in non-cash
working capital
(note 13a) (247,499) - 170,770 -
---------------------------------------------------
(247,499) - 28,300,451 1,111,617
---------------------------------------------------
Increase/(Decrease)
in cash and
cash equivalents (5,638,323) (14,083,020) 17,847,282 (26,560,601)
Cash and cash
equivalents -
Beginning of period 39,857,148 21,388,487 16,371,543 33,866,068
---------------------------------------------------
Cash and cash
equivalents -
End of period 34,218,825 7,305,467 4,218,825 7,305,467
---------------------------------------------------
---------------------------------------------------
Supplemental cash flow
information
(note 13)
The accompanying notes are an integral part of these
consolidated financial statements.
Gabriel Resources Ltd
Notes to Consolidated Financial Statements
For the three and six-month periods ended June 30, 2005 and 2004
(Unaudited and expressed in Canadian dollars)
1. Nature of operations and going concern
Gabriel Resources Ltd. (the "Company") is in the process of exploring
and developing mineral prospects in Romania. Its principal project,
the Rosia Montana gold/silver deposit (the "Project"), has previously
been subject to exploration and confirmatory work to determine that
the Project has economically viable gold reserves. As a result of the
confirmatory work, the Company initiated a basic engineering study
which was released in the first quarter of 2003, followed by detailed
engineering work. Detailed engineering, as well as village relocation
initiatives, were put on hold during 2004, to conserve cash resources
and allow the Company to focus on the permitting process. The primary
focus of activity in 2005 is on the permitting process and the
archaeology activities, both necessary to obtain the construction
permits. The Company's other license area, Bucium, is undergoing a
scoping study to determine whether it contains economic reserves.
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 delay
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 is of the opinion that
additional financing is available and may be sourced in time to allow
the Company to continue its planned activities in the normal course.
While it 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 accounting principles 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. 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 would
be necessary in the carrying values of assets and liabilities, the
reported revenues and expenses, and the balance sheet classifications
used.
The accompanying interim consolidated financial statements are
prepared by management in accordance with Canadian generally accepted
accounting principles. Selected information and disclosures required
in notes to annual financial statements has been condensed or
omitted. 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, 2004.
The interim financial statements have been prepared following the
same accounting policies and methods of computation as the annual
financial statements for the year ended December 31, 2004.
2. Capital Assets
June 30, December 31,
2005 2004
$ $
---------------------------
Vehicles 1,355,364 1,357,135
Exploration and office equipment 2,114,998 2,019,059
Leasehold improvements 105,856 105,856
---------------------------
3,576,218 3,482,050
---------------------------
Less: Accumulated amortization
Vehicles 507,408 391,376
Exploration and office equipment 1,066,484 868,764
Leasehold improvements 78,664 59,410
---------------------------
1,652,556 1,319,550
---------------------------
Net book value
Vehicles 847,956 965,759
Exploration and office equipment 1,048,514 1,150,295
Leasehold improvements 27,192 46,446
---------------------------
1,923,662 2,162,500
---------------------------
---------------------------
3. Mineral properties
Rosia
Montana Bucium Total
$ $ $
-----------------------------------------
Balance - December 31, 2003 123,415,084 7,359,301 130,774,385
Development costs 30,496,752 - 30,496,752
Exploration costs 462,002 2,724,000 3,186,002
-----------------------------------------
Balance - December 31, 2004 154,373,838 10,083,301 164,457,139
Development costs 7,209,832 - 7,209,832
Exploration costs 340,998 726,359 1,067,357
-----------------------------------------
Balance - June 30, 2005 161,924,668 10,809,660 172,734,328
-----------------------------------------
-----------------------------------------
Romanian mineral properties
The Company currently indirectly holds an 80% interest in 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, holds a 20% carried interest
in Rosia Montana Gold Corporation ("RMGC"), and the Company holds the
pre-emptive right to acquire such 20% 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.
The Bucium project is in its early stages of exploration. An updated
exploration license has been issued to RMGC as titleholder to the
Bucium project. The Company signed a three-year license extension
until May 19, 2007 obligating the Company to spend US$3.4 million
over the term of the license extension period. As at June 30, 2005,
the remaining expenditure commitment was US$1.4 million.
4. Other liabilities
The Company has implemented a Deferred Share Unit Plan under which
qualifying participants may elect to receive certain compensation in
the form of deferred share units ("DSUs"), in lieu of cash. On
retirement, participants may redeem their DSUs for common shares of
the Company to be purchased on the open market, cash, or a
combination of common shares and cash. The Company, at its sole
discretion, can elect to pay the amount in common shares. At June 30,
2005, 150,675 (December 31, 2004 - 141,553) outstanding DSUs were
valued at the Company's June 30, 2005 share price of $1.58
(December 31, 2004; $1.56) per share resulting in the amount of
$238,067 (December 31, 2004; $220,823) being recorded in other
liabilities. Accordingly, the net period over period change in the
value has been recorded in corporate general and administrative
expense.
