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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Basicgov Systems Inc. | TSXV:BSG | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
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Gabriel Resources Ltd. (TSX:GBU)
Highlights
"We continue to see positive reactions from members of Government and officials
at all levels - an indication that our efforts to detail the benefits of our
Project are having an impact," said Keith Hulley, Chief Executive Officer. "With
recent visits to the village by key Government ministers, we are confident there
is a growing understanding of the benefits our Project brings to the local
community and to Romania as a whole."
Financial Performance
-- First quarter net loss was $15.4 million, or $0.05 per share.
-- A total of $9.3 million was spent on our development projects during the
first quarter.
Liquidity and Capital Resources
-- Cash, cash equivalents and short term investments at March 31, 2010
totaled $136.9 million.
-- The revised base budget for 2010 on the Rosia Montana project ("the
Project") totals $46 million, out of which $39.3 remains to be spent
over the balance of the year. The increase from the original 2010 budget
is mainly due to the acceleration of certain commitments to the Rosia
Montana community which will reduce the high unemployment in the area.
This budget includes expenditures and commitments to maintain the value
of our investment in mineral properties and to move the Project through
EIA approval.
-- Depending on Project re-start, the Company expects to spend
approximately $60 million in 2010 on the acquisition of remaining
surface rights and various activities to acquire permits and approvals
required to apply for construction permits.
-- Corporate overhead costs are expected to total an additional $4 million
for the remaining part of the year.
Financing Plan
-- In 2009 management developed a financing plan that assumes availability
of senior debt financing in combination with equity and other potential
financing sources in order to meet the Company's financing needs. The
new plan incorporates recent developments in both the debt and equity
markets.
-- The estimated capital cost to complete the development of the Rosia
Montana Project - including interest, financing and corporate costs is
approximately US$1 billion, based on the 43-101 Technical Report filed
in March 2009.
-- The Company anticipates financing these costs with debt financing,
including senior debt, mezzanine debt, vendor loans, silver sales and EU
grants, with the balance to be financed through equity financing.
-- The estimated capital cost to complete excludes a provision for a cost
overrun facility, reclamation deposit, and hedging program if required
by banks and agencies. These additional items could add US$150 million
to the financing plan.
-- Once completed, the Project is expected to produce approximately 626,000
ounces of gold annually at an average total cash cost of approximately
$272/ounce over the first five years.
Rosia Montana Project Development
Political Situation
-- The current Government, like its 2009 predecessor, is focused on an
anti-crisis program to mitigate the impact of the financial and economic
crisis, supported by the EUR20 billion aid package. Given the critical
importance of sparking sustained economic development, the Company
continues to draw public and political attention to the significant
economic opportunity its Project represents, while conforming to the
highest standards on environment, patrimony and social matters. In the
last days of the 2009 presidential campaign, President Basescu made a
strong statement regarding the importance of the Project, and within
days of the new Government's appointment, the Minister of Economy
included the Project in Romania's governing programme indicating a new
appreciation for the benefits resource development can bring to Romania.
-- In March 2010, the Minister of Economy made a fact-finding visit to the
village of Rosia Montana, meeting with local officials and village
residents to discuss the benefits that would flow from the mine
development. At the end of April 2010, the Minister of Environment and
Forestry and Minister of Culture, two key ministers for our Project,
visited Rosia Montana. The public comments of the ministers reflect
their support for our Project providing the Company complies with the
law and protects the cultural heritage, two fundamental long-standing
commitments made by the Company.
-- In April 2010, opponents of cyanide-based mining seeking to ban the
practice in the European Union pressed the European Parliament to
support a complete ban on the use of cyanide mining technologies before
the end of 2011. On May 5, 2010, the European Parliament had voted to
adopt a motion seeking legislation to ban the use of cyanide-based
technologies in mining in Europe. This motion has no legal effect as
only the European Commission ("EC") has the authority to initiate
directives or regulations that, if subsequently approved by the
Parliament and EU Council, must then be transposed into domestic law
across EU member states. However, it is up to the EC whether further
amendments to existing EC directives dealing with cyanide use in mining
are required. A European Commissioner present for the debate indicated
that the EC was not supportive of a general ban on cyanide, while
stating the ongoing importance of the implementation of the EU Mine
Waste Directive covering cyanide use.
-- Throughout 2009 and 2010, management continued to meet with stakeholders
to understand their issues and concerns and to explain the benefits and
impacts of the Project. Continued strong local and regional support
among public officials is a direct result of our outreach. Our
communication efforts are fact based, focusing on the critically-needed
economic benefits the Project will bring to Romania at a time when the
country faces the impact of the global financial crisis. While political
and NGO opposition remains, broader understanding of these economic and
development issues is a factor in the positive reaction to the Project
among Romania's governing authorities.
-- The Project continues to receive strong support from members of the
local and regional political leadership of both parties in the coalition
government. The focus of this support continues to be urging Romania's
national government to restart the Environmental Impact Assessment
("EIA") review process immediately.
Environmental/Permitting
-- Since the fall of 2007, review of the Project's EIA has been suspended
as a result of a decision taken by the former Minister of Environment
and Forestry ("MOE"). Since that time, management has worked diligently
to advocate in favour of a restart of the EIA review process and advance
the permitting process for the Project. Throughout 2009 and 2010,
management has been focused on initiating and maintaining dialogue with
the various ministries in the Romanian government with respect to the
EIA review process. The change in government in December 2009 has
resulted in a more active dialogue with senior members of the government
and key officials to move our project forward.
-- At the end of April 2010, local authorities issued RMGC a new urbanism
certificate ("UC") for the Project. The Company delivered the new UC to
the Ministry of Environment and Forestry in early May, with the
expectation that receipt of this certificate would allow the Minister to
direct the Technical Analysis Committee ("TAC") process to recommence.
-- The Company is moving forward with the amended industrial zonal
urbanistic plan ("Amended PUZ"), having completed four public
participation meetings and prepared responses to the questions received
from these public consultations including questions received from
Hungarian stakeholders which were filed with the Ministry of
Environment.
-- In addition, the Local Council has initiated the process for the zonal
urbanistic plan for the protected area ("PUZ - Protected Area"). The
plan has been drafted and the final form endorsed by the Local Council
as a result of the public consultation. Assuming a normal path along the
permitting stage, we expect a final approval for Amended PUZ and PUZ-
Protected Area in the fourth quarter of 2010.
-- The forestry and agricultural land use change permits will proceed after
the EIA has been approved and surface rights obtained.
-- The dam safety permits which were validated by the Bucharest Court of
Appeal remain before the Supreme Court under appeal by the MOE.
Rosia Montana Project Timeline
-- Once the EIA for the Project is approved by the Romanian Government, in
the absence of any other extraordinary events, legal or otherwise,
management and its advisory team anticipates that it would take at least
6 months to:
-- Complete the purchase of the outstanding properties;
-- Receive all other permits and approvals, including initial
construction permits; and
-- Complete the control estimate and complete the financing.
-- Once construction of the mine begins, it is expected to take
approximately 24 months to complete. Ultimately, the Romanian Government
determines the timing of issuance of the EIA approval and all other
permits and approvals required for the Rosia Montana Project, subject to
the Romanian courts dealing with litigation from NGOs in a timely
manner.
Surface Rights
-- As a result of the suspension of the EIA review process in September
2007, the home purchase program was suspended indefinitely in February
2008.
-- The Company owns 77 percent of the homes in the industrial zone,
protected area and the buffer zone.
-- The Company also needs to acquire institutional properties (35 percent
of the surface area of the Project) and the process to acquire these is
underway and expected to be completed after EIA approval.
-- Once the Company completes the agreements for institutional properties,
its ownership will rise to approximately 85 percent of the industrial
zone of the Project, further demonstrating strong local support for the
Project.
-- Ultimately, the Company's ability to obtain construction permits for the
mine and plant is predicated on securing 100 percent of the surface
rights within the footprint of the construction permits in the
industrial zone, the timing of which is not entirely within the
Company's control.
Resettlement Sites
-- The construction of all 125 homes in the Recea resettlement site in Alba
Iulia have been physically completed with 124 homes handed over to their
respective owners. The last home is ready and will be handed over in the
second quarter of 2010. This project has attracted attention regionally
and nationally for the quality of its design and construction and it is
a visible testimony to the determination of the Company to deliver on
its promises to the people of Rosia Montana.
-- The Company is currently working to obtain permits for the construction
of Piatra Alba, the new resettlement village to be built in Rosia
Montana. The Company expects to obtain the construction permit in the
second quarter of 2010. Planning is advancing in order to allow
mobilization on granting of the construction permits.
Archaeology
-- The Supreme Court annulled archaeological discharge certificate ("ADC")
number 4 in December 2008. The Company has reviewed the Court's written
reasons for this decision and intends to apply for a new ADC through a
revised application performed by independents researchers that it
believes will address all deficiencies identified by the Court.
-- The Company has concluded the restoration of a historical home located
in the center of Rosia Montana to host a permanent exhibition of history
and mining archaeology, which will be part of the future Mining Museum
(this being one of the public commitments made in the EIA).
-- In the meantime the Company continued the emergency maintenance works
for 120 houses located in the historical center of Rosia Montana, with
the aim to stop their deterioration. The restoration of these houses
will continue through a multi-year program, which will run in parallel
with the construction and the operations phase of the mining project.
CEO Search
-- The Company expects the CEO search process to be successfully concluded
during the second quarter.
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 in the permitting stage and preparing to develop its
80.46% owned Rosia Montana gold project. For more information please visit the
Company's website at www.gabrielresources.com.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") provides a discussion and
analysis of the financial condition and results of operations to enable a reader
to assess material changes in the financial condition and results of operations
as at and for the three months ended March 31, 2010 and 2009. 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, 2010 and 2009, as well
as the audited Consolidated financial statements of the Company as at and for
the year ended December 31, 2009 and notes thereto. The Company's Consolidated
Financial Statements have been prepared in accordance with Canadian Generally
Accepted Accounting Principles ("Canadian GAAP").
All amounts included in the MD&A are in Canadian dollars, unless otherwise
specified. This report is dated as of May 14, 2010, and the Company's public
filings, including its most recent Annual Information Form, can be reviewed on
the SEDAR website (www.sedar.com).
Overview
Gabriel is a Canadian-based resource company committed to responsible mining and
sustainable development in the communities in which it operates. Gabriel is
engaged in the exploration and development of mineral properties in Romania and
is presently in the permitting stage and preparing to develop its 80.46%-owned
Rosia Montana gold project (the "Project"). Minvest S.A. ("Minvest"), a Romanian
state owned mining company, and one other private Romanian company, hold a
19.54% interest in Rosia Montana Gold Corporation ("RMGC"), and Gabriel holds
the pre-emptive right to acquire the 19.54% minority interest. RMGC will be
required to pay 4% net smelter royalty on all production from the Project to the
Romanian Government.
Our mission is to create value for all of our stakeholders from responsible
mining. Our vision is to build the Project and to be a catalyst for sustainable
economic, environmental, cultural and community development. As we develop the
world-class Rosia Montana Project, we will strive to set high standards through
good governance, good engineering, open and transparent communications, and
operations and reclamation based on best available techniques - all in the
service of value creation and sustainable development. Whether the issue is
corporate governance, community development, environmental responsibility or
operational practices, we pledge to do it right.
Key Issues
Political Situation
On December 6, 2009 the incumbent President Traian Basescu was re-elected for a
second 5-year term in office. Upon his re-election President Basescu asked
former Prime Minister Emil Boc to form a new government; and a new governing
coalition was sworn in December 22, 2009, comprised of the PDL, UDMR, plus
Independent and Minority bloc parliamentarians. This current government, like
its 2009 predecessor, is focused on an anti-crisis program to mitigate the
impact of Romania's financial and economic crisis, supported by the EUR20
billion aid package. Given the critical importance of sparking sustained
economic development, the Company continues to draw public and political
attention to the significant economic opportunity its Project represents, while
conforming to the highest standards on environment, patrimony and social
matters.
With Romania working to comply with the requirements of its International
Monetary Fund ("IMF") emergency loan and the imperative of reducing the
government's budget deficit and generating jobs and growth, economic development
moved to the top of the political agenda.
The Project continues to receive strong support from members of the local and
regional political leadership of both parties in the coalition government. The
focus of this support continues to be urging Romania's national government to
restart the Environmental Impact Assessment ("EIA") review process immediately.
