TSX Trading Symbol: GBU
TORONTO, May 7 /CNW/ -
Highlights
Financial performance
- First quarter 2007 net loss was $2.5 million, or $0.01 per share.
- A total of $18.3 million was spent on our two development projects
during the first quarter 2007.
Liquidity and capital resources
- Cash and cash equivalents and short-term investments at March 31,
2007 totaled $224.4 million.
- Working capital at March 31, 2007 totaled $213.6 million.
- Gabriel Resources Ltd. ("Gabriel" or the "Company") raised a total
of $153.4 million during the first quarter 2007 through an equity
offering and the exercise of warrants and stock options. The
Company has now completed the required equity component of its
expected financing plan.
- Project related expenditures for the balance of 2007 are expected
to total approximately $200 million (US$175 million), based on fall
2007 construction start up.
- 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.
- Subsequent to March 31, 2007, a further $16.1 million was raised
through the exercise of outstanding warrants, which expired on
April 2, 2007.
"We responded to the 5,610 questions and 93 contestations last week
provided by the government during the first quarter of this year from the
public consultation. Our response totaled 12,900 pages in Romanian and 12,600
pages in English. We are looking forward to the continuation of the
professional, transparent process the Romanian Government has taken in the
permitting process so far, in this the largest project to be permitted since
Romania's entry into the EU," said Alan R. Hill, President and Chief Executive
Officer.
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, 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 for projects with potential trans-boundary
implications.
- Under Romanian law, the Technical Assessment Committee (TAC),
comprised of government officials from the various Ministries of
the Romanian Government involved in the permitting process, is
required to schedule a meeting within 40 business days to review
the project, the EIA and our responses to the questions asked
during the public consultation. The TAC could recommend approval of
the project or require further clarification from the Company.
- Despite recent political events that resulted in the impeachment of
the Romanian President, the Company has been unaffected to date as
the various Ministries involved in the permitting process have been
applying the law as it pertains to our project, as a result we have
not adjusted our permitting schedule that targets EIA approval this
summer. The Romanian Government, however, ultimately determines the
timing of the decision.
Acquisition of surface rights
- As of March 31, 2007 the Company has acquired or has options on
140 of the 379 remaining homes within the industrial area needed to
build and operate the project over its 16 year life.
- More importantly, the Company now has over half of the homes
required for construction and the first ten years of operation.
- The pace of acquisitions decreased during the first quarter 2007 as
the Company and the community worked to find a solution to a surge
in the construction of illegal wood structures referred to as
"cabins," for which sellers expected additional compensation.
- The Company is confident that the solution reached with the
community during the first quarter combined with the commencement
of construction of the two new resettlement sites during the second
quarter 2007 will allow the pace of acquisitions to pick up to
levels consistent with those in fall 2006.
Archaeological Discharge Certificate
- 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 (the "Discharge Certificate") 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 has 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 the
Discharge Certificate relates to an area not required for
construction start up. There can be no assurance that the validity
of the Discharge Certificate will be upheld in the Brasov Court of
Appeal 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.
- All discharge certificates required to begin construction in 2007
have been secured.
Rosia Montana 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.
- 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.
- 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.
- A key condition to accessing the debt facilities will be our
progress on surface rights acquisition.
Romanian support
- 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 the largest trade union in Romania and represents
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 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 government
official 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.
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 months ended March 31, 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 March 31, 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 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.
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
On May 4, 2007, the Company responded to the official list of questions 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. On January 31, 2007, the Company received the official list of questions gathered during the public consultation process and judged by the Romanian Government to require a response. In total 5,610 questions and 93 statements were included in the official list of questions. In preparation, Gabriel, the project design team and the EIA team drafted answers for the anticipated questions from the 16 public meetings, the questions provided by the Hungarian Ministry of Environment, as well as, other third party questions and comments made in the media. These preparatory efforts, together with an in depth expert examination of all new issues raised allowed the Annex to the EIA to be submitted with robust responses in early May, in line with our spring 2007 guidance. Under Romanian law, the Technical Assessment Committee ("TAC"), comprised of government officials from the various Ministries of the Romanian Government involved in the permitting process, is required to schedule a meeting within 40 business days to review the project, the EIA and our responses to the questions asked during the public consultation. The TAC could recommend approval of the project or require further clarification from the Company.
