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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 | - |
Hot Features
Premium
Gabriel Resources Ltd. (TSX:GBU) -
Highlights
-- Romanian government official statements positive towards the restart of
EIA review process
-- New CEO joins the Company in June 2010
-- Dam safety permits issued
-- Acid mine drainage pilot plant work commenced
-- Restoration of historical town centre continues
"We are highly encouraged by the progress the Company has achieved to date in
advancing towards the recommencement of the Technical Analysis Committee process
of our flagship Rosia Montana gold project in Romania. The project has been
designed for the benefit of not only our shareholders but the people of Rosia
Montana, Romania and the European Union in terms of job creation, environmental
rehabilitation and preservation of the rich cultural heritage," stated Jonathan
Henry, the Company's recently-appointed Chief Executive Officer.
For further information on this press release, please contact:
Jonathan Henry, President and Chief Executive Officer
+ 44 7798 801783
Tom Sipos, Investor Relations
(416) 682-6084
About Gabriel Resources/Rosia Montana Gold Corporation
Gabriel is a Canadian-based resource company 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.
Gabriel is committed to responsible mining and sustainable development in the
communities in which it operates. For more information please visit the
Company's website at www.gabrielresources.com.
Financial Performance
-- Second quarter net loss was $12.8 million, or $0.04 per share. Year-to-
date net loss was $28.2 million, or $0.08 per share.
-- A total of $7.8 million was spent on our development projects during the
second quarter, increasing the year-to-date amount to $17.1 million.
Liquidity and Capital Resources
-- Cash, cash equivalents and short term investments at June 30, 2010
totaled $119.9 million.
-- The base budget for 2010 on the Rosia Montana project ("the Project")
totals $46 million, of which $26.6 remains to be spent over the balance
of the year. This includes significant commitments to the Rosia Montana
community in order to reduce the high unemployment in the area. This
budget includes expenditures and commitments to maintain the value of
the Company's investment in mineral properties and to move the Project
through EIA approval.
-- Depending on the Project re-start, the Company may spend an additional
$33 million during 2010 on the acquisition of surface rights and various
activities to acquire permits and approvals required to apply for
construction permits.
-- Corporate overhead costs are expected to total a further $3 million for
the remaining part of the year.
Political Situation
-- On June 16, 2010, parliamentary opposition parties pressed a "no
confidence" vote against the Romanian Government. The vote failed,
validating the current Government's programme and general agenda to
reignite Romania's economic development. As the Government's effort to
reduce Romania's budget deficit, largely through an increase in the VAT
and reduction in public sector salaries, was found to conform with the
requirements of its International Monetary Fund ("IMF") emergency loan,
the next tranche of emergency aid was released in early July 2010.
-- The re-assessment of the Project remains in Romania's governing
programme, indicating a new appreciation for the benefits that the
country's significant resources endowment can bring to Romania. At the
end of April 2010, the Minister of Environment and Forestry and Minister
of Culture, two key ministers for the Project, visited Rosia Montana. In
May 2010, the Minister of Environment and Forestry made a fact-finding
visit to a gold mine in Sweden to observe its operations, in particular
its use of cyanide in conformity with the strict European Union
directive on mining wastes.
-- In April 2010, opponents of cyanide-based mining seeking to ban the
practice in the European Union ("EU") pressed the European Parliament to
support a complete ban on the use of cyanide in mining before the end of
2011. In early May 2010, the European Parliament voted to adopt a motion
seeking legislation to ban the use of cyanide-based technologies in
mining in Europe, a non-binding exercise 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. In June 2010, the
EC issued a letter over the signature of the Environment Commissioner
declining to institute a ban on cyanide, and endorsing the EU directives
regulating its use in mining. As the Project is designed to operate well
within the EU directive's limits, the Company sees the EC statement as a
positive endorsement for responsible mining.