In the last days of the 2009 presidential campaign, President Basescu made a
strong statement regarding the importance of the Rosia Montana Project ("the
RMP"), and within days of the new Government's appointment, the Minister of
Economy included the RMP in Romania's governing programme indicating a new
appreciation for the benefits resource development can bring to Romania. In
March 2010, the Minister of Economy made a fact-finding visit to the village of
Rosia Montana, meeting with local officials and village residents to discuss the
benefits that would flow from the mine development. At the end of April 2010,
the Minister of Environment and Minister of Culture, two key ministers for our
project, visited Rosia Montana. The public comments of the ministers reflect
their support for our project providing the Company complies with the law and
protects the cultural heritage, two fundamental and long-standing commitments
made by the Company.
In April 2010, opponents of cyanide-based mining seeking to ban the practice in
the European Union pressed the European Parliament to support a complete ban on
the use of cyanide mining technologies before the end of 2011. Members of
European Parliament in Romania and other EU nation's home to gold mining
operations spoke out against the ban, indicating that the ban would effectively
render it impossible to develop gold resources, and pointing to the strict EU
directive governing cyanide use as sufficient to ensure public health and
safety. A European Commissioner present for the debate indicated that the
European Commission ("EC") was not supportive of a general ban on cyanide, while
stating the ongoing importance of the implementation of the EU Mine Waste
Directive covering cyanide use. On May 5, 2010, the European Parliament had
voted to adopt a motion seeking legislation to ban the use of cyanide- based
technologies in mining in Europe. This motion has no legal effect as only the EC
has the authority to initiate directives or regulations that, if subsequently
approved by the Parliament and EU Council, must then be transposed into domestic
law across EU member states. However, it is up to the EC whether further
amendments to existing EC directives dealing with cyanide use in mining are
required.
Under previous governments, several "private member bills" were introduced for
consideration by the Romanian Parliament. Each bill was intended to block the
Project, either by banning the use of cyanide in mining operations, or by
creating a protected status for the area designated for mining. Two such bills
remain in the Parliamentary Committee process. It is not possible to determine
when or if any of these bills will be tabled for consideration and a vote taken
in the Chamber of Deputies. In the ordinary course of any Parliamentary session
many legislative bills are introduced for debate some of which, when passed in
their final form, could have an adverse impact on the Project from an economic,
permitting or operations perspective. At this time the Company cannot predict
what these potential outcomes may be given the inherent unpredictability of the
parliamentary review process, however the two private members bills mentioned
above are the only ones currently before Parliament which have been expressly
proposed to stop the Project.
Throughout 2009 and 2010 management continued to meet with stakeholders to
understand their issues and concerns and to explain the benefits and impacts of
the Project. Continued strong local and regional support among public officials
is a direct result of our outreach. Our communication efforts are fact based,
focusing on the critically-needed economic benefits the Project will bring to
Romania at a time when the country faces the impact of the global financial
crisis. While political and NGO opposition remains, broader understanding of
these economic and development issues is a factor in the positive reaction to
the Project among Romania's governing authorities.
Environmental/Permitting
Since the fall of 2007, review of the Project's EIA has been suspended as a
result of a decision taken by the former Minister of Environment and Forestry
(the "MOE"). Since that time, Management has worked diligently to advocate in
favor of a restart of the EIA review process and advance the permitting process
for the Project. Throughout 2009 and 2010 management has been focused on
initiating and maintaining dialogue with the various ministries in the Romanian
government with respect to the EIA review process. The change in government in
December 2009 has resulted in a more active dialogue with senior members of the
government and key officials to move our project forward.
Romania's current Minister of Environment and Forestry has indicated numerous
times that he considers a valid urbanism certificate ("UC") necessary to restart
the EIA review process. The Company maintains its position that a UC is not
required to conduct the EIA review process under Romanian law or EU directives.
At the end of April 2010, local authorities issued RMGC a new urbanism
certificate for the Rosia Montana Project. The Company delivered the new UC to
the Ministry of Environment and Forestry in early May, with the expectation that
receipt of this certificate would allow the Minister to direct the Technical
Analysis Committee("TAC") process to recommence.
While the EIA is by far the most important project approval, there are a number
of other permits and approvals required to advance the Project to construction,
such as dam safety permits, zonal urbanistic plans for the industrial and
protected areas, forestry/agriculture land use change permits as well as other
permits and approvals that follow EIA approval. To that end, to the extent these
permits and approvals are not dependent on EIA approval or the acquisition of
surface rights, the processes for each of these will proceed in parallel with
the EIA review process. The Company is moving forward with the amended
industrial zonal urbanistic plan ("Amended PUZ"), having completed four public
participation meetings and prepared responses to the questions received from
these public consultations, including questions received from Hungarian
stakeholders which were filed with Ministry of Environment. In addition, the
Local Council has initiated the process for the zonal urbanistic plan for the
protected area ("PUZ - Protected Area"). The plan has been drafted and the final
form endorsed by the Local Council as a result of the public consultation. A
notification to Environmental Protection Agency has been issued in order to
obtain the other necessary endorsement. Assuming a normal path along the
permitting stage, we expect a final approval for Amended PUZ and PUZ-Protected
Area in the fourth quarter of 2010. The forestry and agricultural land use
change permits will proceed after the EIA has been approved and surface rights
obtained. The dam safety permits for the Rosia Montana project which were
validated by the Bucharest Court of Appeal remain before the Supreme Court under
appeal by the MOE. In the absence of any other extraordinary events, legal or
otherwise, we expect these permitting processes to take at least six months from
the date the EIA is approved by the Romanian government.
Litigation
A number of foreign-funded and Romanian NGOs have initiated a multitude of legal
challenges against virtually every local, regional and national Romanian
regulatory authority that has the administrative authority to grant permits,
authorizations and approvals for any aspect of the exploration and development
of the Project. While some of the actions have been successful, most have been
frivolous. These legal challenges include civil actions against both the
regulatory authorities and individuals within such regulatory authorities; in
general, they claim that such regulatory authorities are acting in violation of
Romanian laws and ask for cancellation of the license, permit or approval and
archeological discharge certificates. Gabriel, through RMGC, has intervened in
all cases in order to ensure that the Romanian courts considering these actions
are presented with a legally correct, fair and balanced analysis as to why the
various Romanian regulatory authorities' actions are in accordance with the
relevant and applicable laws.
While the Company has designed the Project to follow all applicable laws to
protect against permitting delays of the Project, multiple legal challenges
brought forward by NGOs in Romania may continue to cause potential setbacks to
the Project timeline.
In January 2010, two court claims were initiated challenging the legality of
RMGC's share capital increase transaction. The first claim, connected to RMGC's
attempt to register such capital change with the Alba County Trade Registry, was
dismissed by the court on February 19, 2010. The second claim also challenged
the legality of the share capital increase process and further requested the
dissolution of RMGC. In April 2010, the plaintiff withdrew this second claim
before the second hearing and the court acknowledged this withdrawal and
termination of the claim.
In matters of tax assessment, on April 21, 2010, the Supreme Court admitted an
RMGC appeal and cancelled irrevocably the fiscal audit assessment concerning the
period 2003-2004 which totaled approximately $9.8 million. The timeframe and
process for seeking recovery of this amount is uncertain at this time.
RMGC's two other litigation claims in which it has acted as the plaintiff both
involve the MOE and both remain before the Supreme Court. The initial claim
filed in November 2007 seeks an order compelling the MOE to re-commence the EIA
review process, which has been suspended since September 2007 based on a
decision of a prior Minister of Environment. This case is under final appeal by
RMGC. The second claim seeks an order compelling the MOE to issue two dam safety
permits for the Rosia Montana Project. This decision is under final appeal by
the MOE. RMGC expects final resolution of these cases during 2010.
Litigation involving NGO claims seeking the cancellation of urbanism certificate
No. 68 remain before the courts and the timeframe for their resolution is
uncertain at this time. In April 2010, RMGC withdrew its final appeal involving
the annulment decision concerning urbanism certificate No.105. On May 14, 2010
RMGC received notice of a new claim seeking the suspension of the most recent
urbanism certificate issued for the Rosia Montana Project. The timeframe for
resolution of this claim is uncertain at this point.
No other definitive decisions related to outstanding litigation were issued
during the first quarter of 2010.
Surface Rights
As a result of the suspension of the EIA review process in September 2007, the
home purchase program was suspended indefinitely in February 2008. The Company
owns 77 percent of the homes in the industrial zone, protected area and the
buffer zone.
In addition to the private properties required, the Company needs to acquire
properties (about 35 percent of the surface area of the Project), which are
owned by institutions, including the local administrations of Rosia Montana and
Abrud, as well as certain churches and state-owned mining companies. The process
to acquire the institutional properties is underway and expected to be completed
after the approval of the EIA.
Once the Company completes the agreements for institutional properties, its
ownership will rise to approximately 85 percent of the industrial zone of the
Project, further demonstrating strong local support for the Project. Ultimately,
the Company's ability to obtain construction permits for the mine and plant is
predicated on securing 100 percent of the surface rights within the footprint of
the construction permits in the industrial zone, the timing of which is not
entirely within the Company's control.
Resettlement Sites
Construction of the Alba Iulia resettlement site, known as Recea, began in
summer 2007. Infrastructure was completed during the third quarter 2008. The
construction of all 125 homes in the Recea resettlement site in Alba Iulia have
been physically completed with 124 homes handed over to their respective owners.
The last home will be handed over in the second quarter of 2010. This project
has attracted attention regionally and nationally for the quality of its design
and construction and it is a visible testimony to the determination of the
Company to deliver on its promises to the people of Rosia Montana.
The Company is currently working to obtain permits for the construction of
Piatra Alba, the new resettlement village to be built in Rosia Montana. The
Company expects to obtain the construction permit in the second quarter of 2010.
Planning is advancing in order to allow mobilization on granting of the
construction permits.
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 certificate is required for all of the area under
the footprint of the proposed mine.
An NGO commenced legal action in 2004 and ultimately obtained an annulment with
respect to RMGC's archaeological discharge Certificate No. 4 ("ADC 4") from the
Supreme Court of Romania in December 2008. The Company has reviewed the Court's
written reasons for this decision and intends to apply for a new ADC 4 through a
revised application performed by independents researchers that it believes will
address all deficiencies identified by the Court.
The Company has concluded the restoration of a historical home located in the
center of Rosia Montana to host a permanent exhibition of history and mining
archeology, which will be part of the future Mining Museum (this being one of
the public commitments made in the EIA). Since its opening in late March 2010,
more than 400 people have visited the Mining Museum. The Company received
extremely positive feedback from the local community emphasizing the Company's
contribution to the cultural patrimony.
In the meantime, the Company continued the emergency maintenance works for 120
houses located in the historical center of Rosia Montana, with the aim to stop
their deterioration. The restoration of these houses will continue through a
multi-year program, which will run in parallel with the construction and the
operations phase of the mining project.
CEO Search
The Company expects the CEO search process to be successfully concluded during
the second quarter.
Liquidity and Capital Resources
Cash, cash equivalents and short term investments at March 31, 2010 totaled
$136.9 million.
The revised base budget for 2010 on the Rosia Montana Project totals $46
million, out of which $39.3 remains to be spent over the balance of the year.
The increase from the original 2010 budget is mainly due to the acceleration of
certain commitments to the Rosia Montana community which will reduce the high
unemployment in the area. This budget includes expenditures and commitments to
maintain the value of our investment in mineral properties and to move the
Project through EIA approval. In addition to the base budget, and depending on
the Project re-start, the Company expects to spend approximately $60 million in
2010 on the acquisition of remaining surface rights and various activities to
acquire permits and approvals required to apply for construction permits.
Corporate overhead costs are expected to total an additional $4 million for the
remaining part of the year.
Expected Financing Plan
In 2009 management developed a financing plan that assumes availability of
senior debt financing in combination with equity and other potential financing
sources in order to meet the Company's financing needs. The plan incorporates
recent developments in both the debt and equity markets.
-- The estimated capital cost to complete the development of the Rosia
Montana Project - including interest, financing and corporate costs is
approximately US$1 billion.
-- The Company anticipates financing these costs with debt financing,
including senior debt, mezzanine debt, vendor loans, silver sales and EU
grants, with the balance to be financed through equity financing.