While the EIA is by far the most important project permit, the Urbanistic Certificate lays out approximately 80 other permits and approvals required, such as the zonal urbanistic plans for the industrial and protected areas, the forestry permit, the land use change permit, as well as other permits and approvals that result from the EIA approval, to obtain the construction permit. The process for each of these permits and approvals is underway to run parallel with or follow within 60 days of EIA approval. As Gabriel, through Rosia Montana Gold Corporation, is the first company to permit a 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.
The foreign funded NGO 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. 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 as sanctions cancellation of the permit or authorization. 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 very 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.
Despite recent political events that resulted in the impeachment of the Romanian President, the Company has been unaffected to date as the various Ministries involved in the permitting process have been applying the law as it pertains to our project, as a result we have not adjusted our permitting schedule that targets EIA approval this summer. The Romanian Government, however, ultimately determines the timing of the decision.
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 March 31, 2007 the Company has acquired or has options on 140 of the 379 remaining homes within the industrial area needed to build and operate the project over its 16 year life. More importantly, the Company now has over half of the homes required for construction and the first ten years of operation.
The pace of acquisitions decreased during the first quarter 2007 as the Company and the community worked to find a solution to a surge in the construction of illegal wood structures referred to as "cabins," for which sellers expected additional compensation. The Company is confident that the solution reached with the community during the first quarter combined with the commencement of construction of the two new resettlement sites during the second quarter will allow the pace of acquisitions to pick up to levels consistent with those in fall 2006.
In addition to the private properties required, the Company needs to acquire about 35% of the project area which is 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 first ten years of operations by the time the EIA is approved.
Romanian Support
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 the largest trade union 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 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.
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, project opponents have used the courts to obstruct the discharge process. 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 (the "Discharge Certificate") 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 has 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 the Discharge Certificate relates to an area not required for construction start up. All discharge certificates required to begin construction in 2007 have been secured. There can be no assurance that the validity of the Discharge Certificate will be upheld in the Brasov Court of Appeal 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 March 31, 2007 totaled $224.4 million. At March 31, 2007, we have $213.6 million in working capital. Our rate of expenditure for project development activities was $18.3 million during the first quarter 2007. This rate is higher than 2006 when we spent $7.5 million, largely due to the ordering of long-lead-time equipment and the commencement of the acquisition of properties, which began in the fourth quarter of 2006. The expenditure rate is expected to rise throughout the balance of 2007 as we continue to acquire properties, complete detailed engineering, order long-lead-time equipment and begin construction of the new village at Piatra Alba and Alba Iulia. 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$200 million in 2007; for corporate activities (US$10 million - Cdn$11.5 million) and project related activities (US$190 million - Cdn$220 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 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 which remains unchanged 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 lenders requirement for gold price guarantee could be accomplished through a variety of instruments, most 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 are the only gold price guarantee that would not limit the Company's participation in higher gold prices but come 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. The estimated internal rate of return of the project based on US$500 gold is 18% and the estimated return increases to 26% at US$600 gold. Gold is currently trading in the US$670 range.
The Company raised US$130 million (Cdn$148.7 million) during the first quarter of 2007 bring the total equity raised for the project to US$210 million, exceeding the target equity component by US$60 million. The additional equity raised is available 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.
