TORONTO, Nov. 2 /CNW/ -
Highlights
- Third quarter net loss was $1.75 million, or $0.01 per share
- Third quarter monthly expenditures averaged $1.5 million per month, or
$4.5 million in total spending during the quarter, with a total of
$3.2 million invested in our two development projects
- Working capital at September 30, 2005 totaled $28.9 million
- New program initiated for the acquisition of surface rights
- Broad communications program covering television, print and billboards
initiated
- Filed appeal to archaeological discharge certificate annulment
- Quarter saw Romanian Government make positive statements about process
for permitting project
- European Union issues monitoring report on Romania's progress toward
Accession
- On track to meet updated timetable on project announced in second
quarter (target date to receive construction permit - second half of
2006, with first gold pour expected in late 2008 or early 2009)
Loss for the period
We incurred a loss of $1.75 million or $0.01 per share in third quarter
2005, compared to a loss of $1.67 million or $0.01 per share in the
year-earlier period. For the nine months ended September 30, 2005, we lost
$6.44 million or $0.04 per share, compared to a loss of $6.37 million or $0.05
per share in the first nine months of 2004. For the three month period, higher
stock option compensation offset higher interest income earned on the higher
cash balances this year compared to the year-earlier period. Overall for the
nine-month period, lower project financing costs were offset by reorganization
severance costs and an increase in non-cash charges related to stock option
compensation.
"Our progress this quarter keeps us on track," said Alan R. Hill,
President and Chief Executive Officer. "We've made significant efforts to
improve our communications program - meeting with key constituencies in the
village of Rosia Montana and the surrounding area, as well as Bucharest and
Brussels. We've advanced the EIA towards our first quarter 2006 target date
for submittal and prepared a new options program to help secure surface rights
in the Industrial Zone that we're rolling out in the fourth quarter: All of it
consistent with the model for responsible mining we plan at Rosia Montana."
Development activities
We invested $3.2 million in our two development projects during third
quarter 2005, compared to $6.0 million in the year-earlier quarter. The
reduction in expenditures during the third quarter, as well as year-to-date
through 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 third quarter and nine-month
periods.
Liquidity and capital resources
We have $28.9 million in working capital as at the end of September 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 monthly
total expenditures for the Company of $1.5 million per month during the
quarter, marginally lower than the first ($1.7 million) and second
($1.8 million) quarters of this year. We expect monthly expenditures of
approximately $2.0 million per month through fourth quarter 2005 as we see
increased activity in permitting, village relocation and communications. As a
result, we expect to have between $22 and $23 million in working capital at
year end, excluding warrants.
Rosia Montana Project Development
Mineral Resource Estimate Update
During the third quarter we updated 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 for the Rosia Montana project, using a 0.6g/t gold
cutoff, a 10 x 10 x 10 metre block size and ordinary kriging, consists of a
measured resource of 6,750,000 ounces of gold (139,830,000 tonnes grading 1.5
g/t gold and 8 g/t silver containing 38,080,000 ounces of silver) and an
indicated resource of 7,820,000 ounces of gold (210,520,000 tonnes grading 1.2
g/t gold and 4 g/t silver containing 26,850,000 ounces of silver),(x) which is
unchanged from the previous estimate dating back to 2003.
We are in the process of updating the capital and operating cost
estimates for the project, putting us in a position to update our reserves
based on the new cost structure of the project and higher gold and silver
prices. We do not expect a significant change over the current proven and
probable reserve of 10.6 million ounces, calculated at $300 gold, as we are
updating the reserve estimate using the existing pit outlines and only
converting a portion of the internal waste within the pits to ore. Higher
operating costs are expected to mitigate to some extent any increase in proven
and probable reserves based on higher gold and silver prices. We expect to
announce an updated reserve estimate, as well as our updated capital and
operating cost estimates for the project with our 2005 year end results.
Acquisition of Surface Rights
During third quarter 2005, we completed the update of our resettlement
action plan (the "RAP") to reflect changes in local conditions and
circumstances. The updated RAP introduces a mechanism for the residents of the
village of Rosia Montana to enter into option agreements with respect to the
acquisition of their properties, thereby allowing us to continue the process
of securing rights to the surface area required to develop the Rosia Montana
project without the significant cost outlay of an outright purchase. The
option program will allow us to expedite the acquisition of properties once we
receive the approval of our EIA.
Archaeological Discharge Certificate
We received a copy of the Alba Iulia Court of Appeal's (the "Court")
written reasons for its decision to annul our archaeological discharge
certificate no. 4 for part of the Carnic massif, a portion of the Rosia
Montana project. We, together with the Romanian Minister of Culture, have
appealed the decision of the Court, to the High Court of Justice in Bucharest,
based upon our view that it incorrectly construed and applied the relevant
laws and regulations governing archaeological discharges, and based its
decision on a number of matters we consider irrelevant to the granting of
archaeological discharges. Neither the decision of the Court nor our appeal
prevents us from continuing our archaeological discharge program, and we
remain free to reapply for a new archaeological discharge certificate at any
time. An archaeological discharge is required for all of the area under the
footprint of the proposed mine.