5. Related party transactions
a) The Company receives rental revenue of $3,465 per month under a
sublease to Alamos Gold Inc., which commenced March 1, 2004, and
expires on March 31, 2006. The sublease revenue is included as an
offset to corporate general and administrative expense. Mr. Alan
R. Hill, the President and Chief Executive Officer of the Company
as of May 10, 2005, is the Chairman of the Board of Alamos
Gold Inc.
b) Power costs paid by RMGC to a company owned by a minority
shareholder of RMGC was $10,000 for the three months ended
June 30, 2005 (2004 - $21,000), and $23,000 for the six months
ended June 30, 2005 (2004 - $35,000).
c) In December 2004, the Company loaned a total of US $971,210 to the
four minority shareholders of RMGC. The loans to these
shareholders, which hold an aggregate of 20% of the shares of
RMGC, were made to facilitate a statutory requirement to increase
RMGC's total share capital.
The loans, which are non-interest bearing, 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.
6. 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 Amount
shares $
---------------------------
Balance - December 31, 2004 146,412,866 227,157,729
Shares issued from a public offering 15,000,000 28,050,000
Less: Share issue costs - (1,870,319)
---------------------------
Balance - June 30, 2005 161,412,866 253,337,410
---------------------------
---------------------------
On March 31, 2005, the Company issued 15,000,000 units priced at
$2.00 per unit by way of a public offering for gross proceeds of
$30 million. The net proceeds of the offering were $28,129,681 after
deducting a cash commission to the underwriters of $1,350,000 plus
various professional fees related to the offering. 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. Each unit has been apportioned $1.87 to common share
and $0.13 to one half of one common share purchase warrant.
7. Share purchase warrants
a) As at June 30, 2005, the following share purchase warrants were
issued and outstanding:
Exercise
Number of price Amount
Expiry date Warrants $ $
-----------------------------------------
December 31, 2005 15,000,000 2.00 -
March 31, 2007 7,500,000 2.75 1,950,000
------------- -------------
22,500,000 1,950,000
------------- -------------
------------- -------------
The exercise of the outstanding share purchase warrants in the
loss per share calculation would be anti-dilutive.
b) As part of the agreed upon compensation for undertaking a review
of the financeability of the Rosia Montana project, the Company
has agreed to issue, subject to certain conditions being met, a
number of share purchase warrants (the "Warrants") to a financial
institution in two tranches, A and B (respectively, the "Tranche A
Warrants" and the "Tranche B Warrants").
The Tranche A Warrants: (i) are issuable at a date to be agreed
upon by the Company and the financial institution; (ii) will be in
an amount equal to 0.8767% of the number of the Company's
outstanding common shares on the date of issuance; (iii) will have
an exercise price equal to the average closing price of the
Company's common shares on the Toronto Stock Exchange for the
10 days preceding the issuance; (iv) will be exerciseable as to
50% upon issuance and as to 50% when the financial institution is
designated lead arranger for the financing of the Rosia Montana
project; and (v) will have a term of four years from the date of
issuance.
The Tranche B Warrants: (i) are issueable when the financial
institution is designated lead arranger for the financing of the
Rosia Montana project; (ii) will be in an amount equal to 0.4383%
of the number of the Company's outstanding common shares on the
date of issuance; (iii) will have an exercise price equal to the
average closing price of the Company's common shares on the
Toronto Stock Exchange for the 10 days preceding the issuance;
(iv) will be exerciseable upon issuance; and (v) will have a term
of four years from issuance.
The agreement with the financial institution can be terminated
prior to the issuance of the warrants and depending on the
circumstances of the termination, a termination fee of US$250,000
may be payable.
8. Stock option compensation
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 Plan originally allowed for
the issuance of up to 19 million shares of which as at June 30, 2005,
5.6 million are available for issuance. The exercise price of the
options equals the closing price on the day prior to the option
allotment. The majority of options granted vest over three years and
are exercisable over five years from the date of issuance.
As at June 30, 2005, 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 contractual exercise
exercise Number of price life Number of price
prices options $ (Years) options $
-------------- ---------------------------------- ---------------------
$1.48 - $2.00 4,706,385 1.59 4.7 3,157,774 1.62
$2.01 - $3.00 1,390,845 2.49 2.7 1,038,761 2.51
$3.01 - $4.00 614,860 3.17 0.5 614,860 3.17
$4.01 - $5.50 2,255,000 5.11 2.2 2,092,501 5.14
---------------------------------- ---------------------
8,967,090 2.72 3.4 6,903,896 2.96
---------------------------------- ---------------------
---------------------------------- ---------------------
During the period ended June 30, 2005, stock options were granted,
exercised and cancelled as follows:
Weighted
average
exercise
Number of price
options $
------------- -------------
Balance - December 31, 2004 12,537,593 3.27
Options granted 3,460,000 1.60
Options cancelled (1,222,225) 2.81
Options expired (5,808,278) 3.22
------------- -------------
Balance - June 30, 2005 8,967,090 2.72
------------- -------------
------------- -------------
The exercise of the outstanding stock options in the loss per share
calculation would be anti-dilutive.