- 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. 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 has been formed under the Prime Minister with support from the Opposition. The President was impeached in April by Parliament and a referendum is scheduled for May 19, 2007 to determine his fate. 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 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 first 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 Q1 2006 Q4 2006 Q3 2006 Q2 ------------------------------------------------------------------------- Statement of Loss Loss $ 2,471 $ 5,103 $ 2,156 $ 3,587 Loss per share 0.01 0.03 0.01 0.02 ------------------------------------------------------------------------- Balance Sheet Working capital 213,623 79,903 120,360 34,803 Total assets 491,356 338,056 330,489 236,685 ------------------------------------------------------------------------- Statement of Cash Flows Investments in exploration and development including working capital changes 13,318 31,447 6,663 8,460 Cash flow from financing activities 152,091 1,954 94,640 1,190 ------------------------------------------------------------------------- Cdn $ thousands 2006 Q1 2005 Q4 2005 Q3 2005 Q2 ------------------------------------------------------------------------- Statement of Loss Loss $ 1,767 $ 2,037 $ 1,745 $ 2,340 Loss per share 0.01 0.01 0.01 0.01 ------------------------------------------------------------------------- Balance Sheet Working capital 44,272 52,870 28,908 38,850 Total assets 238,026 238,343 208,906 210,216 ------------------------------------------------------------------------- Statement of Cash Flows Investments in exploration and development including working capital changes 6,445 4,369 3,631 4,242 Cash flow from financing activities 361 30,539 576 (247) -------------------------------------------------------------------------
Statement of Loss
Loss for the Period
For the quarter ended March 31, 2007, we lost $2.5 million, or $0.01 per share, compared to a loss of $1.8 million, or $0.01 per share, for first quarter 2006. The higher loss in 2007 reflects higher corporate, general and administrative expenses and project financing costs partially offset by higher interest income due to higher cash balances during 2007 compared to 2006. We will continue to incur losses until after commercial production commences and revenues are generated.
Expenses
Corporate General and Administrative
During first quarter 2007, we incurred a total of $2.3 million for corporate general and administrative expenses ("G&A"), compared to $1.7 million in first quarter 2006. Excluding the effect of the change in value of the deferred share units ("DSUs"), costs increased by $0.7 million due primarily to higher communications, information technology and overhead costs. Corporate general and administrative costs are anticipated to remain at current levels, excluding the impact of DSUs, for the foreseeable future.
DSU costs for first quarter 2007 decreased corporate general and administrative costs by $141 thousand, compared to a decrease of $40 thousand in first 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 the difference is charged to the Statement of Loss, increasing costs for the year. If the share price declines, as it did at the end of the first quarters in 2007 and 2006, the lower value of the DSUs is credited against costs during the period. Overall, for first quarter 2007 our share price decreased by $0.76, compared to last year when our share price decreased from the close of the previous year end by $0.34.
Stock Option Compensation
Stock option compensation expensed for first quarter 2007 was $0.4 million, compared to $0.4 million for first quarter 2006. While more stock options were granted in the first quarter of 2007 (955 thousand) compared to first quarter 2006 (200 thousand), and the value ascribed to the options under the Black-Scholes option pricing model is higher in 2007 ($2.00) compared to 2006 ($1.16), this was offset by fewer previously issued stock options being amortized in 2007, resulting in similar expense for the two periods. The higher value of the options in 2007 is due to the higher share price, interest rates and volatility. Of the options granted in 2007, 475 thousand were granted to personnel working on development projects for which the cost of those options - which totaled $299 thousand - was capitalized to mineral properties.
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 $0.3 million in project financing costs in first quarter 2007 compared to $0.1 million in the first quarter of 2006. 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 first quarter 2007 increased to $0.9 million, compared to $0.4 million in first quarter 2006. 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 increase during the first half of 2007 before declining in the second half of 2007, as our cash balance declines due to continued permitting and development activities at our Rosia Montana project.
Foreign Exchange
For first quarter 2007, we reported a loss of $308 thousand compared to a $3 thousand gain in first quarter 2006. We record foreign exchange gains or losses on US dollar cash balances held. While a significant portion of our expenses are denominated in US dollars, EU Euros and Romanian Ron, we only convert our Canadian dollar cash balance to Euros and Lei at the time of payment. The loss in 2007 reflects the decision to convert a portion of our cash balances to US dollars to match our expenditures as we began placing orders for long-lead-time equipment in the first quarter, which are priced in US dollars. We would expect to continue to see foreign currency gains and losses as we continue to hold US dollars.