The court challenge to our discharge certificate is one example of a
multitude of legal challenges initiated over the past year by a local
non-government organization (NGO), 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, claiming in
most cases that such regulatory authorities are acting in violation of
Romanian laws. Generally, the sanction requested is cancellation of the permit
or authorization. While Gabriel is typically not the primary target in these
claims, we 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.
Environmental Impact Assessment
During third quarter 2005, we incorporated the matters identified in the
terms of reference issued by the Romanian Government ("TOR") into our
environmental impact assessment ("EIA"). The last step in the EIA process is
underway. We are in the process of turning the EIA documents over to the
independent team of specialists, which are scrutinizing the documents from a
Romanian legislative and experience perspective. The independent team of
specialists will complete, finalize and submit our EIA in both Romanian and
English to meet the requirements of the Romanian Government and the
International Espoo Convention. Our target date for submission of the EIA is
the end of the first quarter 2006.
Broad Communications Program
For many years, public discourse on the Rosia Montana project has been a
monologue, conducted by certain NGO's and others opposed to the project.
Predictably, public opinion has been negative, if also shallow in terms of the
knowledge on which negative impressions were based.
As a complement to our coordinated communications campaign, a paid media
campaign, including television, print and billboards, is critical to creating
a more positive climate of opinion on the many benefits of building the Rosia
Montana mine. By creating a true dialogue with the public we will develop a
deeper understanding of the positive attributes of the project.
During the third quarter, our communications program emphasized
face-to-face meetings. Our new management team met with Romanian Government
officials, hosted press conferences with the Romanian media as well as
sessions with Romanian business leaders to introduce the new corporate and
Romanian management teams and highlight the project benefits. At quarter's
end, Alan Hill, our President and Chief Executive Officer and Raphael Girard,
a director of the Company, met with senior European Union officials to
introduce the new management team and brief them on the benefits of the Rosia
Montana project.
"Over the next three months we will conduct a broad communications
campaign in Romania designed to improve public opinion toward the project by
highlighting the benefits of responsible mining to an area plagued by
environmental and economic problems," said Mr. Hill.
Rosia Montana Project Timeline Update
As indicated in our second quarter report, our plan calls for submission
of the EIA to the Romanian Government at the end of first quarter 2006.
Completion of the archaeological discharge program is scheduled for the summer
of 2006, while acquisition of all necessary surface rights will immediately
follow receipt of approval for the EIA. Application for construction permits
will follow immediately upon receipt of the necessary surface rights and our
plan continues to be to acquire construction permits in the second half of
2006. The project should take approximately two years to construct, putting
our projected first gold pour in the second half of 2008 or early 2009.
Positive Government Statements Regarding Project
The quarter also saw a key development in government-to-government
relations with an impact on the Rosia Montana project. At the first-ever joint
cabinet meeting between Romanian and Hungarian authorities, held October 20,
2005 in Bucharest, Romanian Prime Minister Calin Tariceanu observed in the
closing press conference that "the Rosia Montana project will progress in line
with the permits issued by the Romanian authorities, while observing the
domestic and European environmental norms."
During the joint Romanian-Hungarian session, the Romanian Environment
Minister presented the Hungarian side a note regarding the implementation of
the 1991 Espoo Convention in the case of the Rosia Montana project. Under the
Convention, ratified by both Romania and Hungary, the countries of origin must
involve, in the decision-making process, all states that could be impacted by
a project. The Hungarian Prime Minister Ferenc Gyurccany "praised the fact
that Romanian authorities had taken into consideration all proposals tabled by
the Hungarian experts."
Romanian Accession to European Union Update
On October 25, 2005 the European Union (the "EU") released its 2005
comprehensive monitoring report (the "Report") on progress Romania has made in
its preparations for membership in the EU, currently scheduled for January 1,
2007. The Report covers the political and economic requirements for
membership, the reforms undertaken by Romania to meet those requirements, as
well as the progress in aligning its legislation with the EU legal order.
While the Report highlights the significant progress Romania has made so far,
it also highlights a number of areas of concern which will require immediate
and significant action from Romania. The Accession Treaty signed by Romania
and the EU envisages the accession of Romania on January 1, 2007, however the
Report indicates that if Romania is manifestly unprepared to meet the
requirements of membership in a number of important areas, then accession of
Romania may be postponed by one year.