The fair value of 3,460,000 options granted during the period ended
June 30, 2005 (2004 - 75,000) 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: weighted
average risk free interest rate of 3.15% (2004 - 3.1%); volatility
factor of the expected market price of the Company's common stock of
76% (2004 - 69%); and a weighted average expected life of the options
of 2.6 years (2004 - 2 years). The resulting weighted average cost
per option granted was $0.77 (2004 - $1.13). The estimated fair value
of the options is expensed over the vesting period.
The fair value compensation recorded for options granted in 2005 was
$643,685 for the three months ended June 30, 2005 (2004 - $5,016),
and $1,640,678 for the six months ended June 30, 2005 (2004 -
$5,016). For other options granted subsequent to December 31, 2002 it
was $290,456 for the three months ended June 30, 2005 (2004 -
$263,555), and $516,606 for the six months ended June 30, 2005 (2004 -
$530,936).
The following is the Company's pro-forma loss applying fair value
method to all options issued prior to January 1, 2003:
3 months ended June 30 6 months ended June 30
Income Statement 2005 2004 2005 2004
$ $ $ $
-----------------------------------------------
Loss for the period 2,339,860 2,290,824 4,698,566 4,697,363
Compensation expense
related to fair value
of stock options 330,583 508,795 855,396 1,023,542
-----------------------------------------------
Pro-forma loss for
the period 2,670,443 2,799,619 5,553,962 5,720,905
-----------------------------------------------
-----------------------------------------------
Pro-forma loss per
share 0.02 0.02 0.04 0.04
------------------------------------------------
-----------------------------------------------
Balance Sheet June 30, December 31,
2005 2004
$ $
---------------------------
Mineral properties 172,734,328 164,457,139
Compensation expense related to fair value
of stock options 283,785 283,785
---------------------------
Pro-forma mineral properties 173,018,113 164,740,924
---------------------------
---------------------------
9. Contributed surplus
The following table identifies the changes in contributed surplus for
the period:
Corporate Stock option
Reorganization compensation Total
$ $ $
--------------------------------------------
Balance - December 31,
2004 1,012,655 2,363,278 3,375,933
Stock option compensation - 2,157,284 2,157,284
--------------------------------------------
Balance - June 30, 2005 1,012,655 4,520,562 5,533,217
--------------------------------------------
--------------------------------------------
10. Segmented information
The Company has one operating segment: the acquisition, exploration
and development of precious metal projects.
Geographic segmentation of capital assets and mineral properties is
as follows:
June 30, December 31,
2005 2004
$ $
---------------------------
Romania 174,604,470 166,559,373
Canada 53,520 60,266
---------------------------
174,657,990 166,619,639
---------------------------
---------------------------
11. Financial instruments
The recorded amounts for cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximate fair
values based on the short-term nature of those instruments.
The Company's operations expose it to significant fluctuations in
foreign exchange rates. The Company has monetary assets and
liabilities denominated in Romanian Lei and United States dollars and
are, therefore, subject to exchange variations against the reporting
currency, the Canadian dollar.
12. Commitments
a) RMGC signed sale-purchase contracts with certain owners of real
estate property required for the development of the Rosia Montana
mine. The signed contracts bind RMGC to purchase the properties.
The total value of the properties committed to being purchased by
RMGC as at June 30, 2005 is $394,000 and are expected to be paid
within one year.
b) The Company has a number of agreements with arm's-length third
parties who provide a wide range of services to it or RMGC and
which total $8,008,000 at June 30, 2005. 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. Upon termination, the Company has to
pay for services rendered and costs incurred to the date of
termination.
c) An action was commenced against the Company on October 23, 2003 in
the Supreme Court of British Columbia by a former employee
claiming unspecified damages for breach of contract, negligence
and breach of fiduciary duty arising out of an employment
contract. Counsel has indicated that it is not possible to assess
the merits of the claim at this early stage and the Company will
defend the action in the normal course. Trial of the action has
been set for February, 2006.
d) 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,
converted from Romanian Lei to Canadian dollars, is approximately
$20,000. These fees are indexed annually by the Romanian
Government and the license has 14 years remaining.
e) RMGC has approximately 46 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 US$20,000.