-- The estimated capital cost to complete does not include a provision for
(i) a cost overrun facility, (ii) a financial guarantee (reclamation
deposit), or (iii) hedging program if required by the banks and
agencies. These additional items could add US$150 million to the
financing plan.
-- The Company holds an exploitation concession license with respect to the
Rosia Montana Project, whose initial term expires in 2019. The mining
plan for the Rosia Montana Project envisions a 16 year operating life
plus additional time for closure and remediation activities. As part of
the project financing, the banks will likely require confirmation that
the mining license will be extended for at least one five year term.
Project Timeline
-- The EIA was submitted in the second quarter of 2006.
-- In January 2007, the Company received the list of official questions
from the Romanian Government, raised during the public consultation
process.
-- The Company responded to the questions in the form of an Annex to the
EIA, in early May 2007.
-- Technical Analysis Committee and Espoo Convention meetings went well
during the third quarter of 2007, until TAC meetings were suspended in
September 2007.
-- In response to the repeated requests for the new urbanism certificate
for the Rosia Montana Project by the current Minister of Environment and
Forestry, RMGC obtained and delivered one to the MOE in May 2010.
Once the EIA for the Project is approved by the Romanian Government, in the
absence of any other extraordinary events, legal or otherwise, management and
its advisory team anticipates that it would take at least 6 months to:
-- Complete the purchase of the outstanding properties;
-- Receive all other permits and approvals, including initial construction
permits; and
-- Complete the control estimate and complete the financing.
Once construction of the mine begins, it is expected to take approximately 24
months to complete. Ultimately, the Romanian Government determines the timing of
issuance of the EIA approval and all other permits and approvals required for
the Rosia Montana Project, subject to the Romanian courts dealing with
litigation from NGOs in a timely manner.
Outlook
Our key objectives include:
1. Obtaining approval of our EIA and all other required permits;
2. Beginning construction of the new resettlement village at Piatra Alba;
3. Raising the required debt and equity to build the Project;
4. Beginning Project construction; and
5. Maximizing shareholder value, as the markets recognize project
advancement, while ensuring that the Project benefits those in the
community and the surrounding area to the optimum possible extent.
Results of Operations
The results of operations are summarized in the following tables, which have
been prepared in accordance with Canadian generally accepted accounting
principles:
in thousands of Canadian
dollars, except per
shareamounts 2010 Q1 2009 Q4 2009 Q3 2009 Q2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss
Loss $ 15,439 $ 10,729 $ 7,082 $ 1,798
Loss per share - basic and
diluted 0.05 0.03 0.02 0.01
----------------------------------------------------------------------------
Balance Sheet
Working capital 124,604 148,715 95,838 109,518
Total assets 642,189 658,694 608,399 624,991
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working
capital changes 13,185 13,004 10,689 11,194
Cash flow provided by (used in)
financing activities 857 70,260 (435) 112,908
----------------------------------------------------------------------------
in thousands of Canadian
dollars, except per share
amounts 2009 Q1 2008 Q4 2008 Q3 2008 Q2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss (Income)
Loss (Income) $ 6,969 $ (3,958) $ 2,782 $ 16,241
Loss (Income) per share - basic
and diluted 0.03 (0.02) 0.01 0.06
----------------------------------------------------------------------------
Balance Sheet
Working capital 7,401 29,172 50,324 80,513
Total assets 522,618 530,135 508,010 513,965
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working
capital changes 11,159 8,171 19,237 4,375
Cash flow provided by financing
activities 3 - 82 1,015
----------------------------------------------------------------------------
Statement of Loss
3 months ended
March 31,
in thousands of Canadian dollars, except per share
amounts 2010 2009
----------------------------------------------------------------------------
Total operating expenses for the period $ 2,415 $ 6,718
Loss for the period 15,439 6,969
Loss per share - basic and diluted 0.05 0.03
Total operating expenses for the three-month period ended March 31, 2010
decreased from the corresponding period in 2009 primarily due to $3.2 million
charge in the first quarter of 2009 resulting from non-recurring retiring
allowance including the expensing of share-based compensation for the Company's
former Chief Executive Officer. The decrease is also due to a decrease in DSU
expense of $1 million resulting from a decline in the Company's share price from
December 31, 2009.
Loss for the first quarter 2010 increased from the same period in 2009 mainly
due to an increase in foreign exchange loss of $13 million partially offset by
lower operating expenses of $4.3 million.
We expect to incur operating losses until commercial production commences and
revenues are generated.
Expenses
Corporate, General and Administrative
3 months ended
March 31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance $ 233 $ 197
External communications 192 165
Information technology 74 76
Legal 159 184
Payroll 669 3,187
Other 397 354
----------------------------------------------------------------------------
Corporate, general and administrative expense $ 1,724 $ 4,163
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate, general and administrative costs are those costs incurred by the
corporate office in Toronto. Excluding a non-recurring retiring allowance of
$2.4 million for the Company's former Chief Executive Officer charged in the
first quarter of 2009, corporate, general and administrative costs for the
three-month period ended March 31, 2010 were comparable to the same period in
2009. Corporate, general and administrative costs are anticipated to rise
(excluding the cost of non-recurring items) once the Rosia Montana Project is
permitted and the Company increases its staffing for construction and
operations.
Stock Based Compensation
3 months ended March
31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - expensed (recovered) $ (33) $ 953
Stock option compensation - expensed 554 1,389
----------------------------------------------------------------------------
Stock based compensation - expensed $ 521 $ 2,342
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - capitalized $ - 95
Stock option compensation - capitalized 297 263
----------------------------------------------------------------------------
Stock based compensation - capitalized $ 297 $ 358
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSU Compensation
Number of DSUs issued 5,962 13,721
Average value ascribed to each DSU issued $ 4.34 $ 2.46
The recovery of DSU expense for the three-month period ended March 31, 2010
reflects the decline in the Company's share price since the beginning of the
period, partially offset by the issuance of 6 thousand DSU's during the period.
The Company's closing share price at March 31, 2010 was $4.21 per share while at
December 31, 2009 the closing share price was $4.37.
Initially valued at the five-day weighted average market price of the stock at
date of issue, DSUs are revalued each period based on the closing share price at
the period end, with the difference between the total value of the DSUs at
period end compared to the value at the end of the previous period. If the share
price declines, the lower value of the DSUs is credited against costs during the
period. If the value is higher, the difference is charged to the Statement of
Loss, increasing costs for the period, or capitalized to Mineral Properties.
Overall, for the three-month period ended March 31, 2010, our share price
decreased by $0.16 compared to December 31, 2009, while for the same period in
2009, our share price increased by $0.88 from December 31, 2008.
3 months ended
March 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock option compensation
Number of stock options granted - 600,000
Average value ascribed to each option granted $ - $ 1.56
Options granted to corporate employees, consultants,
officers, and directors - -
Options granted to development project employees and
consultants - 600,000
The estimated fair value of stock options is amortized over the period in which
the options vest which is normally three years. For those options which vest on
a single or multiple dates, either on issuance or on meeting milestones (the
"measurement date"), the entire fair value of the vesting options is recognized
immediately on the measurement date.
The fair value of stock options granted to personnel working on development
projects is capitalized over the vesting period.
No stock options were issued during the first quarter of 2010.
Project Financing Costs
3 months ended March
31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Project Financing Costs $ 112 $ 150
The project financing costs for the three-month period ended March 31, 2010 were
comparable to those of the same period in 2009.
Project financing activities include advisory services for the various
facilities under our financing plan.
Interest Income
3 months ended March
31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Income $ 121 $ 64
Higher interest income in first quarter 2010 compared to first quarter 2009 is
the result of higher average cash balances. As at March 31, 2010, we had cash,
cash equivalents, and short-term investments of $136.9 million compared to $50.1
million as at March 31, 2009.
The Company is focused on minimizing credit risk and therefore is foregoing
higher yields on its investments and is investing predominantly in government
guaranteed instruments. Approximately 87 percent of the Company's cash balances
are invested in government guaranteed instruments with the balance invested in
term deposits with major Canadian banks.
Foreign Exchange
3 months ended
March 31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange loss - realized $ 410 $ 108
Foreign exchange loss - unrealized 12,733 207
----------------------------------------------------------------------------
Total foreign exchange loss $ 13,143 $ 315
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During 2009, the Company converted the majority of the cash raised from two
private placements and a public offering to foreign currencies to match
anticipated foreign denominated expenditures. Since the purchase of foreign
currencies, the Canadian dollar strengthened relative to the foreign currencies
acquired, resulting in realized and unrealized foreign exchange losses for the
three-month period ended March 31, 2010. As a result of a higher average cash
balance in the first quarter of 2010 and strengthening of Canadian dollar to
EURO and USD, main currencies held by the Company, the realized and unrealized
foreign exchange losses for the first quarter of 2010 were by $12.8 million
higher than in the same period in 2009.
The Company maintains a Canadian dollar cash position to fund corporate, general
and administrative activities, while the majority of its cash resources are in
foreign currencies.
We would expect to continue to report foreign currency gains and losses as we
continue to hold foreign currencies.
Taxes
In April 2010, the Supreme Court in Romania admitted an RMGC appeal and
cancelled irrevocably the fiscal assessment concerning the period 2003 and 2004
which totaled $9.8 million. The original assessment arose from the disallowance
of the application of state tax incentives related to unrealized foreign
exchange gains on inter-company debt.
The Company will seek to obtain the reimbursement for the taxes paid in previous
years once the written Supreme Court decision is received. The timeframe and
process for seeking recovery of the full amount is uncertain at this time. As of
March 31, 2010 no recovery amount was recorded in the financial statements.
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, social support to local communities, as well as surface
rights/property acquisition. Once we receive our construction permit, the nature
and magnitude of the expenditures will increase as we build roads, production
facilities, open pits, tailings management facilities and associated
infrastructure.
Mineral Properties
We capitalize all costs incurred in Romania related to our development and
exploration projects - Rosia Montana, Bucium and Baisoara - to mineral
properties.
Listed below is a summary of expenditures at Rosia Montana for the three months
ended March 31, 2010 and 2009.
3 months ended March
31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance and administration $ 1,677 $ 2,609
External communications 2,501 1,212
Legal 1,213 1,191
Permitting 400 755
Community development 1,139 1,149
Project management and engineering 1,362 1,531
Exploration - Rosia Montana 164 172
Exploration - Bucium - -
Exploration - Baisoara 17 35
Capitalized depreciation net of disposals (112) (131)
Capitalized stock based compensation (297) (358)
Reclassification to mineral properties - -
Net adjustments of resettlement liabilities and
construction in progress 221 (853)
----------------------------------------------------------------------------
Total exploration and development expenditures $ 8,285 $ 7,311
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the three-months ended March 31, 2010, finance and administration costs
decreased compared to the corresponding 2009 period primarily due to foreign
exchange gains on trade payables and resettlement obligations. During the
three-months ended March 31, 2010, the US dollar, Euro and RON weakened against
the Canadian dollar resulting in foreign exchange gains capitalized by the
Romanian subsidiary. As at March 31, 2010 and 2009, the Company's Romanian
subsidiary had outstanding foreign denominated liabilities for service and goods
providers and resettlement obligations.
External communications costs increased for the three-months ended March 31,
2010 compared to the same period last year mainly due to the media campaign
initiated in the first half of 2009. The Company entered into a professional
service agreement with an international communication firm, which term is three
years from the commencement date of March 1, 2009 until February 29, 2012. The
agreed fee consists of an annual fee and success fee payable at the end of three
years agreement upon fulfillment of certain criteria.
No additional work is planned on the Bucium property until the exploration
license is converted to an exploitation license and the Rosia Montana EIA is
approved. The government has indicated that a decision on the conversion of the
Bucium exploration to exploitation license will not be made until a decision on
the Rosia Montana Project is made.
Purchase of Capital Assets
3 months ended March
31,
in thousands of Canadian dollars 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ 1 $ 2,120
Investment in long-lead-time equipment 925 6,806
Other 108 30
----------------------------------------------------------------------------
Total investment in capital assets $ 1,034 $ 8,956
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and disposal - expensed $ 58 $ 63
Depreciation and disposal - capitalized to mineral
properties $ 112 $ 131
The construction of all 125 homes at the Recea resettlement site in Alba Iulia
has been physically completed with 124 homes handed over to their respective
owners. The last home is ready and will be handed over in the second quarter of
2010.