--------------------
(x) Ben Palich, Senior Consultant, and Brett Gossage, Supervising
Principal of RSG Global are the qualified persons (as defined in
National Instrument 43-101) responsible for the updated resource
estimate. Gary O'Connor, Vice President - Exploration of Gabriel was
responsible for the design and supervision of the drilling and
channel sampling programs, which formed the basis of the updated
resource estimate. Ben Palich, Brett Gossage and RSG Global
corroborated the data collection, including sampling, analytical and
quality control data, on which the resource estimate is based and
prepared the resource model and estimate. All numbers (tonnes and
ounces) have been rounded to the nearest 10,000.
<<
Gabriel Resources Ltd.
Consolidated Balance Sheets
As at September 30, 2005 and December 31, 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
2005 2004
$ $
Assets
Current assets
Cash and cash equivalents 29,725,069 16,371,543
Accounts receivable 402,539 294,160
Prepaid expenses and supplies 900,712 1,217,008
----------------------------
31,028,320 17,882,711
Capital assets (note 2) 1,733,039 2,162,500
Mineral properties (note 3) 176,145,096 164,457,139
----------------------------
208,906,455 184,502,350
----------------------------
----------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 2,119,878 2,600,147
Other liabilities (note 4) 358,782 220,823
----------------------------
2,478,660 2,820,970
----------------------------
Shareholders' Equity
Capital stock (note 6) 254,191,424 227,157,729
Common share purchase warrants
(note 6 and 7) 1,950,000 -
Contributed surplus (note 9) 5,582,415 3,375,933
Deficit (55,296,044) (48,852,282)
----------------------------
206,427,795 181,681,380
----------------------------
208,906,455 184,502,350
----------------------------
----------------------------
Nature of operations and going concern
(note 1)
Minority interest (note 5(d))
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 nine-month periods ended September 30, 2005 and 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
3 months ended 9 months ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
Expenses
Corporate general and
administrative 1,596,380 1,557,288 3,931,053 3,885,222
Stock option
compensation (note 8) 327,528 87,963 2,484,812 623,915
Reorganization
severance costs - - 546,755 -
Project financing
costs - 27,862 - 2,083,491
Amortization 13,401 16,989 43,970 47,447
----------------------------------------------------
1,937,309 1,690,102 7,006,590 6,640,075
----------------------------------------------------
Other income (expense)
Interest 211,285 37,778 495,337 283,454
Foreign exchange (19,172) (17,349) 67,491 (10,415)
----------------------------------------------------
192,113 20,429 562,828 273,039
----------------------------------------------------
Loss for the period 1,745,196 1,669,673 6,443,762 6,367,036
Deficit - Beginning
of period 53,550,848 44,962,210 48,852,282 40,264,847
----------------------------------------------------
Deficit - End of
period 55,296,044 46,631,883 55,296,044 46,631,883
----------------------------------------------------
----------------------------------------------------
Loss per share
(basic and diluted) 0.01 0.01 0.04 0.05
----------------------------------------------------
----------------------------------------------------
Weighted average
number of shares 161,479,221 135,046,697 156,545,118 132,479,758
----------------------------------------------------
----------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
Gabriel Resources Ltd.
Consolidated Statements of Cash Flows
For the three and nine-month periods ended September 30, 2005 and 2004
(Unaudited and expressed in Canadian dollars)
-------------------------------------------------------------------------
3 months ended 9 months ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
Cash flows used in
operating activities
Loss for the period (1,745,196) (1,669,673) (6,443,762) (6,367,036)
Items not affecting cash
Amortization 13,401 16,989 43,970 47,447
Stock option
compensation 327,528 87,963 2,484,812 623,915
Deferred share units 120,715 59,394 137,959 (208,663)
Bridge loan fees
paid with shares
(note 5c) - 237,500 - 237,500
----------------------------------------------------
(1,283,552) (1,267,827) (3,777,021) (5,666,837)
Net changes in non
cash working capital
(note 13a) (95,742) 227,248 106,035 (399,329)
----------------------------------------------------
(1,379,294) (1,040,579) (3,670,986) (6,066,166)
----------------------------------------------------
Cash flows used in
investing activities
Exploration and
development
expenditures
(note 13b) (3,174,666) (6,039,770) (11,140,042) (29,030,281)
Purchase of capital
assets (58,880) (100,923) (162,424) (928,622)
Net changes in non
cash working capital
(note 13a) (456,600) (2,364,789) (549,157) (1,193,210)
----------------------------------------------------
(3,690,146) (8,505,482) (11,851,623) (31,152,113)
----------------------------------------------------
Cash flows from
(used in) financing
activities
Proceeds from short-
term bridge loan
(note 5c) - 1,500,000 - 1,500,000
Repayment of short-
term bridge loan
(note 5c) - (1,500,000) - (1,500,000)
Proceeds from the
exercise of stock
options 575,684 - 575,684 1,111,617
Issuance of capital
stock and common
share purchase
warrants net of issue
costs (note 6) - 24,684,265 28,129,681 24,684,265
Net changes in non-
cash working capital
(note 13a) - 106,000 170,770 106,000
----------------------------------------------------
575,684 24,790,265 28,876,135 25,901,882