13. Supplemental cash flow information
a) Net changes in non-cash working capital
3 months ended June 30 6 months ended June 30
2005 2004 2005 2004
$ $ $ $
---------------------------------------------------
Operating activities:
Accounts receivable,
prepaid expenses
and supplies (50,446) 117,113 (227,345) (206,897)
Accounts payable
and accrued
liabilities 397,305 80,553 429,122 (419,680)
---------------------------------------------------
346,859 197,666 201,777 (626,577)
---------------------------------------------------
---------------------------------------------------
Investing activities:
Accounts receivable,
prepaid expenses
and supplies (2,897) 744,442 228,442 227,160
Accounts payable
and accrued
liabilities (337,686) 1,613,226 (320,999) 944,419
---------------------------------------------------
(340,583) 2,357,668 (92,557) 1,171,579
---------------------------------------------------
---------------------------------------------------
Financing activities:
Accounts receivable,
prepaid expenses
and supplies - - 170,770 -
Accounts payable
and accrued
liabilities (247,499) - - -
---------------------------------------------------
(247,499) - 170,770 -
---------------------------------------------------
---------------------------------------------------
b) Exploration and
development
expenditures (4,055,474) (14,090,014) (8,277,189) (23,189,197)
Non-cash
depreciation
capitalized 153,780 109,007 311,813 198,686
---------------------------------------------------
(3,901,694) (13,981,007) (7,965,376) (22,990,511)
---------------------------------------------------
---------------------------------------------------
June 30, December 31,
2005 2004
$ $
-------------------------
c) Cash and cash equivalents
is comprised of:
Cash 557,237 2,575,223
Short-term investments -
weighted average interest
of 2.6% (2004 - 2.3%) 33,661,588 13,796,320
-------------------------
34,218,825 16,371,543
-------------------------
-------------------------
The Company did not incur interest expense during the periods ended
June 30, 2005 and 2004.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management Discussion and Analysis ("MD&A") provides a discussion
and analysis of the financial conditions 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 month periods ended June 30, 2005,
in comparison to the corresponding prior-year periods. The MD&A is intended to
supplement the Company's unaudited consolidated financial statements and notes
thereto ("Statements") for the three-and-six month periods ended June 30,
2005, which are included in the quarterly report. You are encouraged to review
the Statements in conjunction with this document. This MD&A should be read in
conjunction with both the annual audited consolidated financial statements and
the related MD&A for the two-year period ended December 31, 2004 .
All amounts included in the MD&A are in Canadian dollars, unless
otherwise specified. This report is dated as at August 8, 2005 and the
Company's public filings, including its most recent Annual Information Form,
can be reviewed via the SEDAR website (www.sedar.com)
Overview
The change in management at Gabriel during the second quarter has
provided the opportunity to reexamine our goals and objectives as a company.
Our vision is to create value from responsible mining. Our mission is to build
Rosia Montana and, as a result, be a catalyst in Romania for sustainable
economic, environmental, cultural and community development. As we develop the
world-class Rosia Montana project in the Transylvania region of Romania, 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 safety
or operational practices, we pledge to do it right.
The second quarter of 2005 represented the first quarter under our new
Chief Executive Officer, Alan R. Hill. During the second quarter, we
restructured and refocused our Romanian operations, replacing most of the
senior management personnel, and announced the closing of the existing office
in Alba Iulia, about 75 minutes from the project site. In mid-July we
appointed the new Romanian senior management team to lead the permitting and
development of Rosia Montana. In addition, our Romanian corporate office was
officially moved to Bucharest as of August 1st , 2005 to facilitate better
co-ordination and communication with the Romanian Government, the regulatory
authorities, as well as with our consultants and suppliers during the
permitting, construction and operational phases of the development of Rosia
Montana.
In early August, our Romanian employees acknowledged adherence to the
Company's Code of Business Conduct and Ethics ("Code"). Previously, only the
board of directors and senior management had adopted the Code. The Code, which
applies to all of our directors, officers, employees, contractors and
consultants, is designed to promote integrity and deter wrongdoing. We are
committed to maintaining a high standard of corporate governance throughout
the entire organization.
Key issues
Environmental/permitting
Rosia Montana, when developed, will be the largest gold mine in Europe
and one of the largest gold mines in the world. This is also the first mine
Romania will permit under its new environmental law, which was harmonized with
those of the European Union in 2003. The size, scope and location of the
proposed operation dictates a lengthy permitting process for both the Company
and the Government. We enter the third quarter of 2005 with significant work
ahead of us, however we believe we are well down the road to permitting this
project. The first two steps of the environmental permitting process have been
completed. The first was the submittal of the Project Presentation Report
("PPR"), filed in December of 2004, which provided an overview of the project.