The Company is currently working to obtain permits for the construction of
Piatra Alba, the new resettlement village to be built in Rosia Montana. The
Company expects to obtain the construction permit in the second quarter of 2010.
Planning is advancing in order to allow mobilization on granting of the
construction permits.
The final installments for the mills are expected to be made in 2010 ($3.5
million) and 2011 ($0.1 million) at which point the grinding area systems and
crushing facilities will be fully paid for and in the possession of the Company.
In order to minimize the transportation, storage expenditures and other costs,
the Company evaluated various strategies for storing completed equipment and
based on the final evaluation the equipment is currently stored at three main
locations in accordance with manufacturer's specifications.
Cash Flow Statement
Liquidity and Capital Resources
Our only sources of liquidity until we receive our environmental permits for
Rosia Montana are our cash balance, bridge financing, exercise of stock options
and warrants outstanding, and the equity markets. The cost to complete the
Project was estimated at US$876 million based on a revised cost estimate in
March 2009. To complete the development of the Project, the Company will need
financing of approximately US$1 billion, to fund capital costs of US$876 million
plus working capital, interest, financing and corporate costs of US$124 million.
Management has developed a financing plan that assumes availability of senior
debt financing in combination with equity and other potential financing sources
in order to meet the Company's financing needs. If we were unable to raise the
required funds, we would seek strategic alternatives to move the Project towards
development.
In 2009, the Company raised $180 million net of acquisition costs through two
private placements and a public equity offering.
As at March 31, 2010, we had cash, cash equivalents, and short-term investments
of $136.9 million compared to $50.1 million at March 31, 2009. Substantially all
of these amounts are invested in government guaranteed investments.
The Company manages its foreign currency risks through matching its expected
foreign denominated expenditures with foreign currency investments. The Company
has not entered into any derivatives hedging activities. The Company maintains
Canadian dollar investments to fund corporate costs while most investments are
denominated in Euro and some in US dollars to match planned foreign currency
expenditures. The Company incurs foreign currency gains and losses on those
foreign denominated investments as the currencies move against each other.
Accordingly, the Company will continue to experience foreign exchange gains and
losses as long as it maintains foreign currency investments.
Based on management's knowledge and experience of the financial markets, the
Company believes the following movements are "reasonably possible" over a three
month period:
-- Cash and cash equivalents include deposits which are at floating
interest rates. A plus or minus 1% change in earned interest rates would
affect net income from deposits by $0.2 million.
-- For short-term investments a plus or minus 1% change in earned interest
rates would affect net income by $0.1 million.
-- The Company holds significant balances in foreign currencies, and this
gives rise to exposure to foreign exchange risk. A plus or minus 1%
change in foreign exchange rates would affect net income by $1.2
million.
The Company's objective when managing capital is to safeguard its accumulated
capital in order to fund development of its Rosia Montana Project. The Company
manages its capital structure and makes adjustments to it based on the level of
funds on hand and anticipated future expenditures. While the Company expects
that it will be able to obtain equity, long-term debt and/or project-based
financing sufficient to build and operate the Rosia Montana Project, there are
no assurances that these initiatives will be successful. To safeguard capital
and to mitigate currency risk, the Company invests its surplus capital in highly
liquid, highly rated financial instruments that reflect the currency of the
planned expenditure.
Working Capital
As at March 31, 2010, we had working capital, calculated as total current assets
less total current liabilities, of $124.6 million versus $148.7 million as at
December 31, 2009. The decrease in working capital in first quarter 2010 relates
to the loss incurred during the period, investments in mineral properties and
payments on capital assets.
As at March 31, 2010, we had current liabilities of $14.1 million of which $5.2
million relates to our resettlement obligations stemming from the acquisition of
homes in the Project area. The construction of all 125 homes at the Recea
resettlement site in Alba Iulia has been physically completed with 124 homes
handed over to their respective owners. The last home will be handed over and
legal transfer of seven remaining homes will be finalized in the second quarter
of 2010. The Company is currently working to obtain permits for the construction
of Piatra Alba, the new resettlement village to be built in Rosia Montana.
Net Change in Non-Cash Working Capital
Operating non-cash working capital decreased for the three-months ended March
31, 2010 compared to the same period in 2009 due to a decrease in payables and
accrued liabilities.
The increase in investing non-cash working capital for the three-months ended
March 31, 2010 compared to the same period in 2009 is primarily due to a
decrease in receivables and an increase in payables and accrued liabilities of
the Romanian subsidiary's as well as due to unrealized foreign exchange losses
on short-term investments.
Related Party Transactions
In December 2004, the Company loaned a total of US$971 thousand to the four
minority shareholders of RMGC, who held an aggregate of 20% of the shares of
RMGC, to facilitate a statutory requirement to increase RMGC's total share
capital. During 2009 the Company purchased shares held in RMGC by two of its
minority shareholders. Upon completion of this transaction, the outstanding
indebtedness of the two minority shareholders of $23 thousand was deemed to be
paid in full.
During 2009, the Company received a formal offer to purchase the shares held in
RMGC by two of its minority shareholders (the "Minority Shareholders"), each of
whom owned 23,967 common shares in RMGC representing each 0.23% of its share
capital. The Company responded to the offer of the minority shareholders and has
purchased 47,934 common shares of RMGC held by the Minority Shareholders for
222,708 shares of Gabriel and for US$0.8 million in cash. As a result of these
transactions, the Company's ownership interest in RMGC increased from 80% to
80.46%.
In 2009, the Company loaned a further US$40 million to the remaining two
minority shareholders of RMGC to facilitate another statutory share capital
increase in RMGC.
The loans are non-interest bearing and are to be repaid as and when RMGC
distributes dividends to its shareholders. The loans and related minority
interest contribution have been offset on the balance sheet until such time as
the loans are repaid. Once the loans are repaid the minority interest component
will be reflected on the balance sheet.
Resettlement Liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in
the Project area. Residents had two choices. They could either choose to take
the sale proceeds and move to a new location of their choosing or they could
exchange their properties for a new property to be built by the Company at one
of the two new resettlement sites. For those residents who choose the
resettlement option, the Company increases its mineral properties on the balance
sheet as well as resettlement liabilities for the anticipated construction costs
of the resettlement houses. As the construction takes place, the cost of newly
built houses are capitalized as construction in progress. After the transfer of
legal title of the property is completed, the Company reduces the amounts
capitalized as construction in progress and at the same time its resettlement
liabilities. All resettlement associated costs will remain capitalized in
mineral properties and amortized over the life of the mine once the project
moves into production.
At March 31, 2010, the Company had accrued resettlement liabilities totaling
$5.2 million (December 31, 2009 - $5.4 million), which represents the cost of
building the remaining new homes for the local residents and outstanding delay
penalties.
The construction of all 125 homes at the Recea resettlement site in Alba Iulia
has been physically completed with 124 homes handed over to their respective
owners. The last home is ready and will be handed over in the second quarter of
2010. The Company is currently working to obtain permits for the construction of
Piatra Alba, the new resettlement village to be built in Rosia Montana. All 24
property owners who chose the Piatra Alba resettlement site have signed a three
year extension contract. As a result of the delay in delivery of homes, the
Company paid or accrued a penalty of 9% (for Recea) and up to 20% (for Piatra
Alba) of the agreed upon unpaid property value per year of delay as required by
the agreement including all amendments.
As at March 31, 2010, the Company has accrued $0.4 million (December 31, 2009 -
$0.4 million) representing its total estimated delay penalty. During the
three-months ended March 31, 2010, the Company paid $58 thousand of delay
penalties (2009 - $0.1 million).
Contractual Obligations
The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds
an exploration license with respect to the Baisoara property in Western Romania.
The license is for an initial term of 5 years and expires in July 2011. Upon
granting of the license, the Company committed to spend US$3.2 million over the
term of the license. Due to the delay in the Rosia Montana permitting process,
the Company has reduced the exploration expenditure for Baisoara to a level
required to maintain the license and permit in good standing.
The Company and its subsidiaries have a number of agreements with arms-length
third parties who provide a wide range of goods and services which totalled
$12.9 million at March 31, 2010 (December 31, 2009 - $14.7 million). Typically,
the service agreements are for a term of not more than one year and permit
either party to terminate for convenience on notice periods ranging from 15 to
90 days. Upon termination, the Company has to pay for services rendered and
costs incurred to the date of termination.
During 2007, the Company entered into purchase agreements for long-lead-time
equipment, the cost of which is to be paid over several years beginning 2007. As
at March 31, 2010 outstanding commitments under such agreements totaled $3.6
million (December 31, 2009 - $5.1 million). No further long-lead-time equipment
orders are expected to be placed until the EIA is approved; however, the
reported commitment expressed in Canadian dollars will fluctuate as obligations
are denominated in foreign currencies.
The following is a summary of contractual commitments of the Company including
payments due for each of the next five years and thereafter:
2014 and
Total 2010 2011 2012 2013 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Baisoara exploration
license $ 2,718 $ 179 $ 2,539 $ - $ - $ -
Resettlement 4,413 - 4,413 - - -
Goods and services 12,940 10,904 623 1,102 7 304
Long lead time
equipment 3,600 3,488 112 - - -
Rosia Montana
exploitation
license 1,602 200 200 200 200 802
Surface concession
rights 827 20 20 20 20 747
Lease agreements 653 81 404 168 - -
----------------------------------------------------------------------------
Total commitments $ 26,752 $ 14,872 $ 8,310 $ 1,490 $ 227 $ 1,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following is a summary of the long-lead-time equipment orders and the
payment status:
March 31, December
2010 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems $ 41,731 $ 41,731
Crusher facilities 3,961 3,961
Foreign exchange movement 585 3,023
----------------------------------------------------------------------------
46,277 48,715
Amount paid to date:
Grinding area systems (38,340) (37,011)
Crusher facilities (3,881) (3,881)
Foreign exchange movement (456) (2,676)
----------------------------------------------------------------------------
Outstanding payment obligation $ 3,600 $ 5,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
New Accounting Pronouncements
Business Combinations, Consolidated Financial Statements and Non-Controlling
Interests
The CICA issued three new accounting standards in January 2009: Section 1582,
"Business Combinations", Section 1601, "Consolidated Financial Statements" and
Section 1602, "Non-Controlling interests". These new standards will be effective
for fiscal years beginning on or after January 1, 2011.
Section 1582, "Business Combinations" replaces section 1581, "Business
Combinations", and establishes standards for the accounting for a business
combination. It provides the Canadian equivalent to IFRS 3 - Business
Combinations. The section applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2011. Sections 1601,
"Consolidated Financial Statements", and 1602, "Non-Controlling interests",
together replace section 1600, "Consolidated Financial Statements". Section 1601
establishes standards for the preparation of consolidated financial statements
and applies to interim and annual consolidated financial statements relating to
fiscal years beginning on or after January 1, 2011. Section 1602 establishes
standards for accounting for non-controlling interest in a subsidiary in
consolidated financial statements subsequent to a business combination. The
Company opted to early adopt these standards as at December 31, 2009 and applied
Section 1602, "Non-Controlling Interests", in accounting for the purchase of
minority interest shares (refer to Note 9). Consequently, the difference between
the carrying amount of the minority interest shares and the fair value of the
consideration paid was recognized directly in shareholders' equity. The early
adoption of Section 1582, "Business Combinations" and Section 1601,
"Consolidated Financial Statements", did not have an impact on the Company's
consolidated financial statements.
IFRS Changeover Plan Disclosure
The Canadian Accounting Standards Board (AcSB) has announced its decision to
replace Canadian generally accepted accounting principles ("GAAP") with
International Financial Reporting Standards (IFRS) for all Canadian Publicly
Accountable Enterprises (PAEs).
The effective changeover date is January 1, 2011, at which time Canadian GAAP
will cease to apply for Gabriel Resources Ltd. and will be replaced by IFRS.
Following this timeline, the Company will issue its first set of interim
financial statements prepared under IFRS in the first quarter of 2011 including
comparative IFRS financial results and an opening balance sheet as at January 1,
2010. The first annual IFRS consolidated financial statements will be prepared
for the year ended December 31, 2011 with restated comparatives for the year
ended December 31, 2010.
Management has developed a project plan for the conversion to IFRS based on the
current nature of operations. The conversion plan is comprised of three phases:
IFRS diagnostic assessment, implementation and education, and completion of all
integration system and process changes.