----------------------------------------------------
Increase/(Decrease)
in cash and cash
equivalents (4,493,756) 15,244,204 13,353,526 (11,316,397)
Cash and cash
equivalents -
Beginning of period 34,218,825 7,305,467 16,371,543 33,866,068
----------------------------------------------------
Cash and cash
equivalents - End
of period 29,725,069 22,549,671 29,725,069 22,549,671
----------------------------------------------------
----------------------------------------------------
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 nine-month periods ended September 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. 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
September 30, December 31,
2005 2004
$ $
--------------------------
Vehicles 1,355,364 1,357,135
Exploration and office equipment 1,977,226 2,019,059
Leasehold improvements 105,856 105,856
--------------------------
3,438,446 3,482,050
--------------------------
Less: Accumulated amortization
Vehicles 546,702 391,376
Exploration and office equipment 1,070,414 868,764
Leasehold improvements 88,291 59,410
--------------------------
1,705,407 1,319,550
--------------------------
Net book value
Vehicles 808,662 965,759
Exploration and office equipment 906,812 1,150,295
Leasehold improvements 17,565 46,446
--------------------------
1,733,039 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 9,842,791 - 9,842,791
Exploration costs 620,102 1,225,064 1,845,166
---------------------------------------
Balance - September 30, 2005 164,836,731 11,308,365 176,145,096
---------------------------------------
---------------------------------------
Romanian mineral properties
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, holds a 20%
interest in 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 September 30,
2005, the remaining expenditure commitment was US$1.0 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
September 30, 2005, 154,647.5 (December 31, 2004 - 141,553)
outstanding DSUs were valued at the Company's September 30, 2005
share price of $2.32 (December 31, 2004; $1.56) per share resulting
in the amount of $358,782 (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
September 30, 2005 (2004 - $17,000), and $33,000 for the nine
months ended September 30, 2005 (2004 - $52,000).
c) During the third quarter of 2004, the Company drew down
$1.5 million under a short-term standby credit facility provided
by Quest Capital Corp., of which the Managing Director and
shareholder is also a director and shareholder of the Company.
The loan was repaid on September 30, 2004 at which time the
facility was terminated. The Company incurred interest of
$18,284 and issued 197,917 common shares valued at $237,500 for
payment of fees in conjunction with the facility.
d) 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)
Shares issued on the exercise of stock
options (note 8) 340,970 575,684
Stock-based compensation - exercise of
stock options (note 9) - 278,330
--------------------------
Balance - September 30, 2005 161,753,836 254,191,424
--------------------------
--------------------------
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. 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, resulting in an assigned value of $28,050,000 to the
15,000,000 common shares and an assigned value of $1,950,000 to the
share purchase warrants. 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.
7. Share purchase warrants
a) As at September 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 issueable 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 September 30,
2005, 4.0 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 September 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 contrac- exercise
exercise Number of price tual life Number of price
prices options $ (Years) options $
-------------- --------------------------------- --------------------
$1.48 - $2.00 5,540,415 1.58 4.5 3,080,704 1.61
$2.01 - $3.00 1,732,223 2.46 3.0 1,103,473 2.50
$3.01 - $4.00 614,860 3.17 0.2 614,860 3.17
$4.01 - $5.00 1,175,000 4.75 2.2 1,099,998 4.75
$5.01 - $5.50 1,080,000 5.50 1.6 1,080,000 5.50
--------------------------------- --------------------
10,142,498 2.61 3.4 6,979,035 2.98
--------------------------------- --------------------
--------------------------------- --------------------
During the period ended September 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 5,000,000 1.65
Options exercised (340,970) 1.69
Options cancelled (1,222,225) 2.81
Options expired (5,831,900) 3.22
------------ ---------
Balance - September 30, 2005 10,142,498 2.61
------------ ---------
------------ ---------
The exercise of the outstanding stock options in the loss per share
calculation would be anti-dilutive.
The fair value of 5,000,000 options granted during the period ended
September 30, 2005 (2004 - 200,000) 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 3.1% (2004 - 3.1%);
volatility factor of the expected market price of the Company's
common stock of 75% (2004 - 77%); 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 $0.79 (2004 - $0.97).
The estimated fair value of the options is expensed over the vesting
period.
The fair value compensation recorded for options granted in 2005 was
$175,958 for the three months ended September 30, 2005 (2004 -
$16,301), and $1,816,636 for the nine months ended September 30, 2005
(2004 - $21,317). For other options granted subsequent to December
31, 2002 it was $151,570 for the three months ended September 30,
2005 (2004 - $71,662), and $668,176 for the nine months ended
September 30, 2005 (2004 - $602,598).