The second step is the response from the Romanian Government based on the PPR,
which was received in late May of this year and is referred to as the Terms of
Reference ("TOR"). The TOR outlines the matters that need to be considered and
addressed in the Environmental Impact Assessment ("EIA").
The final step is to appoint an independent team of specialists to
complete, finalize and submit our EIA to the Romanian Government on our
behalf. Choosing the right team will ensure that the project moves forward in
a timely fashion or, conversely, if errors or omissions are made in the
completion and submittal of our EIA, it could have the potential to add
significant time to the permitting process.
Village relocation
While the Romanian restructuring and permitting process has taken up most
of our time during the quarter, the village relocation is likely going to be
the critical path item. While we are nearly half way through the process,
considerable work remains. The process involves moving nearly 1,000
homeowners, as well as a number of government and community buildings. During
the second half of 2005 we intend to put a strategy in place to expedite the
process.
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 now provides many traces of the earlier activity. We have
spent approximately $8 million sponsoring a program of rescue archaeology to
recover and document the remaining evidence. Over the past four years we have
been given several discharge permits to acknowledge completion of the program,
however one of the discharges for a part of the Cirnic Massif was annulled by
a local county court in June, 2005. We are awaiting receipt of a copy of the
Court's decision in this matter and expect to appeal the decision to a higher
court after its receipt. The ruling of the Court does not prevent us from
continuing our archaeological discharge program and we can reapply for a new
archaeological discharge certificate at any time either before or after an
appeal of the Court's decision is heard.
Financing
At the end of June 2005, we have $32.8 million in working capital and our
rate of expenditure was approximately $5.4 million during the second quarter
or $1.8 million per month, excluding working capital adjustments. The total
amount spent during the quarter includes a one-time cost of $0.5 million
incurred to sever 9 employees; excluding the one-time charge we spent
$1.6 million per month during the quarter. This rate is similar to the first
quarter ($1.8 million, excluding one-time severance costs) and approximates
the expected expenditure rate for the balance of the year. The expenditure
rates should decline early next year with the submittal of the EIA.
Potentially offsetting the saving in permitting would be increased activity
related to the village relocation and project engineering.
A potential near-term source of funds are warrants exercisable into
15 million shares of the Company at an exercise price of $2.00 per share,
which expire at the end of this year. If exercised in full, these
warrants -- part of the September 2004 private placement -- would net us
$30 million.
The total capital cost of the project was estimated at US$437 million
based on a definitive feasibility study completed in early 2003. Since that
time, the mining industry has witnessed significant cost pressures due to
strengthening of currencies, higher raw material costs, higher steel and fuel
costs as well as higher wages. In addition, there have been certain changes to
the project to improve the design, as well as, reflect changes in regulations.
This fall we will be updating both capital and operating costs associated with
the Rosia Montana mine. Once we have an updated cost structure for the project
we will be in a position to restart project financing work, building on the
strong beginning made in previous years, as we will need to issue debt and
equity to build the project.
Project timeline
We have initiated the process of updating our mineral resource estimate
for the Rosia Montana project, to include all exploration drilling and
sampling results generated since the last resource estimate was completed in
2003. The updated resource estimate is expected to be completed during the
third quarter of 2005. Once we have updated the resources estimate, we will be
updating the capital and operating cost estimates for the project, which we
expect to announce at year end. Once we have updated parameters for the
project, we will be in a position to restart project financing activities.
The Company's previous guidance, dating back to 2004, anticipated that
construction commencement would occur no earlier than the second quarter of
2006, which was further modified in the first quarter 2005 MD&A to suggest
that it may not be possible to start construction activities during 2006. With
the changes in management during the second quarter and our subsequent review
we are firming up previous guidance. Our goal is to receive our construction
permit in the second half of 2006. We would begin construction in 2006 if we
received the construction permit earlier enough in the fall that we could get
sufficient work done to allow us to work through the winter, which can be
relatively severe. If not, we would take the additional time to order the
long-lead-time equipment and be ready to break ground as soon as we can in the
spring of 2007. The project should take approximately two years to construct,
putting our projected first gold pour in the second half of 2008 or early
2009.