-- Management continues 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 is a direct result
of the Company's outreach. The Company's communication efforts are fact
based, focusing on the critically-needed economic benefits the Project
will bring to Romania. 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 Sustainable Development. 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. 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 ("MOE") in early May 2010, with the expectation
that receipt of this certificate would allow the MOE to direct the
Technical Analysis Committee ("TAC") to recommence its review of the EIA
for the Project. In the meantime, the MOE has confirmed that members of
the TAC have been provided with the documentation submitted by RMGC
originally to the MOE in 2004 and 2006 and once their period of review
is completed, the MOE will decide on the next steps regarding the EIA
review process.
-- The Company is moving forward with the amended industrial zonal
urbanistic plan ("Amended PUZ"), having completed the public
participation phase including ESPOO procedure (transboundary
consultations pursuant to Convention on Environmental Impact Assessment
in a Transboundary Context).
-- In addition, the Local Council has initiated the process for the zonal
urbanistic plan for the protected area ("PUZ - Protected Area"). The
forestry and agricultural land use change permits will proceed after the
EIA has been approved and surface rights obtained.
-- In June 2010 the dam safety permits for the Cetate and Corna dams for
the Project were issued by the MOE.
Rosia Montana Project Timeline
-- The new CEO is currently reviewing all aspects of the Project schedule
with a view to updating the market at the time of the Q3 results, if not
earlier, of any amendment to the timeline to first gold pour. At this
stage, management believes that once the EIA for the Project is approved
by the Romanian Government, in the absence of any other extraordinary
events, legal or otherwise, 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 all the financing.
-- Once construction of the mine begins, it is currently expected to take
at least 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.
Other
-- The Company would also like to state that it has filed on SEDAR an
amended Management Discussion and Analysis ("MD&A") for the year ended
December 31, 2009. The amended MD&A includes disclosure as to the
management's conclusion regarding the effectiveness of the Company's
internal controls over financial reporting. This amended MD&A is being
re-filed at the request of the Ontario Securities Commission as a result
of a continuous disclosure review of the Company's filings.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") provides a discussion and
analysis of the financial condition and results of operations to enable a reader
to assess material changes in the financial condition and results of operations
as at and for the three-and-six months ended June 30, 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-and-six months ended June 30, 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 August 4, 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 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"), beneficial owner of the Project, and Gabriel holds the
pre-emptive right to acquire the 19.54% minority interest. Gabriel is committed
to responsible mining and sustainable development in the communities in which it
operates. RMGC will be required to pay 4% net smelter royalty on all production
from the Project to the Romanian Government.
The Company's mission is to create value for all stakeholders from responsible
mining. Gabriel's vision is to build the Project and to be a catalyst for
sustainable economic, environmental, cultural and community development. As the
Company develops the world-class Rosia Montana project, it 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, the Company pledges to do it right.
Key Issues
Political Situation
On June 16, 2010, parliamentary opposition parties pressed a "no confidence"
vote against the Romanian Government. The vote failed, validating the current
Government's programme and general agenda to reignite Romania's economic
development. As the Government's effort to reduce Romania's budget deficit,
largely through an increase in the VAT and reduction in public sector salaries,
was found to conform with the requirements of its International Monetary Fund
("IMF") emergency loan, the next tranche of emergency aid was released in early
July 2010.
Against the background of the Government's effort to sustain economic
development, the Project continues to receive support from members of the local
and regional political leadership. The focus of this support continues to be
urging Romania's national government to restart the Environmental Impact
Assessment ("EIA") review process for the Project as soon as possible.
The re-assessment of the Project remains in Romania's governing programme,
indicating a new appreciation for the benefits that the country's significant
resources endowment can bring to Romania. At the end of April 2010, the Minister
of Environment and Forestry and Minister of Culture, two key ministers for the
Project, visited Rosia Montana. In May 2010, the Minister of Environment and
Forestry made a fact-finding visit to a gold mine in Sweden to observe its
operations, in particular its use of cyanide in conformity with the strict
European Union directive on mining wastes. The public comments of both ministers
indicate their recognition of the need for significant investment in the Rosia
Montana area.