Management has completed phase one, IFRS diagnostic assessment, and is now
advancing through phase two, implementation and education. Management has
prepared a component evaluation of its existing financial statement line items,
comparing Canadian GAAP to the corresponding IFRS guidelines, and has identified
a number of potential differences. Many of the differences identified are not
expected to have a material impact on the reported results and financial
position.
We expect that most of the adjustments required on transition to IFRS will be
made, retrospectively, against opening retained earnings as of the date of the
first comparative balance sheet presented based on standards applicable at that
time.
IFRS 1, "First-Time Adoption of International Financial Reporting Standards",
provides entities adopting IFRS for the first time with a number of optional
exemptions and mandatory exceptions, in certain areas, to the general
requirement for full retrospective application of IFRS. During the third quarter
of 2009, management held an IFRS educational session for the Audit Committee and
the Board of Directors which focused on the key issues and transitional choices
under IFRS 1.
Set out below are the most significant areas, management has identified to date,
where changes in accounting policies are expected to impact the Company's
consolidated financial statements based on the accounting policy choices
approved by the Audit Committee and Board of Directors. In the period leading up
to the changeover in 2011, the AcSB has ongoing projects and intends to issue
new accounting standards during the conversion period. As a result, the final
impact of IFRS on the Company's consolidated financial statements can only be
measured once all the IFRS accounting standards at the conversion date are
known. Management will continue to review new standards, as well as the impact
of the new accounting standards, between now and the conversion date to ensure
all relevant changes are addressed.
Impairment Assets
Canadian GAAP generally uses a two-step approach to impairment testing: first
comparing asset carrying values with undiscounted future cash flows to determine
whether impairment exists; and then measuring any impairment by comparing asset
carrying values with discounted cash flows. International Accounting Standard
(IAS) 36, "Impairment of Assets" uses a one-step approach for both testing and
measurement of impairment, with asset carrying values compared directly with the
higher of fair value less costs to sell and value in use (which uses discounted
future cash flows). This may potentially result in write downs where the
carrying value of assets were previously supported under Canadian GAAP on an
undiscounted cash flow basis, but could not be supported on a discounted cash
flow basis.
Share Based Payments
IFRS and Canadian GAAP largely converge on the accounting treatment for share -
based transactions with only a few differences.
Canadian GAAP allows either accelerated or straight line method of amortization
for the fair value of stock options under graded vesting. Currently, the Company
is using the straight line amortization method. IFRS 2, on the other hand,
allows only the accelerated method.
Under IFRS, the estimate for forfeitures must be made when determining the
number of equity instruments expected to vest, while under Canadian GAAP
forfeitures can be recognized as they occur.
Upon adoption of IFRS, the Company will change both the method of amortization,
which would give rise to an accelerated compensation expense, and the method of
forfeiture recognition.
Exploration and Evaluation Assets
Under the Company's current accounting policy, acquisition costs of mineral
properties, together with direct exploration and development expenses incurred
thereon are capitalized.
Upon adoption of IFRS, the Company has to determine the accounting policy for
exploration and evaluation assets. The Company may decide to apply the
International Accounting Standards Board ("IASB") Framework which requires
exploration expenditures to be expensed and capitalization of expenditures only
after the completion of a feasibility study or disregard the IASB Framework and
keep the existing Company's policy, if relevant and reliable. Management decided
to fully adopt IFRS 6, "Exploration and Evaluation of Mineral Properties", and
apply the IASB framework. As a result, management has analyzed mineral
properties and identified $28 million of exploration costs capitalized before
the feasibility studies for Rosia Montana and Bucium were completed, as well as
all exploration costs related to Biasoara. If the Company applies the IASB
Framework at the transition date, mineral properties would decrease by $28
million together with an increase to accumulated deficit by the same amount
reflecting the derecognized exploration costs.
Property, Plant and Equipment
Under IFRS, Property, Plant and Equipment ("PP&E") can be measured at fair value
or at cost while under Canadian GAAP, the Company has to carry PP&E on a cost
basis and the revaluation is prohibited.
Upon adoption of IFRS, the Company has to determine whether to elect a cost
model or revaluation model. Management decided to adopt the cost model for both
initial recognition and as subsequent accounting policy for all classes of
assets. As a result there will be not significant impact on the adoption of IFRS
on the Company's financial statements.
In accordance with IAS 16 "Property, Plant and Equipment", the Company needs to
allocate an amount initially recognized in respect of an asset to its component
parts and account for each component separately when the components have
different useful lives or the components provide benefits to the entity in a
different pattern. Based on an initial valuation, there is currently no impact
of the component accounting on our earnings. Management expects that once we
enter commercial production the impact of the component accounting will not be
significant.
Foreign Currency
IFRS requires that the functional currency of each entity in the consolidated
group be determined separately in accordance with IAS 21 and the entity's
financial results and position should be measured using the currency of the
primary economic environment in which the entity operates ("the functional
currency"). Currently the functional currency of the consolidated entity is the
Canadian dollar ("CAD") which is also the presentation currency of the Company's
financial statements. As the project progresses and the underlying transactions,
events and conditions relevant to the entities change, the Company will
re-consider the primary and secondary indicators, as described in IAS 21, in
determining the functional currency for each entity. Going forward under IFRS,
management expects that the functional currency will change either during
construction, after project financing is finalized, or when the Company enters
into commercial production. At that time management will assess the appropriate
functional currency based on existing circumstances which may have a significant
impact on the Company's consolidated financial statements prepared under IFRS.
During the second quarter of 2010, management will determine the impact of the
IFRS adoption at the transition date on our financial statements, update
internal accounting and business process documentation reflecting the transition
to IFRS and finalize opening balance sheet with the required notes disclosure.
The International Accounting Standards Board will also continue to issue new
accounting standards during the conversion period and, as a result, the final
impact of IFRS on the Company's consolidated financial statements will only be
measured once all the IFRS applicable accounting standards at the conversion
date are known.
In addition, management will finalize the IT system set up to be able to
generate all information required to be reported under IFRS.
One of the more significant impacts identified to date of adopting IFRS is the
expanded presentation and disclosures required. Disclosure requirements under
IFRS generally contain more breadth and depth than those required under Canadian
GAAP and, therefore, will result in more extensive note references. The Company
will continue to assess the level of presentation and disclosures required to
its consolidated financial statements.
CEO/CFO Certification
The Company's Chief Executive Officer and Corporate Controller, performing the
function of Chief Financial Officer ("CFO") are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over
financial reporting (ICFR), as those terms are defined in National Instrument
52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for
the Company.
Our CEO and CFO certify that, as at March 31, 2010, the Company's DC&P have been
designed effectively to provide reasonable assurance that material information
relating to the Company is made known to them by others, particularly during the
period in which the interim filings are being prepared; and information required
to be disclosed by the Company in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in
securities legislation. They also certify that the Company's ICFR have been
designed effectively to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with the Canadian GAAP.
The control framework the Company's CEO and CFO used to design the Company's
ICFR is COSO. There is no limitation on scope of design as described in
paragraph 5.3 of NI 52-109. There has been no change in the Company's ICFR that
occurred during the first quarter 2010 which has materially affected, or is
reasonably likely to materially affect, the Company's ICFR.
Outstanding Share Data
The Company's fully diluted share capital as at the report date was:
Outstanding Share Data
Outstanding
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Preferred shares Nil
Common shares 341,462,638
Common stock options 21,996,300
Common stock warrants 31,125,000
Deferred share units - common shares 394,559
----------------------------------------------------------------------------
Fully diluted share capital 394,978,497
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proven and Probable Mineral Reserves
The Company maintains an 80.46 percent economic interest in the Rosia Montana
Project which, at year end 2009, has aggregate proven and probable reserves as
follows, calculated using a gold price of $735 per ounce:
----------------------------------------------------
Grade (g/t) In Situ (Ounces)
----------------------------------------------------------------------------
Reserve Category Tonnes Gold Silver Gold Silver
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proven 112,455,000 1.63 9.0 5,893,000 32,540,000
Probable 102,476,000 1.27 4.6 4,184,000 15,156,000
----------------------------------------------------------------------------
Total 214,931,000 1.46 6.9 10,077,000 47,696,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
John Marek, P.Eng., is the qualified person responsible for calculating the
reserve estimate set forth in the table above.
Forward-Looking Statements
Certain statements included herein, including capital costs estimates,
sustaining capital and reclamation estimates, estimated production and total
cash costs of production, future ability to finance the Project and other
statements that express management's expectations or estimates regarding the
timing of completion of various aspects of the Projects' development or of our
future performance, constitute "forward-looking statements" within the meaning
of the United States Private Securities Litigation Reform Act of 1995 and
Canadian securities legislation. The words "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intends", "continue", "budget", "estimate",
"may", "will", "schedule", and similar expressions identify forward- looking
statements. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by management, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies. In particular, the Management's Discussion and
Analysis includes many such forward-looking statements and such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual financial results, performance or achievements of the
Company to be materially different from its estimated future results,
performance or achievements expressed or implied by those forward-looking
statements and its forward-looking statements are not guarantees of future
performance. These risks, uncertainties and other factors include, but are not
limited to: changes in the worldwide price of precious metals; fluctuations in
exchange rates; legislative, political or economic developments including
changes to mining and other relevant legislation in Romania; operating or
technical difficulties in connection with exploration, development or mining;
environmental risks; the speculative nature of gold exploration and development,
including the risks of diminishing quantities or grades of reserves; and the
Company's requirements for substantial additional funding.
While Gabriel may elect to, Gabriel is under no obligation to and does not
undertake to update this information at any particular time, except as required
by law.
Gabriel Resources Ltd.
Interim Consolidated Financial Statements (Unaudited)
For the period ended March 31, 2010
Consolidated Balance Sheets
As at March 31, 2010 and December 31, 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 89,982 $ 116,110
Short-term investments (note 3) 46,890 46,201
Accounts receivable 668 1,460
Prepaid expenses and supplies 1,169 788
----------------------------------------------------------------------------
138,709 164,559
Restricted cash (note 3) 133 126
Capital assets (note 4) 53,329 52,464
Mineral properties (note 5) 450,018 441,545
----------------------------------------------------------------------------
$ 642,189 $ 658,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 8,884 $ 10,402
Resettlement liabilities (note 6) 5,221 5,442
----------------------------------------------------------------------------
14,105 15,844
Other Liabilities (note 7) 2,873 3,908
----------------------------------------------------------------------------
16,978 19,752
----------------------------------------------------------------------------
Shareholders' Equity
Capital stock (note 9) 734,739 733,481
Common share purchase warrants (note 10) 11,393 11,393
Contributed surplus (note 12) 18,500 18,050
Deficit (139,421) (123,982)
----------------------------------------------------------------------------
625,211 638,942
----------------------------------------------------------------------------
$ 642,189 $ 658,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nature of operations and going concern
(note 1)
Minority interest (note 8(a))
Commitments and contingencies (note 17)
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Shareholders' Equity
For the three-month periods ended March 31, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares
At January 1 $ 733,481 $ 560,052
Shares issued on the exercise of stock
options (note 9) 857 3
Transfer from contributed surplus -
exercise of stock options (note 12) 401 1
----------------------------------------------------------------------------
At March 31 734,739 560,056
----------------------------------------------------------------------------
Common share purchase warrants
At March 31 11,393 -
----------------------------------------------------------------------------
Contributed surplus
At January 1 18,050 15,051
Stock-based compensation (note 12) 851 1,652
Exercise of stock options (note 12) (401) (1)
----------------------------------------------------------------------------
At March 31 18,500 16,702
----------------------------------------------------------------------------
Deficit
At January 1 (123,982) (97,084)
Net loss (15,439) (6,969)
----------------------------------------------------------------------------
At March 31 (139,421) (104,053)
----------------------------------------------------------------------------
Accumulated other comprehensive loss - -
----------------------------------------------------------------------------
Total shareholders' equity at March 31 $ 625,211 $ 472,705
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Loss and Deficit
For the three-month periods ended March 31, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars, except per share
data)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
Corporate, general and administrative $ 1,724 $ 4,163
Stock based compensation (note 7 & 11) 521 2,342
Project financing costs 112 150
Amortization 58 63
----------------------------------------------------------------------------
2,415 6,718
----------------------------------------------------------------------------
Other expense (income)
Interest (121) (64)
Foreign exchange loss 13,143 315
----------------------------------------------------------------------------
Loss before income taxes 15,437 6,969
Income tax expense (note 13) 2 -
----------------------------------------------------------------------------
Loss for the period $ 15,439 $ 6,969
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss per share (basic and diluted) $ 0.05 $ 0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of shares 339,294 255,450
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Loss
For the three-month periods ended March 31, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss for the period $ 15,439 $ 6,969
Other comprehensive loss - -
----------------------------------------------------------------------------
Comprehensive loss $ 15,439 $ 6,969
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from (used in) operating
activities
Loss for the period $ (15,439) $ (6,969)
Items not affecting cash
Amortization 58 63
Stock-based compensation 521 2,342
Unrealized foreign exchange loss 12,733 206
----------------------------------------------------------------------------
(2,127) (4,358)
Net changes in non-cash working capital
(note 18) (1,550) 2,443
----------------------------------------------------------------------------
(3,677) (1,915)
----------------------------------------------------------------------------
Cash flows provided by (used in) investing
activities
Decrease (increase) in short-term
investments and restricted cash (696) 15
Development and exploration expenditures (8,285) (7,311)
Purchase of capital assets (1,034) (8,956)
Net changes in non-cash working capital
(note 18) (4,900) (3,847)
----------------------------------------------------------------------------
(14,915) (20,099)
----------------------------------------------------------------------------
Cash flows from (used in) financing
activities
Proceeds from the exercise of stock
options 857 3
----------------------------------------------------------------------------
857 3
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (17,735) (22,011)
Effect of foreign exchange on cash, cash
equivalents, and non-cash working capital (8,393) (129)
Cash and cash equivalents - beginning of
period 116,110 72,233
----------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 89,982 $ 50,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information (note
18)
The accompanying notes are an integral part of these interim consolidated
financial statements
Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2010 and 2009
(Tabular amounts in thousands of Canadian dollars, unless otherwise stated)
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 80.46%-owned Rosia Montana gold project (the
"Project"). Since acquiring the exploitation license, the Company has been
focused on identifying and defining the size of the four ore bodies, engineering
to design the size and scope of the Project, environmental assessment and
permitting, rescue archaeology and surface rights acquisitions.