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 two development projects, Rosia Montana and Bucium, to mineral properties. We invested $ 15.8 million in our two projects during first quarter 2007, compared with $6.9 million in 2006.
For the quarter ended March 31, 2007, expenditures increased in all the major project areas as permitting and development activities moved ahead. Community development activities totaled $5.4 million for the quarter ended March 31, 2007 compared to $0.8 million for the same period last year. The increase was due largely to the continuation of surface rights acquisitions in the first quarter totaling $4.1 million. Expenditures for permitting increased to $ 2.3 million in the first quarter from $1.5 million for the same period last year. Expenditures on finance and administration increased to $4.8 million in the first quarter from $3.0 million for the same period last year, reflecting higher communications, legal and consulting costs. Exploration at Rosia Montana and Bucium totaled $0.1 million and $0.4 million respectively in the first quarter compared to $0.3 million and $0.1 million for the same period last year. In addition, expenditures of $2.8 million were incurred for project management and engineering activities related to the planning and design of the mining and processing facilities compared to nil for the same period last year. Note 5, Mineral Properties, of our Consolidated Financial Statements also includes capitalized depreciation in the amount of $0.2 million in the first quarter and $0.1 million for the same period last year, related to capital assets used in Romania.
Capital Assets
During the first quarter of 2007 the Company spent $3.0 million in capital assets including $2.7 million for long-lead-time equipment compared to $0.8 million for the same period last year. This increases the net book value of the capital assets from $3.5 million at December 31, 2006 to $6.2 at March 31, 2007. Depreciation for the period was $0.3 million of which $0.1 million was charged to expense and $0.2 million was charged to mineral properties compared to depreciation of $0.1 million for the same period last year.
Expenditures for project construction are expected to total US$190 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 the senior and subordinate 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 since then cost estimate has not materially changed. 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 March 31, 2007, we had working capital of $213.6 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 $153.4 million, partially offset by the loss incurred and the investment in capital assets and mineral properties during the year. In 2005, we issued 15 million units, with each unit consisting of one common share of Gabriel and one-half of one common share purchase warrant. Each whole warrant entitled 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 on the Toronto Stock Exchange under the trading symbol GBU.WT, signifying the first time the Company has listed warrants for trading. If exercised, these warrants would raise approximately $21 million of working capital for the Company. Under the terms of the share warrant indenture, March 31, 2007 being a non business day, the expiry date was extended to the next business day, April 2, 2007. A total of 1.6 million of the 7.5 million warrants were exercised at March 31, 2007 adding $4.8 million to the Company's treasury. On April 2, 2007 a further 5.85 million warrants were exercised for total proceeds of $16.1 million.
Net Change in Non-Cash Working Capital
The net change in operating non-cash working capital increased for the quarter ended March 31, 2007 compared to the same quarter last year, due to an increase in accounts payable.
The net change in investing non-cash working capital increased for the year ended March 31, 2007, primarily as a result of a significantly 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 decrease in financing non-cash working capital in the period ended March 31, 2007, is due to an increase in 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 April 2007.
The Company paid nil (2006 - $7 thousand) during the first quarter to a director of the Company for consultation services provided to the Company.
Resettlement Liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in the project area. Residents have two choices; they can either choose 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 March 31, 2007, the Company had entered into resettlement contracts totaling $5.0 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.
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 March 31, 2007, the remaining expenditure commitment was US$3.2 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 March 31, 2007 commitments under such agreements totaled $39.0 million (December 31, 2006 - $6 million). The increase in the first quarter reflects the ordering of grinding and ball mills totaling US$29 million during the quarter. Contractual obligations are expected to continue to rise as we order long-lead-time equipment in 2007.