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 9 months ended
September 30 September 30
Income Statement 2005 2004 2005 2004
$ $ $ $
--------------------------------------------------
Loss for the period 1,745,196 1,669,673 6,443,762 6,367,036
Compensation
expense related to
fair value of
stock options 133,938 479,032 989,334 1,502,574
--------------------------------------------------
Pro-forma loss for
the period 1,879,134 2,148,705 7,433,096 7,869,610
--------------------------------------------------
--------------------------------------------------
Pro-forma loss per
share 0.01 0.02 0.05 0.06
--------------------------------------------------
--------------------------------------------------
September 30, December 31,
Balance Sheet 2005 2004
$ $
--------------------------
Mineral properties 176,145,096 164,457,139
Compensation expense related to fair value
of stock options 283,785 283,785
--------------------------
Pro-forma mineral properties 176,428,881 164,740,924
--------------------------
--------------------------
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 - 2,484,812 2,484,812
Exercise of stock options - (278,330) (278,330)
------------------------------------------
Balance - September 30, 2005 1,012,655 4,569,760 5,582,415
------------------------------------------
------------------------------------------
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:
September 30, December 31,
2005 2004
$ $
--------------------------
Romania 177,832,546 166,559,373
Canada 45,589 60,266
--------------------------
177,878,135 166,619,639
--------------------------
--------------------------
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 and contingencies
(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 September 30, 2005 is $376,000 and are
expected to be paid within one year (September 30, 2004 -
$2,293,000).
(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 $7,568,000 at September 30, 2005 (September 30, 2004
- $10,183,000). 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 13 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 9 months ended
September 30 September 30
2005 2004 2005 2004
$ $ $ $
--------------------------------------------------
Operating activities:
Accounts receivable,
prepaid expenses
and supplies 97,995 229,288 (129,350) 22,391
Accounts payable
and accrued
liabilities (193,737) (2,040) 235,385 (421,720)
--------------------------------------------------
(95,742) 227,248 106,035 (399,329)
--------------------------------------------------
--------------------------------------------------
Investing activities:
Accounts receivable,
prepaid expenses
and supplies (61,945) 330,301 166,497 557,461
Accounts payable
and accrued
liabilities (394,655) (2,695,090) (715,654) (1,750,671)
--------------------------------------------------
(456,600) (2,364,789) (549,157) (1,193,210)
--------------------------------------------------
--------------------------------------------------
Financing activities:
Accounts receivable,
prepaid expenses
and supplies - - 170,770 -
Accounts payable
and accrued
liabilities - 106,000 - 106,000
--------------------------------------------------
- 106,000 170,770 106,000
--------------------------------------------------
--------------------------------------------------
b) Exploration and
development
expenditures (3,410,768) (6,162,592) (11,687,957) (29,351,789)
Non-cash
depreciation
and disposal
capitalized 236,102 122,822 547,915 321,508
--------------------------------------------------
(3,174,666) (6,039,770) (11,140,042) (29,030,281)
--------------------------------------------------
--------------------------------------------------
September 30, December 31,
2005 2004
$ $
--------------------------
c) Cash and cash equivalents is
comprised of:
Cash 2,364,128 2,575,223
Short-term investments - weighted
average interest of 2.8%
(2004 - 2.3%) 27,360,941 13,796,320
--------------------------
29,725,069 16,371,543
--------------------------
--------------------------
14. Reclassification of comparative figures
Certain comparatives have been reclassified
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management Discussion and Analysis ("MD&A") provides a discussion
and analysis of the financial condition and results of operations to enable a
reader to assess material changes in the financial condition and results of
operations as at and for the three-and- nine month periods ended September 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-nine month
periods ended September 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 November 1, 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 second quarter 2005 has
provided the opportunity to reexamine our goals and objectives as a company.
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 in Romania 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 safety
or operational practices, we pledge to do it right.
While the second quarter represented a transition, putting the people in
place and identifying the key issues, the third quarter represents the next
phase of strategy development. Significant progress was made in establishing
strategies to address the key issues of the project. The fourth quarter begins
with the implementation of those strategies.
Key issues
Environmental/permitting
Rosia Montana, with current proven and probable reserves of 10.6 million
ounces of gold, 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 laws, which were harmonized
with those of the European Union in 2003. The size, scope and location of the
proposed operation dictates a comprehensive permitting process for both the
Company and the Government. We enter fourth quarter 2005 with significant work
ahead of us however we believe we are well down the road to permitting this
project. Three of the four steps required of the Company, before submitting
the Environmental Impact Assessment ("EIA") to the Romanian Government, 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 EIA. During third quarter 2005, we completed the third step
incorporating the matters outlined in the TOR into our EIA.
The last step in the EIA process is underway. We are in the process of
turning the EIA documents over to the independent team of specialists, which
are scrutinizing the documents from a Romanian legislative and experience
perspective. The independent team of specialists will complete, finalize and
submit our EIA in both Romanian and English to meet the requirements of the
Romanian Government and the International Espoo Convention. Our target date
for submission of the EIA is the end of the first quarter 2006.