The underlying value of the Company's mineral properties is dependent upon the
existence and economic recovery of such reserves in the future and the ability
of the Company to obtain all necessary permits and raise long-term financing to
complete the development of the properties. In addition, the Project may be
subject to sovereign risk, including political and economic instability, changes
in existing government regulations, for example, a ban on the use of cyanide in
mining, re-designation of the Project area as a archeological site of national
importance, government regulations relating to mining which may withhold the
receipt of required permits or impede the Company's ability to acquire the
necessary surface rights, as well as currency fluctuations and local inflation.
The suspension of the EIA process by the former Minister of Environment and
Sustainable Development in September 2007 demonstrates the significant risks
that this Project faces. These risks may adversely affect the investment and may
result in the impairment or loss of all or part of the Company's investment.
These consolidated financial statements have been prepared on the basis of
Canadian generally accepted accounting principles ("Canadian GAAP") applicable
to a "going concern", which assume that the Company will continue in operation
for the foreseeable future and will be able to realize its assets and discharge
its liabilities in the normal course of operations. As at March 31, 2010 the
Company had no sources of operating cash flows and does not have sufficient cash
to fund the development of the Project and therefore will require additional
funding which, if not raised, would result in the curtailment of activities and
project delays.
Management has developed a financing plan that assumes availability of senior
debt financing in combination with equity and other potential financing sources
in order to meet the Company's financing needs. The plan incorporates recent
developments in both the debt and equity markets. The timeline from the restart
of the permitting process until receipt of construction permits might be
extended as the Company may pursue certain activities sequentially that had
previously been planned to run in parallel or, alternatively, construction may
not begin immediately after receipt of construction permits if financing is not
complete.
There can be no assurances that the Company's financing plan and permitting will
be successful and, as a result, there is significant doubt regarding the "going
concern" assumption and, accordingly, the use of accounting principles
applicable to a going concern. These consolidated financial statements do not
reflect adjustments that would be necessary if the "going concern" assumption
were not appropriate. If the "going concern" assumption were not appropriate for
these consolidated financial statements, then adjustments to the carrying values
of the assets and liabilities, the reported expenses and the balance sheet
classifications, which could be material, would be necessary.
2. Basis of presentation and new accounting policies
The accompanying interim consolidated financial statements have been prepared in
accordance with Canadian GAAP for the preparation of interim financial
information. Accordingly, they do not include all of the information and
disclosures required by Canadian GAAP for annual consolidated financial
statements. The accounting policies and methods of computation used in the
preparation of these unaudited interim consolidated financial statements are the
same as those described in our audited consolidated financial statements and
notes thereto for the year ended December 31, 2009.
In the opinion of management, the accompanying interim consolidated 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,
2009.
Business Combinations, Consolidated Financial Statements and Non-Controlling
Interests
The CICA issued three new accounting standards in January 2009: Section 1582,
"Business Combinations", Section 1601, "Consolidated Financial Statements" and
Section 1602, "Non-Controlling interests". These new standards will be effective
for fiscal years beginning on or after January 1, 2011.
Section 1582, "Business Combinations" replaces section 1581, "Business
Combinations", and establishes standards for the accounting for a business
combination. It provides the Canadian equivalent to IFRS 3 - Business
Combinations. The section applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2011. Sections 1601,
"Consolidated Financial Statements", and 1602, "Non-Controlling interests",
together replace section 1600, "Consolidated Financial Statements". Section 1601
establishes standards for the preparation of consolidated financial statements
and applies to interim and annual consolidated financial statements relating to
fiscal years beginning on or after January 1, 2011. Section 1602 establishes
standards for accounting for non-controlling interest in a subsidiary in
consolidated financial statements subsequent to a business combination. The
Company opted to early adopt these standards as of December 31, 2009 and applied
Section 1602, "Non-Controlling Interests", in accounting for the purchase of
minority interest shares (refer to Note 8). Consequently, the difference between
the carrying amount of the minority interest shares and the fair value of the
consideration paid was recognized directly in shareholders' equity. The early
adoption of Section 1582, "Business Combinations" and Section 1601,
"Consolidated Financial Statements", did not have an impact on the Company's
consolidated financial statements.
3. Short-term investments and restricted cash
Short-term investments
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
Money market investments with maturities
from the date of acquisition of 4 - 12
months $ 46,890 $ 46,201
----------------------------------------------------------------------------
Short-term investments held at quarter end yielded an average interest rate of
0.62% in 2010 (2009 - 0.67%).
Restricted cash
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
Restricted cash (1) $ 133 $ 126
----------------------------------------------------------------------------
(1) Restricted cash represents environmental guarantees for future clean up costs.
4. Capital Assets
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
Cost
Office equipment $ 3,979 $ 4,207
Building 1,082 1,082
Vehicles 1,234 1,282
Leasehold improvements 215 215
Construction in progress (1) 51,175 50,249
----------------------------------------------------------------------------
57,685 57,035
----------------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 2,939 3,122
Building 66 63
Vehicles 1,166 1,207
Leasehold improvements 185 179
----------------------------------------------------------------------------
4,356 4,571
----------------------------------------------------------------------------
Net book value
Office equipment 1,040 1,085
Building 1,016 1,019
Vehicles 68 75
Leasehold improvements 30 36
Construction in progress (1) 51,175 50,249
----------------------------------------------------------------------------
$ 53,329 $ 52,464
----------------------------------------------------------------------------
(1) Amounts included in construction in progress are not subject to
amortization. Construction in progress includes the following amounts:
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
Resettlement site development costs $ 1,952 $ 1,951
Long-lead-time equipment 49,223 48,298
----------------------------------------------------------------------------
$ 51,175 $ 50,249
----------------------------------------------------------------------------
5. Mineral Properties
Rosia
Montana Bucium Baisoara Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2008 $ 396,239 $ 10,458 $ 387 $ 407,084
Development costs 33,314 - - 33,314
Exploration costs 1,016 1 130 1,147
----------------------------------------------------------------------------
Balance - December 31, 2009 430,569 10,459 517 441,545
Development costs (1) 8,292 - - 8,292
Exploration costs (1) 164 - 17 181
----------------------------------------------------------------------------
Balance - March 31, 2010 $ 439,025 $ 10,459 $ 534 $ 450,018
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Mineral property additions of $8.5 million (2009 - $34.5 million) is $0.2
million higher than the amount reported in the Consolidated Statements of Cash
Flows of $8.3 million. The difference is attributed to a net adjustment of
resettlement liabilities partially offset by non-cash charges for stock based
compensation and amortization (see details in note 18).
The Company's principal asset is its 80.46% direct ownership interest in a
Romanian company, Rosia Montana Gold Corporation ("RMGC"), which holds two
mineral licenses in Romania, being Rosia Montana and Bucium. Minvest S.A.
("Minvest"), a Romanian state-owned mining company, together with one other
private Romanian company, hold a 19.54% interest in RMGC, and Gabriel holds the
pre-emptive right to acquire the 19.54% 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 (other than on non-interest bearing loans) from future
cash flows prior to the minority shareholders receiving dividends. RMGC will be
required to pay a 4 % net smelter royalty on all production from the Rosia
Montana Project. In December 2009, in order to replenish the net asset position
of RMGC in accordance with Romanian Fiscal Code, the shareholders of RMGC
contributed $216 million into the share capital of RMGC. The share capital
increase was accomplished by converting $174 million of debt in RMGC into
equity. The remaining $42 million was funded through a contribution provided to
minority shareholders in the form of a non-interest bearing loan to fund their
respective pro-rata contributions.
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
expiring in 2019, and thereafter with successive five-year renewal periods.
RMGC holds an exploration license over the Bucium property. The license was
extended in 2004 and expired on May 19, 2007. The Company has spent US$3.4
million over the term of the license extension period. The expired exploration
license can be converted into an exploitation license upon submission and
approval of a feasibility study. During 2007, the Company filed the necessary
documentation to convert the exploration license into an exploitation license
and the Company is awaiting response from the authorities on this item. No
additional work on Bucium's project economics is planned until the license is
converted from an exploration to an exploitation license and until the Rosia
Montana EIA is approved.
The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds
an exploration license with respect to the Baisoara property in Western Romania.
The license is for an initial term of 5 years and expires in July 2011. Upon
granting of the license, the Company committed to spend US$3.2 million over the
term of the license. Due to the delay in the Rosia Montana permitting process,
the Company has reduced the exploration expenditure for Baisoara to a level
required to maintain the license and permit in good standing.
6. Resettlement liabilities
During the fourth quarter of 2006, the Company recommenced purchasing homes in
the Project area. Residents had two choices. They could either choose to take
the sale proceeds and move to a new location of their choosing or they could
exchange their properties for a new property to be built by the Company at one
of the two new resettlement sites. For those residents who choose the
resettlement option, the Company increases its mineral properties on the balance
sheet as well as resettlement liabilities for the anticipated construction costs
of the resettlement houses. As the construction takes place, the cost of newly
built houses are capitalized as construction in progress. After the transfer of
legal title of the property is completed, the Company reduces the amounts
capitalized as construction in progress and at the same time its resettlement
liabilities. All resettlement associated costs will remain capitalized in
mineral properties and amortized over the life of the mine once the Project
moves into production.
At March 31, 2010, the Company had accrued resettlement liabilities totaling
$5.2 million (December 31, 2009 - $5.4 million), which represents the cost of
building the remaining new homes for the local residents and outstanding delay
penalties.
The construction of all 125 homes at the Recea resettlement site in Alba Iulia
has been physically completed with 124 homes handed over to their respective
owners. The Company is currently working to obtain permits for the construction
of Piatra Alba, the new resettlement village to be built in Rosia Montana. All
24 property owners who chose the Piatra Alba resettlement site have signed a
three year extension contract. As a result of the delay in delivery of homes,
the Company paid or accrued a penalty of 9% (for Recea) and up to 20% (for
Piatra Alba) of the agreed upon unpaid property value per year of delay as
required by the agreement including all amendments.
As at March 31, 2010, the Company has accrued $0.4 million (December 31, 2009 -
$0.4 million) representing its total estimated delay penalty. During the
three-months ended March 31, 2010, the Company paid $58 thousand of delay
penalties (2009 - $0.1 million).