During fourth quarter 2005, RMGC initiated its pre-sale agreement program - referred to as the options program - for residents of the impacted area, whereby each resident receives three percent of the value of their properties in exchange for signing a pre-sale agreement. The program cost approximately US$0.7 million during the first three quarters of 2006, representing the 3% up-front payment to the pre-sale agreement, committing the Company to acquire approximately US$25 million in local properties in the project area. The commitment becomes binding once the EIA is approved. During the fourth quarter the Company began purchasing homes, acquiring US$22.2 million of these properties, leaving US$2.9 million remaining at year end to purchase homes and properties of residents who signed the pre-sale 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 March 31, 2007 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at March 31, 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 248,551,703 Common stock options 10,364,731 Common stock warrants 5,889,980 Deferred share units - common shares 243,594 ------------------------------------------------------------------------- Fully diluted share capital 265,050,008 ------------------------------------------------------------------------- -------------------------------------------------------------------------
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.
Consolidated Financial Statements
(Unaudited)
March 31, 2007 and 2006
Consolidated Balance Sheets
Gabriel Resources Ltd.
As at March 31, 2007 and December 31, 2006
(Unaudited and expressed in thousands of Canadian dollars)
2007 2006
-------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 214,899 $ 12,598
Short-term investments (note 3) 9,504 77,717
Accounts receivable 2,743 2,326
Prepaid expenses and supplies 923 583
-------------------------------------------------------------------------
228,069 93,224
Capital assets (note 4) 6,156 3,491
Mineral properties (note 5) 257,131 241,341
-------------------------------------------------------------------------
$ 491,356 $ 338,056
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 9,422 $ 8,928
Resettlement liabilities (note 6) 5,024 4,393
-------------------------------------------------------------------------
14,446 13,321
Other Liabilities (note 7) 1,945 1,387
-------------------------------------------------------------------------
16,391 14,708
-------------------------------------------------------------------------
Shareholders' Equity
Capital Stock (note 9) 539,372 385,444
Common Share Purchase Warrants (note 10) 1,531 1,946
Contributed Surplus (note 12) 6,479 5,904
Accumulated Other Comprehensive Income (note 2) - -
Deficit (72,417) (69,946)
-------------------------------------------------------------------------
474,965 323,348
-------------------------------------------------------------------------
$ 491,356 $ 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-month periods ended March 31, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars, except per
share data)
2007 2006
-------------------------------------------------------------------------
Expenses
Corporate, general and administrative $ 2,282 $ 1,725
Stock option compensation (note 11) 389 374
Project financing costs 322 85
Amortization 63 14
-------------------------------------------------------------------------
3,056 2,198
-------------------------------------------------------------------------
Other income
Interest and foreign exchange 585 431
-------------------------------------------------------------------------
Loss before income taxes 2,471 1,767
Provision for income taxes - -
-------------------------------------------------------------------------
Loss for the period 2,471 1,767
Deficit - beginning of period 69,946 57,333
-------------------------------------------------------------------------
Deficit - end of period $ 72,417 $ 59,100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per share (basic and diluted) $ 0.01 $ 0.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average number of shares 214,732 177,186
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Comprehensive Loss
Gabriel Resources Ltd.
For the three-month periods ended March 31, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars)
2007 2006
-------------------------------------------------------------------------
Loss for the period $ 2,471 $ 1,767
Other comprehensive loss - -
-------------------------------------------------------------------------
Comprehensive loss $ 2,471 $ 1,767
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows
Gabriel Resources Ltd.