Village relocation
Village relocation is a critical path item for the project. While we are
nearly half way through the process, considerable work remains. The process
involves moving nearly 1,000 households, as well as a number of government and
community buildings. During third quarter 2005, we completed the update of our
resettlement action plan (the "RAP") to reflect changes in local conditions
and circumstances. The updated RAP introduces a mechanism for the residents of
the village of Rosia Montana to enter into option agreements with respect to
the acquisition of their properties, thereby allowing us to continue the
process of securing rights to the surface area required to develop the Rosia
Montana project with fair and equitable prices ensured to property sellers,
but without the significant cost outlay of an outright purchase. The option
program will allow us to expedite the acquisition of properties once we
receive the approval of our EIA.
The new RAP is scheduled to commence in early December 2005, following a
period in which the new option element is communicated to the residents of
Rosia Montana. The program should cost approximately US$1 million over the
course of the next nine months.
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
the Alba Iulia Court of Appeal (the "Court") in June, 2005. We received a copy
of the Court's written reasons for its decision to annul our archaeological
discharge certificate no. 4 in late September 2005 and we, together with the
Romanian Minister of Culture, have appealed the decision, to the High Court of
Justice in Bucharest, based upon our view that the Court incorrectly construed
and applied the relevant laws and regulations governing archaeological
discharges and based its decision on a number of matters we consider
irrelevant to the granting of archaeological discharges. 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 September 2005, we have $28.9 million in working capital.
Our rate of expenditure was approximately $4.5 million during the third
quarter, or $1.5 million per month, excluding working capital adjustments.
This rate is marginally lower than the first ($1.7 million) and second
($1.8 million) quarters of this year, reflecting the benefits of the
restructuring at the end of second quarter 2005. The expenditure rate is
expected to rise to approximately $2.0 million per month during fourth quarter
2005 and continue into next year at a higher level, consistent with the higher
level of activity required to finalize and submit the EIA. In addition, based
on the plans put in place during third quarter 2005, we would expect to see
increased activity related to village relocation and communications.
A potential near-term source of funds is 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 an additional
$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, and to ensure compliance with changes in
regulations. The process of updating capital and operating costs associated
with the Rosia Montana mine began early in fourth quarter 2005, later than we
had planned, as higher resource prices not limited to gold mining have
stretched the premier engineering firms to capacity. We expect to announce the
updated capital and operating costs for the project with our year end results.
We anticipate seeking debt and equity financing during 2006 to build the
project.
Mineral Resource Estimate Update
During the third quarter we updated 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 for the Rosia Montana project, using a 0.6g/t gold
cutoff, a 10 x 10 x 10 metre block size and ordinary kriging, consists of a
measured resource of 6,750,000 ounces of gold (139,830,000 tonnes grading
1.5 g/t gold and 8 g/t silver containing 38,080,000 ounces of silver) and an
indicated resource of 7,820,000 ounces of gold (210,520,000 tonnes grading
1.2 g/t gold and 4 g/t silver containing 26,850,000 ounces of silver),(x)
which is unchanged from the previous estimate dating back to 2003. At year
end, we expect to announce updated reserves, capital costs and operating costs
for the project.
Project timeline
The Company's previous guidance, dating back to 2004, anticipated that
construction commencement would occur no earlier than second quarter 2006.
That guidance 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 second quarter 2005 and our subsequent
review, we issued new guidance in the Second Quarter Report that we expect to
receive our construction permit in second half 2006. Our plan is to begin
construction in 2006, providing that we receive the construction permit early
enough in the fall to lay the foundation to work through the winter, which in
the Rosia Montana region can be severe. If we cannot complete the level of
construction work necessary to work through winter, we would use the
additional time to order the long-lead-time equipment and be ready to break
ground as soon as possible in spring 2007. The project should take
approximately two years to construct, putting our projected first gold pour in
second half 2008 or early 2009.
(x) Ben Palich, Senior Consultant, and Brett Gossage, Supervising
Principal of RSG Global are the qualified persons (as defined in National
Instrument 43-101) responsible for the updated resource estimate. Gary
O'Connor, Vice President - Exploration of Gabriel was responsible for the
design and supervision of the drilling and channel sampling programs,
which formed the basis of the updated resource estimate. Ben Palich,
Brett Gossage and RSG Global corroborated the data collection, including
sampling, analytical and quality control data, on which the resource
estimate is based and prepared the resource model and estimate. All
numbers (tonnes and ounces) have been rounded to the nearest 10,000.