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 2005 2005 2004 2004
2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
Statement of loss
Loss 2,339,860 2,358,706 2,220,399 1,669,673
Loss per share 0.02 0.02 0.01 0.01
Balance Sheet
Working Capital 32,849,856 38,246,957 15,282,564 20,779,589
Total Assets 210,216,116 211,833,922 184,502,350 186,173,156
Statement of Cash Flows
Investments in
exploration and
development
including working
capital changes 4,242,277 3,815,656 4,825,793 8,404,559
Cash flow from
financing activities (247,499) 28,547,950 1,151,446 24,684,265
$ Cdn 2004 2004 2003 2003
2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
Income Statement
Loss 2,290,824 2,406,539 2,700,132 3,281,499
Loss per share 0.02 0.02 0.02 0.03
Balance Sheet
Working Capital 3,503,844 20,142,199 30,609,447 44,035,116
Total Assets 165,364,837 165,875,236 168,157,947 167,343,018
Statement of Cash Flows
Investments in
exploration and
development
including working
capital changes 11,623,339 10,195,592 13,651,705 15,968,579
Cash flow from
financing activities - 1,111,617 2,311,107 42,766,103
Statement of Loss
Loss for the period
We incurred a loss of $2.3 million or $0.02 per share in the second
quarter of 2005 versus a loss of $2.3 million or $0.02 per share in the
comparative period of 2004. For the six months ended June 2005, we lost
$4.7 million or $0.03 per share compared to a loss of $4.7 million or $0.04
per share in the year earlier six-month period. Overall, lower project
financing costs in the second quarter and first six months of 2005 were offset
by reorganization severance costs, reversal of prior year accrual and an
increase in non-cash charges related to stock option compensation. We will
continue to incur losses until commercial production commences and revenues
are generated.
Expenses
Corporate general and administrative
During the second quarter 2005, we incurred a total of $1.13 million for
corporate general and administrative expenses ("G&A") compared to
$1.22 million in the year-earlier second quarter. Excluding the effect of the
change in value of the deferred share units ("DSU's"), costs decreased by
approximately $250,000 due primarily to a reversal of an accrual from a prior
year no longer required. For the six months ended June 30, 2005, G&A costs
totaled $2.33 million compared to $2.33 million in the same period of 2004.
Excluding the effect of the change in the value of the DSU's, costs decreased
by $280,000 due primarily to the reversal of the over accrual from a prior
period. Quarterly corporate general and administrative costs are anticipated
to remain at approximately the $1.5 million level, excluding the impact of
DSU's, for the foreseeable future, as our current staff level will not be
significantly impacted by the increase in activity as the project moves
forward.
DSU costs for the second quarter of 2005 and 2004 reduced corporate
general and administrative costs by $24,208 and $181,926, respectively. The
DSU's are revalued each quarter based on the closing share price at quarter
end. The difference between the total value of the DSU's at quarter end is
compared to the value at the end of the previous period. If the value is
lower, as it was during the second quarter of this year and last, the
difference is credited to the statement of loss reducing costs for the period.
If the share price rises, the additional value of the DSU's is expensed during
the quarter. For the six-month period ended June 30, 2005 we expensed $17,243
compared to a reduction of expenses in the year-earlier period of $268,057.
Overall, for 2005 our share price has increased (by $0.02) compared to last
year when our share price declined from the close of the previous year (by
$3.61).
Stock option compensation
Stock option compensation for the second quarter of 2005 increased to
$934,141 compared to $268,571 during the year-earlier quarter, while stock
option compensation for the six-month period increased to $2,157,284 compared
to $535,952 for the six-month period ended June 30, 2004. The higher expense
for the second quarter of 2005 relates to the issuance of 1,985,000 options
granted to our new management team, a new board member and renewal options for
a majority of employees in the option program compared to 75,000 options
granted to a single employee on relocation in the year-earlier period. The
higher expense for the first half of this year reflects the issuance of
1,475,000 options granted in the first quarter of 2005, most of which were
replacement options, which vest immediately compared to zero options granted
in the year-earlier first quarter. The fair value of stock options when
granted is amortized to our Statement of Loss over the period the options
vest. For those replacement options that vest on issuance the entire fair
value of the options is expensed immediately.
Reorganization severance costs
During the second quarter of 2005, we announced the closing of our
existing office in Alba Iulia, eliminating a number of staff positions not
immediately relevant to our permitting and other development efforts, and
relocated all remaining staff to either Bucharest or the project site in Rosia
Montana. The total cost to sever the 9 employees was $546,755.
Project financing costs
We did not incur any project financing costs for the quarter or six-month
period of 2005, as we have elected to put project financing activities on hold
until the project is further advanced. Last year, we incurred $0.83 million
for the second quarter of 2004 and $2.06 million for the six-month period
ended June 30, 2004. We expect to restart the project financing initiative
during the second half of 2005 toward a goal of finalizing project financing
next year.
Interest income
Interest income for the second quarter of 2005 increased to $217,637
compared to $74,578 during the year-earlier quarter, while interest income for
the six-month period increased to $284,052 compared to $245,676 for the
six-month period ended June 30, 2004. The higher interest income this year
relates to the higher cash balance during the period due to the public
offering, which raised $28.1 million, completed March 31, 2005. Interest
income should decline through the balance of the year as our cash balance
declines as we continue with permitting and development activities.