For the three-month periods ended March 31, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars)
2007 2006
-------------------------------------------------------------------------
Cash flows from (used in) operating activities
Loss for the period $ (2,471) $ (1,767)
Items not affecting cash
Amortization 63 14
Stock option compensation 389 374
Deferred share units (141) (42)
-------------------------------------------------------------------------
(2,160) (1,421)
Net changes in non-cash working capital (note 15) 465 (647)
-------------------------------------------------------------------------
(1,695) (2,068)
-------------------------------------------------------------------------
Cash flows from (used in) investing activities
Decrease in short-term investments 68,213 2,005
Exploration and development expenditures (note 15) (15,348) (6,758)
Purchase of capital assets (2,990) (780)
Net changes in non-cash working capital (note 15) 2,030 313
-------------------------------------------------------------------------
51,905 (5,220)
-------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from issuance of capital stock,
net of issue costs 148,716 -
Proceeds from the exercise of share purchase
warrants 4,389 -
Proceeds from the exercise of stock options 295 361
Net changes in non-cash working capital (note 15) (1,309) -
-------------------------------------------------------------------------
152,091 361
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 202,301 (6,927)
Cash and cash equivalents - beginning of period 12,598 25,306
-------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 214,899 $ 18,379
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information (note 15)
The accompanying notes are an integral part of these consolidated
financial statements.
Notes to Consolidated Financial Statements
Gabriel Resources Ltd.
For the three-month periods ended March 31, 2007 and 2006
(Undudited and tabular amounts in thousands of Canadian dollars, unless
otherwise shown. References to US$ are to United States dollars)
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-year 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
March 31, December 31,
2007 2006
---------------------------------------------------------------------
Money market investments with maturities from
the date of acquisition of
4 - 6 months $ - $ 68,446
7 - 12 months 8,993 8,763
Restricted cash 511 508
---------------------------------------------------------------------
$ 9,504 $ 77,717
---------------------------------------------------------------------
Money market investments yield average interest of 4.5%
(2006 - 4.3%). Maturities under 90 days are included in cash and cash
equivalents.
4. Capital Assets
March 31, December 31,
2007 2006
---------------------------------------------------------------------
Office equipment $ 3,643 $ 3,508
Buildings 1,015 1,015
Vehicles 1,269 1,269
Leasehold improvements 202 131
Construction in progress 2,679 -
---------------------------------------------------------------------
8,808 5,923
---------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 1,584 1,552
Buildings 37 35
Vehicles 918 736
Leasehold improvements 113 109
---------------------------------------------------------------------
2,652 2,432
---------------------------------------------------------------------
Net book value
Office equipment 2,059 1,956
Buildings 978 980
Vehicles 351 533
Leasehold improvements 89 22
Construction in progress 2,679 -
---------------------------------------------------------------------
$ 6,156 $ 3,491
---------------------------------------------------------------------
---------------------------------------------------------------------
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 15,274 - - 15,274
Exploration costs 104 382 30 516
---------------------------------------------------------------------
Balance - March 31,
2007 $ 247,288 $ 9,772 $ 71 $ 257,131
---------------------------------------------------------------------
---------------------------------------------------------------------
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, expires May 19, 2007. The
Company was obliged to spend US$3.4 million over the term of the
license extension period. During 2006, the Company met its
expenditure commitment. The expiring exploration license can be
converted into an exploitation license upon submission and approval
of a feasibility study which is currently being compiled. The Company
is in the process of filing the necessary documentation to convert
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 for an
undetermined period of time.
The total value of resettlement contracts entered into amounted to
$5.0 million as at March 31, 2007 (December 31, 2006 - $4.4 million).
7. Other liabilities
Price per
Common
share
Deferred Share Units ("DSUs")(a) DSUs (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 6 4.28 25
Settled - - -
Change in value - - (181)
---------------------------------------------------------------------
Balance - March 31, 2007 244 $ 4.30 $ 1,047
---------------------------------------------------------------------
Fidelity bonus and other benefits(b)
---------------------------------------------------------------------
Balance accrued - December 31, 2005 $ -
Additions 184
---------------------------------------------------------------------
Balance accrued - December 31, 2006 184
Additions 714
---------------------------------------------------------------------
Balance accrued - March 31, 2007 898
---------------------------------------------------------------------
Other liabilities $ 1,945
---------------------------------------------------------------------
---------------------------------------------------------------------
(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. In the first quarter of 2007, $141 thousand (2006 -
$42 thousand) was credited to expense and $15 thousand (2006 - Nil)
was credited to mineral properties.
(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 March 31, 2007, $898 thousand (December 31, 2006
- $184 thousand) has been accrued for these benefits.