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 2005 2004
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
Statement of loss
Loss 1,745,196 2,339,860 2,358,706 2,220,399
Loss per share 0.01 0.02 0.02 0.01
Balance Sheet
Working Capital 28,908,442 32,849,856 38,246,957 15,282,564
Total Assets 208,906,455 210,216,116 211,833,922 184,502,350
Statement of Cash Flows
Investments in
exploration and
development
including working
capital changes 3,631,266 4,242,277 3,815,656 4,825,793
Cash flow from
financing activities 575,684 (247,499) 28,547,950 1,151,446
$ Cdn 2004 2004 2004 2003
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter
Statement of loss
Loss 1,669,673 2,290,824 2,406,539 2,700,132
Loss per share 0.01 0.02 0.02 0.02
Balance Sheet
Working Capital 20,779,589 3,503,844 20,142,199 30,609,447
Total Assets 186,173,156 165,364,837 165,875,236 168,157,947
Statement of Cash Flows
Investments in
exploration and
development
including working
capital changes 8,404,559 11,623,339 10,195,592 13,651,705
Cash flow from
financing activities 24,684,265 - 1,111,617 2,311,107
Statement of Loss
Loss for the period
We incurred a loss of $1.75 million, or $0.01 per share, in third quarter
2005 versus a loss of $1.67 million, or $0.01 per share, for the year-earlier
period of 2004. For the nine months ended September 2005, we lost
$6.44 million, or $0.04 per share, compared to a loss of $6.37 million, or
$0.05 per share, in the year-earlier nine-month period. For the quarter,
higher stock option compensation offset higher interest income earned on the
higher cash balances this year compared to the year-earlier period. Overall
for the nine-month period, lower project financing costs were offset by
reorganization severance costs 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 third quarter 2005, we incurred a total of $1.60 million for
corporate, general and administrative expenses ("G&A") compared to
$1.56 million in the year-earlier third quarter. Excluding the effect of the
change in value of the deferred share units ("DSU's"), costs decreased by
$22,229 due primarily to lower salary costs. For the nine months ended
September 30, 2005, G&A costs totaled $3.93 million, compared to $3.89 million
in the same period of 2004. Excluding the effect of the change in the value of
the DSU's, costs decreased by $300,791, due primarily to the reversal of an
over accrual of consulting fees 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 is sufficient to support the increase in
activity as the project moves forward.
DSU costs for third quarter 2005 and 2004 increased corporate, general
and administrative costs by $120,715 and $59,394, respectively. The DSU's are
revalued each quarter based on the closing share price at quarter end, with
the difference between the total value of the DSU's at quarter end compared to
the value at the end of the previous period. If the value is higher, as it was
during the third quarter of this year and last, the difference is charged to
the Statement of Loss increasing costs for the period. If the share price
declines, the lower value of the DSU's is credited against costs during the
quarter reducing the loss. For the nine-month period ended September 30, 2005,
we expensed $137,959, compared to a reduction of expenses in the year-earlier
period of $208,663. Overall, for 2005 our share price has increased (by $0.76)
compared to last year when our share price declined from the close of the
previous year end (by $2.98).
Stock option compensation
Stock option compensation for third quarter 2005 increased to $327,528
compared to $87,963 during the year-earlier quarter, while stock option
compensation for the nine-month period increased to $2,484,812 compared to
$623,915 for the nine-month period ended September 30, 2004. The higher
expense for third quarter 2005 relates to the issuance of 1,540,000 options
granted to our new corporate and Romanian management teams, compared to
125,000 options granted to two employees in the year-earlier period. The
higher expense for the nine months of this year reflects the issuance of
5,000,000 options granted through the first three quarters of 2005, 2,035,000
of which were replacement options, which vest immediately compared to 200,000
options granted in the year-earlier nine-month period, all of which were new
options amortized over the vesting period. 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 second quarter 2005, we closed 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, which amount was accrued at the end of the
second quarter. Half of the severance accrued was paid during the third
quarter of 2005, with the balance being paid over the course of the next nine
months.
Project financing costs
We did not incur any project financing costs for the quarter or nine-
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
$0.03 million for third quarter 2004 and $2.08 million for the nine-month
period ended September 30, 2004. We expect to restart the project financing
initiative early next year toward a goal of finalizing project financing in
late 2006.
Interest income
Interest income for third quarter 2005 increased to $211,285, compared to
$37,778 during the year-earlier quarter, while interest income for the nine-
month period increased to $495,337 compared to $283,454 for the nine-month
period ended September 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, in line with our cash balance as we continue
with permitting and development activities.
Foreign exchange
Foreign exchange loss for third quarter 2005 totaled $19,172 compared to
a loss of $17,349 in the same period of 2004. For the nine-month period, we
reported a gain of $67,491 compared to a $10,415 loss in the year-earlier
period. 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 and Romanian Lei, 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.
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, for engineering
to design the size and scope of the project, for environmental assessment and
permitting as well as 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 $3.2 million on our two projects during third quarter 2005, compared
with $6.0 million in third quarter 2004. For the nine months ended
September 30, 2005, we invested $11.1 million on the two projects, compared to
$29.0 million during the nine months of 2004.