7. Other liabilities
Price per
DSU's Common Share
Deferred Share Units ("DSU") (a) (000's) (dollars) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding - December 31, 2008 1,155 $ 1.52 $ 1,755
Issued 68 2.43 165
Settled (623) 3.39 (2,114)
Change in fair value - - 2,811
----------------------------------------------------------------------------
Outstanding - December 31, 2009 600 4.36 2,617
Issued 6 4.34 26
Settled (210) 4.39 (923)
Change in fair value - - (59)
----------------------------------------------------------------------------
Balance - March 31, 2010 396 $ 4.20 $ 1,661
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fidelity bonus and other benefits
(b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance accrued - December 31, 2008 $ 1,310
Additions $ 228
Foreign exchange movement (247)
----------------------------------------------------------------------------
Balance accrued - December 31, 2009 1,291
Foreign exchange movement (79)
----------------------------------------------------------------------------
Balance accrued - March 31, 2010 $ 1,212
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Other Liabilities $ 2,873
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 or
departure from the Company, participants may redeem their DSUs for common shares
of the Company, cash, or a combination of common shares and cash. It is at the
holder's discretion as to whether he/she elects to settle the DSU in cash or
shares of Gabriel. If the holder elects to settle the DSU in shares of Gabriel,
the Company, at its sole discretion, can elect to pay the amount in common
shares either purchased from the open market, or issued from treasury.
The change in the fair market value of the DSU liability has been recorded in
stock based compensation expense except for costs relating to personnel working
on projects in Romania, which are capitalized.
Three months ended March 31,
Deferred Share Units ("DSUs") 2010 2009
----------------------------------------------------------------------------
Expensed (recovered) $ (33) $ 953
Capitalized $ - $ 95
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Initially valued at the five-day weighted average market price of the stock at
date of issue, DSUs are revalued each period end based on the closing share
price at the period end, with the difference between the fair value of the DSUs
at period end compared to the fair value at the end of the previous period. If
the share price declines, the lower value of the DSUs is credited against costs
during the period. If the value is higher, the difference is charged to the
Statement of Loss and Deficit and capitalized to Mineral Properties, increasing
costs for the period.
(b) Fidelity Bonus
Under the Collective Bargaining Agreement between RMGC and its employees, under
certain conditions, employees of RMGC are entitled to a bonus equal to one month
of average gross salary when celebrating 3, 5, 10, 15, 20, and 25 years of
uninterrupted service as well as other benefits related to death benefits and
termination of employment. As of March 31, 2010, $1.2 million (December 31, 2009
- $1.3 million) have been accrued for these benefits.
8. Related Party Transactions
The Company had related party transactions, with directors of the Company or
associated corporations, which were undertaken in the normal course of
operations and were measured at the exchange amounts as follows:
a. During 2009, the Company received a formal offer to purchase the shares
held in RMGC by two of its minority shareholders (the "Minority
Shareholders"), each of whom owned 23,967 common shares in RMGC
representing each 0.23% of its share capital. The Company responded to
the offer of the minority shareholders and has purchased 47,934 common
shares of RMGC held by the Minority Shareholders for 222,708 shares of
Gabriel and for US$0.8 million in cash. As a result of these
transactions, the Company's ownership interest in RMGC increased from
80% to 80.46%.
b. In December 2004, the Company loaned a total of US$971 thousand to the
four minority shareholders of RMGC, who held an aggregate of 20% of the
shares of RMGC, to facilitate a statutory requirement to increase RMGC's
total share capital. During 2009 the Company purchased shares held in
RMGC by two of its minority shareholders. Upon completion of this
transaction, the outstanding indebtedness of the two minority
shareholders of $23 thousand was deemed to be paid in full.
c. In 2009, the Company loaned a further US$40 million to the remaining two
minority shareholders of RMGC to facilitate another statutory share
capital increase in RMGC.
The loans are non-interest bearing and are to be repaid as and when RMGC
distributes dividends to its shareholders. The loans and related
minority interest contribution have been offset on the balance sheet
until such time as the loans are repaid. Once the loans are repaid the
minority interest component will be reflected on the balance sheet.
9. Capital Stock
Authorized
Unlimited number of common shares without par value
Unlimited number of preferred shares, issuable in series, without par
value
Number of
Common shares issued and outstanding shares (000's) Amount
----------------------------------------------------------------------------
Balance - December 31, 2008 255,449 $ 560,052
Shares issued from public and private
offerings 81,806 172,671
Less: Share issue costs - (4,293)
Shares issued on the exercise of stock
options (note 11) 1,654 3,049
Transfer from contributed surplus - exercise
of stock options (note 12) - 1,399
Shares issued on DSU settlement 68 123
Shares issued on purchase of minority
interest shares 223 480
----------------------------------------------------------------------------
Balance - December 31, 2009 339,200 $ 733,481
Shares issued on the exercise of stock
options (note 11) 567 857
Transfer from contributed surplus - exercise
of stock options (note 12) - 401
----------------------------------------------------------------------------
Balance - March 31, 2010 339,767 $ 734,739
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In June 2009 the Company closed a private placement and a public offering
financing through the issuance of 51.8 million common shares, including common
shares issued under an over-allotment option, for aggregate gross proceeds of
approximately $116.6 million. The share issuance costs related to the public
offering and private placement were $4 million.
As a result of the public offering, the Company sold 29.8 million common shares,
which includes the exercise in full of the over-allotment option, at $2.25 per
common share to a syndicate of underwriters led by Cormark Securities Inc. and
RBC Capital Markets as joint bookrunners, and including Canaccord Capital
Corporation, for aggregate gross proceeds of $67.1 million.
Pursuant to the private placement, each of Electrum Strategic Holdings LLC and
Paulson & Co. Inc., two of Gabriel's significant shareholders, purchased 10.6
million and 11.4 million common shares respectively at a price of $2.25 per
common share, for aggregate gross proceeds of $49.5 million.
In December 2009, the Company closed a private placement with BSG Capital
Markets PCC Limited, which is part of the Beny Steinmetz Group ("BSG"). Pursuant
to the private placement, BSG subscribed for 30 million Units at a subscription
price of $2.25 per Unit for gross proceeds to the Company of $67.5 million. The
share issuance costs related to the private placement were $0.3 million. Each
Unit consists of one common share of the Company and one common share purchase
warrant entitling BSG to purchase one additional common share of the Company.
The net proceeds of the private placement were allocated between the share
capital and share purchase warrants on the basis of their relative fair values.
The amount allocated to share capital was $55.8 million while $11.4 million was
allocated to share purchase warrants.
10. Share Purchase Warrants
As at March 31, 2010, the following share purchase warrants were issued and
outstanding:
Number of Exercise
warrants price Assigned
(000's) (dollars) Value Expiry date
----------------------------------------------------------------------------
Balance - December 31, 2008 November 28,
(1) 1,125 $ 4.88 US$1,500 2010
Warrants issued (2) July 18 -
December 18,
30,000 $2.50-3.00 $ 11,393 2011
----------------------------------------------------------------------------
Balance - December 31, 2009 31,125
Warrants settled (1) November 28,
(750) (US$1,000) 2010
----------------------------------------------------------------------------
Balance - March 31, 2010 30,375
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Warrants issued Number of Exercise
to two financial warrants price Assigned
institutions (000's) (dollars) Value Expiry date
----------------------------------------------------------------------------
Balance - December 31, 2008 November 28,
(1)and 2009 1,125 $ 4.88 US$1,500 2010
Warrants settled (1) November 28,
(750) (US$1,000) 2010
----------------------------------------------------------------------------
Balance - March 31, 2010 November 28,
375 US$500 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The assigned value of the warrants vested, being US$1.5 million, represents
their cash settlement value. The Company has accrued this amount in accounts
payable and accrued liabilities. It is at the holders' discretion as to whether
they elect to settle the warrants in cash or shares of the Company. In March
2010, one of warrant holders exercised its option to receive a termination fee
of US$1 million in respect of the warrants. The amount was fully paid in the
first quarter of 2010.
Number of Exercise
Warrants issued to BSG Capital warrants price Assigned
Markets PCC Limited (000's) (dollars) Value Expiry date
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2008 (1) - $ - $ -
Warrants issued (2) July 18, 2011
to December
30,000 $2.50-3.00 $ 11,393 18, 2011
----------------------------------------------------------------------------
Balance - December 31, 2009 and July 18, 2011
March 31, 2010 to December
30,000 $ 11,393 18, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(2) The assigned value of warrants represents relative fair value allocated
between the share capital and warrants based on the net proceeds from private
placement with BSG Capital Markets.
During the fourth quarter of 2006, the Company entered into mandate letters with
two international financial institutions to arrange project debt financing for
the development of the Rosia Montana Project. The two institutions were to
provide a committed underwriting in an amount up to US$350 million. As a result
of the suspension of the EIA review process, the mandate letters terminated
during 2008 and 1.125 million warrants vested while 1.5 million warrants were
cancelled. Each warrant has a four year term and has an exercise price of $4.88.
In March 2010, one of the two financial institutions exercised their option to
receive a termination fee of US$1 million in respect of 750 thousand warrants
which was fully paid during the first quarter of 2010.
During 2009, the Company closed a private placement with BSG Capital Markets PCC
Limited. Pursuant to the private placement, BSG subscribed for 30 million Units
at a subscription price of $2.25 per Unit. Each Unit consists of one common
share of Gabriel and one common share purchase warrant entitling BSG to purchase
one additional common share of Gabriel at $2.50 per share for 18 months rising
to $3.00 per share for the final six months of the two year warrant. The net
proceeds of the private placement were allocated between the share capital and
share purchase warrants on the basis of their relative fair values. The amount
allocated to share capital was $55.8 million while $11.4 million was allocated
to share purchase warrants.
11. Stock Options
The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant
options to purchase shares of the Company to directors, officers, employees and
consultants. The exercise price of the options equals the five-day weighted
average closing price prior to the option allotment. The majority of options
granted vest over three years and are exercisable over five years from the date
of issuance.
The Plan was amended on May 8, 2007 to allow for the maximum number of common
shares issuable under the Plan to equal 10% of the issued and outstanding common
shares of the Company at any point in time, and that options once exercised
would be re-endorsed into the pool of un-granted options.
As at March 31, 2010, 10.3 million options are available for issuance under the
Plan (December 31, 2009 - 6.6 million).
As at March 31, 2010, common share stock options held by directors, officers,
employees and consultants are as follows:
Outstanding Exercisable
-------------------------------------- -------------------------
Weighted
Weighted average Weighted
Range of average remaining average
exercise Number of exercise contractual Number of exercise
prices options price life options price
(dollars) (thousands) (dollars) (Years) (thousands) (dollars)
---------- -------------------------------------- -------------------------
$ 1.18 -
2.00 14,306 $ 1.71 2.6 10,142 $ 1.62
2.01 -
3.00 5,556 2.52 2.5 3,691 2.52
3.01 -
4.97 3,805 4.24 3.1 2,142 4.45
-------------------------------------- -------------------------
23,667 $ 2.31 2.7 15,975 $ 2.21
-------------------------------------- -------------------------
-------------------------------------- -------------------------
During the year ended December 31, 2009 and the three-month period ended March
31, 2010, director, officer, employee and consultants stock options were
granted, exercised, forfeited and cancelled as follows:
Weighted
Number of average
options exercise price
(thousands) (dollars)
----------------------------------------------------------------------------
Balance - December 31, 2008 22,514 $ 2.16
Options granted 3,870 3.05
Options forfeited / cancelled (496) 3.54
Options exercised (1,654) 1.84
----------------------------------------------------------------------------
Balance - December 31, 2009 24,234 2.29
Options granted - -
Options forfeited / cancelled - -
Options exercised (567) 1.51
----------------------------------------------------------------------------
Balance - March 31, 2010 23,667 $ 2.31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The estimated fair value of stock options is amortized over the period in which
the options vest which is normally three years. For those options which vest on
a single date, either on issuance or on meeting milestones (the "measurement
date"), the entire fair value of the vesting options is recognized immediately
on the measurement date.
The fair value of stock options granted to personnel working on development
projects is capitalized over the vesting period.
During the year ended December 31, 2009, the Company granted 3.9 million
options. Of the 3.9 million options issued, 2.1 million vest over a three-year
period and the remainder vest based on achievement of certain milestones. The
fair value of options that vest upon achievement of milestones will be
recognized and capitalized as milestones are achieved and the value can be
reasonably measured. As of March 31, 2010, the amount recognized was $0.4
million.