8. Related Party Transactions
The Company had related party transactions, with directors, officers
and employees of the Company or associated corporations, which were
in the normal course of operations and were measured at the exchange
amounts as follows:
(a) During the second quarter of 2006, the Company provided an
employee with an interest free loan of $50 thousand. Subsequent
to March 31, 2007 the employee left the Company and the loan
is to be repaid during the second quarter of 2007.
(b) The Company paid nil (2006 - $7 thousand) during the first
quarter to a director of the Company for consultation services
provided to the Company.
(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
Stock-based compensation - exercise of stock
options (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 43
---------------------------------------------------------------------
Balance - December 31, 2006 210,891 385,444
Shares issued from a public offering(b) 35,938 156,328
Less: Share issue costs - (7,612)
Shares issued on the exercise of stock
options (note 11) 127 295
Stock-based compensation - exercise of stock
options (note 12) - 113
Shares issued from the exercise of share
purchase warrants (note 10(a)) 1,596 4,804
---------------------------------------------------------------------
Balance - March 31, 2007 248,552 $ 539,372
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) In the third quarter of 2006, the Company issued 31 million
common shares at $3.15 per share to a syndicate of underwriters
for aggregate net proceeds of $93 million, after deducting
underwriting fee of $4.3 million plus various professional fees
related to the offering of $0.5 million.
(b) On March 22, 2007 the Company issued 31.3 million common shares
and on March 29, 2007 the Company issued a further 4.7 million
shares were issued under an over-allotment option at $4.35 per
share to a syndicate of underwriters and Newmont Canada Limited
("NCL") for aggregate net proceeds of $148.7 million, 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.
NCL, a subsidiary of Newmont Mining Corporation, participated
to acquire 20% (7.2 million common shares) of the total
offering. As of the closing of the offering, NCL held
46.9 million common shares or 18.9% of the issued and
outstanding common shares.
10. Common Share Purchase Warrants
(a) On March 31, 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 (1,596) 2.75 March 31, 2007
---------------------------------------------------------------
Balance - March 31, 2007 5,890 $ 2.75 March 31, 2007
---------------------------------------------------------------
---------------------------------------------------------------
Under the terms of the common share purchase warrant indenture
the expiry dates of these warrants were extended to April 2,
2007. On April 2, 2007, 5.85 million warrants were exercised
for total proceeds of $16.1 million.
(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 (the "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 Plan originally allowed for
the issuance of up to 19 million shares of which 0.7 million are
available for issuance as at March 31, 2007, (December 31, 2006 -
1.7 million). 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.
As at March 31, 2007, common share stock options held by directors,
employees and consultants are as follows:
Outstanding Exercisable
-------------------------------- ---------------------
Weighted
Weighted average Weighted
Range of average remaining average
exercise exercise contractual exercise
prices Number of price life Number of price
(dollars) options (dollars) (Years) options (dollars)
-------------- -------------------------------- ---------------------
$1.48 - $2.00 3,386 $ 1.56 3.1 2,341 $ 1.57
2.01 - 3.00 2,794 2.49 3.4 1,507 2.48
3.01 - 4.00 - - - - -
4.01 - 5.00 3,330 4.65 3.4 1,247 4.74
5.01 - 5.50 855 5.50 0.1 855 5.50
-------------------------------- ---------------------
10,365 $ 3.13 3.0 5,950 $ 3.03
-------------------------------- ---------------------
During the periods ended 2007 and 2006, director, employee and
consultants stock options were granted, exercised and cancelled as
follows:
Weighted
average
exercise
Number of 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
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Balance - December 31, 2006 9,583 2.96
Options granted 955 4.65
Options cancelled (46) 2.25
Options exercised (127) 2.32
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Balance - March 31, 2007 10,365 $ 3.13
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---------------------------------------------------------------------
The exercise of the outstanding stock options would be anti-dilutive
in the loss per share calculation.