Foreign exchange
Foreign exchange gain for the second quarter of 2005 totaled $64,220
compared to a loss of $25,653 same period of 2004. For the six-month period we
reported a gain of $86,663 compared to a $6,934 gain in the year-earlier,
six-month period. We record foreign exchange gains or losses on US dollar cash
balances held. A significant portion of our expenses are denominated in
US dollars and Romanian Lei, however, we only convert our Canadian dollar cash
balance to Lei at the time of payment. We would expect to continue to see
foreign currency gains and losses as we continue to hold US dollars in bank
accounts.
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 to identify and define the size of the four ore bodies, engineering to
design the size and scope of the project, environmental assessment and
permitting and village relocation. 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 two
development projects, Rosia Montana and Bucium, to mineral properties. We
invested $3.9 million on our two projects during the second quarter of 2005,
compared with $14.0 million in the second quarter in 2004. For the six months
ended June 30, 2005 we invested $8.0 million on the two projects compared to
$23.0 million during the first six months of 2004.
For the three-month period ended June 30, 2005 significant reductions in
expenditures were made in community development activities where $0.7 million
was expended in the three-month period as compared to $1.9 million in the
comparative period last year. The decrease was due largely to the decision in
mid-2004 to pause property acquisitions until such time as the permitting
process is more advanced. In addition, we spent $0.3 million on engineering
during the second quarter of 2005 as compared to $6.6 million in the
comparative period of last year, when detailed engineering was still underway.
During the second quarter 2005, expenditures for permitting declined to
$1.0 million from $2.1 million in the year-earlier period, when the Project
Presentation Report was being prepared. Second quarter 2005 expenditures on
finance and administration declined to $1.5 million from $2.6 million in the
year-earlier period, reflecting lower consulting and legal costs this year. At
Bucium, a scoping study is underway to determine the economics of developing
the resource. A delay in obtaining drill permits has led to the decrease in
expenditures during second quarter 2005 from $1.0 million a year ago to
$0.4 million.
We would expect the mineral properties expenditure level to remain in the
$1.0 million to $1.5 million range per month for the balance of the year. The
major expenditures during the third quarter are expected to be the increased
activity in our archeology department during the field season, which extends
through the quarter, and permitting and EIA costs as we finalize our EIA
documents and appoint an independent specialist team. Village relocation and
finance and administration costs are expected to remain at current levels
until we choose to increase our level of activity.
Cash Flow Statement
Liquidity and Capital Resources
Our only sources of liquidity until we receive our environmental permits
for Rosia Montana are our cash balance, bridge financing, exercise of warrants
and stock options outstanding, and the equity markets. Our working capital
position could be bolstered by year end if warrants currently outstanding that
expire at year end are exercised. If they are exercised in full, (15 million
shares of the Company at an exercise price of $2.00 per share) it would add
$30 million to our cash balance, leaving us in a strong financial position
through the permitting phase of project development. The estimated capital
cost of the project is US$437 million but the estimate is over two years old
and during that time the mining industry has witnessed significant cost
inflation, as well as changes to the project's design. To complete the
development of the project the Company will need external financing. The
ability to develop Rosia Montana hinges on our ability to raise the necessary
debt and equity financing for construction. If we were unable to raise the
required funds we would seek strategic alternatives to move the project toward
development. We believe, 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, 2005 we had working capital of $32.8 million versus
$15.3 million as at December 31, 2004. The increase in working capital is the
direct result of the proceeds received on March 31, 2005 from a public
offering ("Offering") of units for aggregate gross proceeds of $30 million
(net proceeds $28.1 million). Each unit consisted of one common share of
Gabriel and one-half of one common share purchase warrant. Each whole warrant
entitles the holder to acquire one common share at a price of Cdn$2.75 at any
time on or before March 31, 2007. A total of 7.5 million warrants were listed
and posted for trading under the trading symbol GBU.WT, signifying the first
time the Company has listed warrants for trading.
Net change in non-cash working capital
The net change in operating non-cash working capital increased for the
three and six months ended June 30, 2005, reflecting the $546,755 accrual of
severance costs at the end of the second quarter of 2005, partially offset by
the reversal of an accrual from an earlier period no longer required.
The net change in investing non-cash working capital decreased for the
three and six months ended June 30, 2005, primarily as a result of a
significantly lower level of engineering work and legal fees during 2005 when
compared to the year earlier periods.
The net decrease in financing non-cash working capital in the second
quarter of 2005 relates to the payment of legal and printing costs incurred as
part of the financing completed at the end of the March 2005. For the
six-month period, the increase related to the expensing of consulting costs
incurred in 2003 related to a future public financing, which was expensed as
part of share issuance costs at the end of the first quarter.
As a result of our decision to reduce our activity level pending progress
in the permitting area, our expenditure rate has declined to approximately
$1.6 million per month (excluding severance costs) for the quarter with the
majority of the expenditures related to permitting, community development and
overheads.