For the three-month period ended September 30, 2005 significant
reductions in expenditures were made in community development activities, as
$0.6 million was expended in the three-month period, compared to $1.0 million
in third quarter 2004. 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 $0.1 million on engineering during
third quarter 2005 as compared to $1.0 million in the year-earlier period,
when detailed engineering was still underway. During third quarter 2005,
expenditures for permitting declined to $1.1 million from $2.0 million in the
year-earlier period, when the Project Presentation Report was being prepared.
Third quarter 2005 expenditures on finance and administration declined to
$0.9 million from $1.3 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. The scoping study cost
$0.5 million during the third quarter 2005 compared to $0.7 million in the
year earlier quarter.
We would expect the mineral properties expenditure level to average
$1.5 million per month for the balance of the year. The major expenditures
during the fourth quarter are expected to be the increased activity in our
environmental department as our independent specialist team works to finalize
our EIA documents. Village relocation expenditures are expected to rise in the
fourth quarter with the implementation of the option program, while finance
and administration costs are expected to rise as we initiate a country wide
communications program covering television, print and billboards.
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. While the estimated
capital cost of the project is US$437 million, that estimate is over two years
old, during which time the mining industry has witnessed significant cost
inflation, and the project has seen changes in 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 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 September 30, 2005 we had working capital of $28.9 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 decreased for the
three months ended September 30, 2005, reflecting the payment of severance
costs during the third quarter, while the nine-month source of cash reflects
the unpaid severance accrued in the second quarter.
The net change in investing non-cash working capital decreased for the
three and nine months ended September 30, 2005, primarily as a result of a
significantly lower level of engineering work and permitting costs during 2005
when compared to the year-earlier periods.
The increase in financing non-cash working capital in the nine-month
period of 2005 results from 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
$1.5 million per month for the quarter, with the majority of the expenditures
related to permitting, community development, overheads and exploration.
Related Party Transactions
We sublease a portion of our leased premise to Alamos Gold Inc., on the
board of which our CEO, Alan R. Hill, serves as director. 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 September 30, 2005.
During the quarter ended September 30, 2005, our Romanian subsidiary RMGC
paid $10,000 (2004 - $17,000) to a company owned by Minvest, a minority
shareholder of RMGC, for power costs related to RMGC's assay laboratory in
Romania.
Commitments
The Bucium exploration license obligates the Company to spend
US$3.4 million over the term of its three years extension, which is expiring
on May 19, 2007. As at September 30, 2005, the remaining expenditure
commitment was US$1.0 million (September 30, 2004 - US$2.3 million).
The Company has a number of agreements with arms-length third parties who
provide a wide range of services to it or RMGC. 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. As at
September 30, 2005, commitments under such agreements total $7.6 million
(September 30, 2004 - $10.2 million).
The Company has entered into a number of agreements for purchase and sale
relating to the acquisition of surface rights. The agreements bind the Company
to purchase properties. The total value of the properties committed to be
purchased as at September 30, 2005 is $376,000 (September 30, 2004 -
$2.3 million).
Romanian Accession to the European Union Update
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.
On October 25, 2005 the European Union (the "EU") released its 2005
comprehensive monitoring report (the "Report") on progress Romania has made in
its preparations for membership in the EU. The Report covers the political and
economic requirements for membership, the reforms undertaken by Romania to
meet those requirements, as well as the progress in aligning its legislation
with the EU legal order. While the Report highlights the significant progress
Romania has made so far, it also highlights a number of areas of concern which
will require immediate and significant action from Romania. The Treaty
envisages the accession of Romania on January 1, 2007, however the Report
indicates that if Romania is manifestly unprepared to meet the requirements of
membership in a number of important areas, then accession of Romania may be
postponed by one year.
2005 Outlook
Our key objectives for the balance of the year include:
1. Finalizing our EIA by appointing an independent specialist
team to complete, finalize and submit the EIA to the
government on our behalf;
2. Advancing a community development strategy to complete the
village relocation in parallel with obtaining approval for
our EIA;
3. Advancing the archaeology 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.
We made solid strides in meeting each one of our four key objectives
during the third quarter and we expect to build upon those efforts in the
final quarter of 2005. The cost to execute these four objectives should
average $2.0 million per month during the fourth quarter, leaving us with
between $22 and $23 million in working capital at year end. We anticipate
filing our EIA by the end of the first quarter of 2006. If we are able to
obtain our archaeology discharges and complete the village relocation in
parallel with the EIA, we would expect to receive our construction permits in
the second half of 2006. This timetable, announced in our Second Quarter
Report to Shareholders, firmed up previous guidance issued by the Company. We
remain on track to meet this new timetable.
Outstanding
Preferred shares Nil
Common shares 161,853,836
Common stock options 9,512,698
Common stock warrants 22,500,000
Deferred share units - common shares 154,647.5
Fully diluted share capital 194,021,181.5
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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