The fair value of 955 thousand options granted during the period
ended March 31, 2007 (March 31, 2006 - 200 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: weighted average risk-free interest rate of
4.1% (March 31, 2006 - 4.01%); volatility factor of the expected
market price of the Company's common stock of 63% (March 31, 2006 -
70%); and a weighted average expected life of the options of
2.7 years (March 31, 2006 - 2.6 years). The resulting weighted
average cost per option granted was $2.00 (March 31, 2006 - $1.16).
The 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:
Corporate Stock-based
reorganization compensation Total
---------------------------------------------------------------------
Balance - December 31, 2005 $ 1,013 $ 4,674 $ 5,687
Stock-based compensation - 2,180 2,180
Exercise of stock options - (1,963) (1,963)
---------------------------------------------------------------------
Balance - December 31, 2006 1,013 4,891 5,904
Stock-based compensation - 688 688
Exercise of stock options - (113) (113)
---------------------------------------------------------------------
Balance - March 31, 2007 $ 1,013 $ 5,466 $ 6,479
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13. Segmented Information
The Company has one operating segment: the acquisition, exploration
and development of precious metal projects located in Romania.
Geographic segmentation of capital assets and mineral properties is
as follows:
March 31, December 31,
2007 2006
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Romania $ 264,213 $ 243,899
Canada 917 933
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$ 265,130 $ 244,832
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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) $ 3,614 $ 139 $ 285 $ 737 $ 1,511 $ 942
Goods, services
and long lead
equipment(a) 39,007 21,798 13,843 2,908 10 448
Rosia Montana
exploitation
license(b) 326 27 27 27 27 218
Surface
concession
rights(c) 1,010 17 23 23 23 924
Lease
agreements(d) 1,073 315 217 221 225 95
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Total
commitments $45,030 $22,296 $14,395 $ 3,916 $ 1,796 $ 2,627
---------------------------------------------------------------------
---------------------------------------------------------------------
(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
$39 million at March 31, 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 a purchase agreement for a semi-
autogeneous grinding mill and two ball mills for a total value
of US$29 million. The cost of this equipment will be paid over
three years, 2007 to 2009. As of March 31, 2007 no payment has
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
$23 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. The agreements expire June 30, 2007. RMGC agreed
to pay owners who sign a Promissory Agreement an immediate up-
front payment of 3% of the Property Value (as agreed in the
Promissory Agreement). The Company has committed to purchasing
approximately US$2.9 million as at March 31, 2007 of local
properties in the project area which it has not acquired as of
year end. The commitment is binding once the EIA is approved.
(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
March 31, March 31,
2007 2006
---------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid expenses
and supplies $ 980 $ (208)
Accounts payable and accrued
liabilities (515) (439)
---------------------------------------------------------------------
465 (647)
---------------------------------------------------------------------
---------------------------------------------------------------------
Investing activities:
Accounts receivable, prepaid expenses
and supplies 76 (884)
Accounts payable and accrued
liabilities 1,323 1,197
Resettlement liabilities 631 -
---------------------------------------------------------------------
$ 2,030 $ 313
---------------------------------------------------------------------
---------------------------------------------------------------------
Financing activities:
Accounts receivable for exercise of
purchase warrants (1,709) -
Accrued legal costs for public
issue equity 400 -
---------------------------------------------------------------------
$ (1,309) $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Exploration and development
expenditures
Balance sheet change in Mineral
properties $ (15,790) $ (6,899)
Non-cash depreciation and disposal
capitalized 158 141
Stock based compensation capitalized 284 -
---------------------------------------------------------------------
Exploration and development
expenditures per cash flow statement $ (15,348) $ (6,758)
---------------------------------------------------------------------
---------------------------------------------------------------------
(c) Cash and cash equivalents is
comprised of:
Cash $ 20,072 $ 8,611
Short-term investments (less than
90 days) - weighted average
interest of 4.5% (2006 - 4.3%) 194,827 3,987
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$ 214,899 $ 12,598
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The Company did not incur interest expense during the periods ended
March 31, 2007 and 2006.