Related Party Transactions
We sublease a portion of our leased premise to Alamos Gold Inc., of which
a member of its board of directors is currently also our CEO, Alan R. Hill.
The sublease commenced March 1, 2004, before Mr. Hill joined the Company, and
expires on March 31, 2006. The amount of the sublease totalled $10,395 for the
three months ended June 30, 2005.
During the period ended June 30, 2005, our Romanian subsidiary RMGC paid
$23,000 (2004 - $35,000) to a company owned by Minvest, a minority shareholder
of RMGC, for power costs related to RMGC's assay laboratory in Romania.
Senior Officer Changes
Alan R. Hill was appointed the President and Chief Executive Officer of
Gabriel on May 10, 2005 upon the retirement of Oyvind Hushovd as the Chairman
and Chief Executive Officer. Mr. Hushovd continues as the Non-Executive
Chairman of Gabriel, while Mr. Hill joins the Board of Directors. Prior to his
retirement from Barrick Gold Corporation in September 2003, Mr. Hill managed
the development of Barrick's four latest projects: Alto Chicama, Pascua,
Veladero and Cowal. During his 20-year tenure at Barrick, Mr. Hill managed the
development of that company's Goldstrike, Pierina and Bulyanhulu projects.
Richard Young was appointed a Vice President and the Chief Financial
Officer of the Company on May 10, 2005 upon the resignation of Paul Martin.
Mr. Young, a chartered accountant, brings financial, mine development and
capital markets experience to Gabriel. During his 13-year career with Barrick
Gold Corporation, he gained extensive financial experience through a number of
positions within the finance group, as well as mine development experience as
Barrick developed their Goldstrike and Pierina Properties. Most recently, he
served as Vice President of investor relations for Barrick, where he was
responsible for the development and execution of their investor relations
strategy. Mr. Young will also be assuming the investor relations
responsibilities with the resignation of Simon Lawrence, Vice President,
Corporate Development.
Yani Roditis was appointed Vice President Projects of the Company on
June 24, 2005. Mr. Roditis, an engineer, brings extensive engineering,
environmental permitting and operations experience to the Company. During his
11-year career with Barrick Gold Corporation, he gained extensive experience
permitting, constructing and operating a number of gold mines, primarily in
South America. In his new capacity, Mr. Roditis will be based in Romania and
oversee the permitting and construction of the Rosia Montana gold project.
Election of Former Canadian Ambassador to Romania as Director of Gabriel
Mr. Raphael Girard, the Former Canadian Ambassador to Romania from 2000
to 2003, was elected as a member of Gabriel's Board of Directors at Gabriel's
annual meeting of shareholders held on April 19, 2005. Prior to serving as
Canada's ambassador to Romania, Mr. Girard served as Canada's ambassador to
Yugoslavia. Mr. Girard, with his knowledge, experience and relationships, has
been invaluable during the short time he has been on the board of the Company.
Romania Signs Accession Treaty with European Union
On April 25, 2005 in Brussels, Romania signed the Treaty of Accession
(the "Treaty") with the European Union providing for Romania to join the
European Union on January 1, 2007. Romania also entered into the Accession
Protocol and its Annexes, which form an integral part of the Treaty and which
contain most of the detailed conditions and arrangements for accession to the
European Union. The signing of the Treaty followed the European Parliament's
vote on April 13, 2005 approving the entry of Romania into the European Union
in 2007.
2005 Outlook
Our key objectives for the balance of the year include:
1. Advancing our EIA by appointing an independent specialist team to
complete, finalize and submit the EIA to the government on our
behalf;
2. Defining a community development strategy to complete the village
relocation in parallel with obtaining approval for our EIA;
3. Advancing the archeology program to be able to obtain all
discharges required to construct the mine, in parallel with the
approval of the EIA and the village relocation; and
4. Improving our communications to all stakeholders.
The cost to execute these four objectives should be in the range of
$1.5 to $2.0 million per month, leaving us with about $20 million in cash and
cash equivalents at year end. If we are successful in meeting our four
objectives, then we would anticipate filing our EIA by the end of the first
quarter of 2006. If we are able to complete the village relocation and obtain
our archeology discharges in parallel with the EIA, we would expect to receive
our construction permits in the second half of 2006. This timetable firms up
previous guidance issued by the Company, in the first quarter 2005, that
construction commencement may not be possible during 2006.
Outstanding
Preferred shares Nil
Common shares 161,412,866
Common stock options 10,130,868
Common stock warrants 22,500,000
Deferred share units -
common shares 150,675
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 Gabriel 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 Gabriel's requirements for substantial additional
funding.
Gabriel expressly disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
events or otherwise.
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