The valuation of the stock options granted in the three-month periods ended
March 31, 2010 and 2009 was calculated with the following assumptions:
2010 2009
----------------------------------------------------------------------------
Weighted average risk-free interest rate - 1.32%
Volatility of the expected market price of
share - 99%
Weighted average expected life of options - 2.7 years
Weighted average cost per option - $ 1.36
----------------------------------------------------------------------------
As of March 31, 2010, the remaining fair value of outstanding measurable
unvested options to be expensed is $2.4 million, to be capitalized is $2.5
million. For the three-month periods ended March 31, 2010 and 2009, the fair
value of stock options expensed and capitalized is as follows:
2010 2009
----------------------------------------------------------------------------
Expensed $ 554 $ 1,389
Capitalized $ 297 $ 263
----------------------------------------------------------------------------
12. Contributed Surplus
The following table identifies the changes in contributed surplus for the
periods indicated:
Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2008 $ 15,051
Stock-based compensation 5,403
Exercise of stock options (1,399)
Purchase of minority interest shares (1,005)
----------------------------------------------------------------------------
Balance - December 31, 2009 18,050
Stock-based compensation 851
Exercise of stock options (401)
----------------------------------------------------------------------------
Balance - March 31, 2010 $ 18,500
----------------------------------------------------------------------------
----------------------------------------------------------------------------
13. Income Taxes
In April 2010, the Supreme Court in Romania admitted an RMGC appeal and
cancelled irrevocably a fiscal assessment concerning the period 2003 and 2004
which totaled $9.8 million. The original assessment arose from the disallowance
of the application of state tax incentives related to unrealized foreign
exchange gains on inter-company debt.
The Company will seek to obtain a reimbursement for the taxes paid in previous
years once the written Supreme Court decision is received. The timeframe and
process for seeking recovery of the full amount is uncertain at this time. As of
March 31, 2010 no recovery amount was recorded in the financial statements.
14. Segmented Information
The Company has one operating segment: the acquisition, exploration and
development of precious metal projects located in Romania.
Geographic segmentation of capital assets and mineral properties is as follows:
December 31,
March 31, 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Romania $ 503,026 $ 493,697
Canada 321 312
----------------------------------------------------------------------------
Total $ 503,347 $ 494,009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
15. Financial Instruments
The recorded amounts for cash, cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued liabilities approximate fair
values based on the short-term nature of those instruments.
The Company's risk exposures and the impact on the Company's financial
instruments are summarized below:
Credit risk
The Company's credit risk is primarily attributable to cash, cash equivalents,
and short-term investments that are held in investment accounts with Canadian
banks and invested in sovereign debt. The Company has adopted a strategy to
minimize its credit risk by substantially investing in sovereign debt issued by
Canadian Agencies, Provinces and the Federal Governments of Canada, the United
States, France, and Netherlands with the balance of cash being invested in
short-term Term Deposits issued by Canadian banks.
The Company strives to maintain at least 85-90% of its cash, cash equivalents,
and short-term investments in sovereign debt.
The Company is exposed to the credit risk of Romanian banks that hold and
disburse cash on behalf of its Romanian subsidiaries. The Company manages its
Romania bank credit risk by centralizing custody, control and management of its
surplus cash resources in Canada at the corporate office and only transferring
money to its Romanian subsidiary based on immediate cash requirements, thereby
mitigating exposure to Romania banks.
The Company's credit risk is also attributable to value-added taxes receivable.
Value-added taxes receivable are collectable from the Romanian government.
Liquidity risk
The Company has sufficient funds as at March 31, 2010 to settle current and
long-term liabilities.
Market risk
(a) Interest rate risk
The Company has significant cash balances and no debt. As discussed above in the
section entitled "Credit Risk", the Company's policy is to primarily invest
excess cash in sovereign guaranteed investments.
With the Company maintaining a short-term investment horizon, typically less
than 12 months, for its cash, cash equivalent, and short-term investment
balances, it minimizes the risk of interest rate volatility as investments
mature and are rolled over.
With a short-term investment horizon and the intent to hold all investments
until maturity, the Company is only marginally exposed to capital erosion should
interest rates rise and cause its fixed yield investments to devalue.
The Company's primary objective with respect to cash, cash equivalents, and
short-term investments is to mitigate credit risk. The Company has elected to
forego yield in favour of capital preservation.
(b) Foreign currency risk
The Company's functional currency is the Canadian dollar and its operations
expose it to significant fluctuations in foreign exchange rates. The Company has
monetary assets and liabilities denominated in Romanian Ron, United States
dollars and European Union Euros, and is therefore, subject to exchange
variations against the functional and reporting currency, the Canadian dollar.
The Company maintains cash, cash equivalents, and short-term investments in the
currency of planned expenditures and is therefore susceptible to market
volatility as foreign cash balances are revalued to the functional currency of
the Company. Therefore, the Company may report significant foreign exchange
gains or losses if significant market volatility continues.
Financial Instruments
As at March 31, 2010 and December 31, 2009, the Company's financial instruments
consisted of cash and cash equivalents, short-term investments, other current
assets, accounts payable and accrued liabilities, and other long-term
liabilities. With respect to all of these financial instruments, the Company
estimates that their fair values approximate their carrying values at March 31,
2010 and December 31, 2009 respectively.
The following table illustrates the classification of the Company's financial
instruments within the fair value hierarchy as at March 31, 2010 and December
31, 2009:
-----------------------------------------------
Financial assets and liabilities as at March
31, 2010(i)
-----------------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
Cash $ - $ 9,807 $ - $ 9,807
Cash Equivalents - 80,175 - 80,175
Short-term investments (note
3) - 46,890 - 46,890
Deferred Share Units (note 7) (1,661) - - (1,661)
----------------------------------------------------------------------------
$ (1,661) $ 136,872 $ - $ 135,211
----------------------------------------------------------------------------
-----------------------------------------------
Financial assets and liabilities as at
December 31, 2009(i)
-----------------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
Cash $ - $ 9,807 $ - $ 9,807
Cash Equivalents - 80,175 - 80,175
Short-term investments (note
3) - 46,890 - 46,890
Deferred Share Units (note 7) (2,617) - - (2,617)
----------------------------------------------------------------------------
$ (2,617) $ 136,872 $ - $ 134,255
----------------------------------------------------------------------------
(i) at fair value
Sensitivity analysis
The Company has designated its cash, cash equivalents, and short-term
investments as held-for-trading, which are measured at fair value. As of March
31, 2010, the carrying amount of the financial instruments equals fair market
value. Based on management's knowledge and experience of the financial markets,
the Company believes the following movements are "reasonably possible" over a
three month period.
-- Cash and cash equivalents include deposits which are at floating
interest rates. A plus or minus 1% change in earned interest rates
would affect net income from deposits by $0.2 million.
-- For short-term investments a plus or minus 1% change in earned
interest rates would affect net income by $0.1 million
-- The Company holds significant balances in foreign currencies, and
this gives rise to exposure to foreign exchange risk. As of March
31, 2010 a plus or minus 1% change in foreign exchange rates would
affect net income by $1.2 million.
16. Capital Management
The Company's objective when managing capital is to safeguard its accumulated
capital (cash on hand) in order to fund development of its Rosia Montana
Project. The Company manages its capital structure and makes adjustments to it
based on the level of funds on hand and anticipated future expenditures.
While the Company expects that it will be able to obtain equity, long-term debt
and/or project-based financing sufficient to build and operate the Rosia Montana
Project, there are no assurances that these initiatives will be successful. To
safeguard capital and to mitigate currency risk, the Company invests its surplus
capital in highly liquid, highly rated financial instruments that reflect the
currency of the planned expenditure.
17. Commitments and Contingencies
The following is a summary of contractual commitments of the Company including
payments due for each of the next five years and thereafter.
2014 and
Total 2010 2011 2012 2013 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Baisoara exploration
license (note 5) $ 2,718 $ 179 $ 2,539 $ - $ - $ -
Resettlement (note 6) 4,413 - 4,413 - - -
Goods and services (a) 12,940 10,904 623 1,102 7 304
Long lead time equipment
(b) 3,600 3,488 112 - - -
Rosia Montana
exploitation license (c) 1,602 200 200 200 200 802
Surface concession rights
(d) 827 20 20 20 20 747
Lease agreements (e) 653 81 404 168 - -
----------------------------------------------------------------------------
Total commitments $26,752 $14,872 $ 8,310 $ 1,490 $ 227 $ 1,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) The Company and its subsidiaries have a number of agreements with arms-
length third parties who provide a wide range of goods and services
which totalled $12.9 million at March 31, 2010 (December 31, 2009 -
$14.7 million). Typically, the service agreements are for a term of not
more than one year and permit either party to terminate for convenience
on notice periods ranging from 15 to 90 days. Upon termination, the
Company has to pay for services rendered and costs incurred to the date
of termination.
(b) During 2007, the Company entered into purchase agreements for long-lead-
time equipment, the cost of which is to be paid over several years
beginning 2007. The following is a summary of the long-lead- time
equipment orders and the payment status:
March 31, December
2010 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems $ 41,731 $ 41,731
Crusher facilities 3,961 3,961
Foreign exchange movement 585 3,023
----------------------------------------------------------------------------
46,277 48,715
Amount paid to date:
Grinding area systems (38,340) (37,011)
Crusher facilities (3,881) (3,881)
Foreign exchange movement (456) (2,676)
----------------------------------------------------------------------------
Outstanding payment obligation $ 3,600 $ 5,147
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Under the terms of the Company's exploitation mineral license for the
Rosia Montana Project, an annual fee is required to be paid to maintain
the license in good standing. The current annual fee is approximately
$0.2 million. These fees are indexed annually by the Romanian Government
and the license has 10 years remaining.
(d) RMGC has approximately 42 years remaining on a concession agreement with
the Local Council of Rosia Montana Commune by which it is granted
exploitation rights to property located on and around the proposed
Cirnic pit for an annual payment of $20 thousand.
(e) The Company has entered into agreements to lease premises for various
periods until May 31, 2011. The annual rent of premises consists of
minimum rent plus realty taxes, maintenance and utilities.
The Company has an agreement with a consulting firm to provide financial
advisory services in relation to defining and implementing the financing plan
for development of the Rosia Montana gold project. A success fee of up to US$4
million will be payable on execution of definitive credit agreements and/or
financing documents for the senior, mezzanine and cost overrun debt facilities
for the Project. No amount has been accrued for these services.
In March, 2009 the Company entered into a professional service agreement with an
international communications firm providing services in media planning and
related activities. The term of the agreement is 3 years from the commencement
date of March 1, 2009 until February 29, 2012. The agreed fee consists of an
annual fee of 450,000 EUR and a success fee of 800,000 EUR payable at the end of
the 3 -year agreement and upon fulfillment of certain criteria. The Company paid
or accrued 112,500 EUR for the 2010 annual fee as at March 31, 2010.
18. Supplemental Cash Flow Information
Net changes in non-cash working
(a) capital March 31, 2010 March 31, 2009
----------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid expenses
and supplies $ (282) $ (146)
Accounts payable and accrued
liabilities (1,309) 2,666
Unrealized foreign exchange (loss)
gain on working capital 41 77
----------------------------------------------------------------------------
$ (1,550) $ 2,443
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investing activities:
Accounts receivable, prepaid expenses
and supplies $ 693 $ 2,923
Accounts payable and accrued
liabilities (1,212) (6,770)
Unrealized foreign exchange (loss)
gain on short-term investments (4,381) -
----------------------------------------------------------------------------
$ (4,900) $ (3,847)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Exploration and development
expenditures
Balance sheet change in mineral
properties $ (8,473) $ (8,653)
Increase (decrease) in resettlement
liabilities (221) 853
Non-cash depreciation and disposal
capitalized 112 131
Stock based compensation capitalized 297 358
----------------------------------------------------------------------------
Exploration and development
expenditures per cash flow statement $ (8,285) $ (7,311)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Cash and cash equivalents is comprised
of:
Cash $ 9,807 $ 11,128
Short-term investments (less than 90
days) - weighted average interest of
0.24% (2009 - 0.44%) 80,175 38,965
----------------------------------------------------------------------------
$ 89,982 $ 50,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. Reclassification of Comparitive Figures
Certain comparative figures have been reclassified to conform to the current
period's presentation.
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