In April 2010, opponents of cyanide-based mining seeking to ban the practice in
the European Union ("EU") pressed the European Parliament to support a complete
ban on the use of cyanide in mining before the end of 2011. Certain members of
the European Parliament from Romania and other EU nations that are 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. In early May 2010, the European Parliament voted to adopt a motion
seeking legislation to ban the use of cyanide-based technologies in mining in
Europe, a non-binding exercise 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. In June 2010 the EC issued a letter over the signature
of the Environment Commissioner declining to institute a ban on cyanide, and
endorsing the EU directives regulating its use in mining. As the Project is
designed to operate well within the EU directive's limits, the Company sees the
EC statement as a positive endorsement for responsible mining.
Management continues 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 is a direct result of the Company's outreach.
The Company's communication efforts are fact based, focusing on the
critically-needed economic benefits the Project will bring to Romania. 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 Sustainable
Development. 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.
Romania's current Minister of Environment and Forestry has indicated 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
Project; the Company delivered the new UC to the Ministry of Environment and
Forestry (the "MOE") in early May 2010 with the expectation that receipt of this
certificate would allow the MOE to direct the Technical Analysis Committee
("TAC") to recommence its review of EIA for the Project. In the meantime, the
MOE has confirmed that members of the TAC have been provided with the
documentation submitted originally by RMGC to the MOE in 2004 and 2006 and once
their period of review is completed, the MOE will decide on the next steps
regarding the EIA review process.
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, archeological
discharge certificates, 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 the public participation phase including ESPOO
procedure (transboundary consultations pursuant to Convention on Environmental
Impact Assessment in a Transboundary Context). In addition, the Local Council
has initiated the process for the zonal urbanistic plan for the protected area
("PUZ - Protected Area"). The forestry and agricultural land use change permits
will proceed after the EIA has been approved and surface rights obtained. In
June 2010, the dam safety permits for the Cetate and Corna dams for the Project
were issued by the MOE. Although there is no precedent or regulatory timeline,
in the absence of any other extraordinary events, legal or otherwise, we expect
the completion of 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 a number of local, regional and national Romanian regulatory
authorities that have 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.
Gabriel, through RMGC, has intervened in all material 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.
During the second quarter there were three judgments rendered by Romanian courts
on cases in which RMGC intervened as a defendant. As previously reported, on
April 21, 2010, the High Court of Cassation and Justice admitted an RMGC appeal
and cancelled irrevocably the fiscal audit assessment levied for the period
2003-2004 which totaled approximately $9.8 million. The timeframe for seeking
recovery of this amount remains uncertain at this time. On June 1, 2010, a lower
court ruling in Alba Iulia rejected an NGO claim seeking the suspension of
urbanism certificate No. 68 ("UC 68") issued to RMGC by the Alba County Council
in 2004. UC 68 expired in 2005. Finally, on June 2, 2010 the High Court of
Cassation and Justice upheld a lower court ruling compelling the MOE to issue
two dam safety permits previously approved by the National Commission on Dam
Safety.
During the second quarter of 2010 RMGC also intervened in two new court
challenges filed by NGOs opposed to the Project. The first matter involves a
claim to suspend the latest urbanism certificate issued to RMGC by the Alba
County Council ("UC 87"). UC 87 was issued to RMGC by the Alba County at the end
of April 2010 and was provided to the Romanian Ministry of Environment and
Forestry at its request. The second claim involves a challenge against the
legality of two resolutions of the local council of Rosia Montana passed in 2002
regarding zoning bylaws for the area. The timeframe for the resolution of both
of these cases is uncertain at this time. If the NGOs pursuing these claims are
successful before the courts then delays in the permitting process could be
expected, depending on the ruling issued by the court and the reaction to this
ruling by the administrative authorities in Romania. Also during the second
quarter, an appeal was filed against an earlier court decision which rejected an
NGO claim seeking an order compelling the MOE to return the initial project
presentation report submitted by RMGC in 2004. The next hearing on this matter
is scheduled for September 8, 2010.
RMGC's action against the MOE seeking an order compelling it to re-commence the
EIA review process remains before the High Court of Cassation and Justice, with
the next hearing scheduled in the third quarter of 2010.
There were no other material developments involving litigation matters
associated with the Project during the second 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 30 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.
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. The construction of all 125 homes in the Recea resettlement site in
Alba Iulia has been completed, with 124 homes handed over to their respective
owners. This project stands as visible testimony to the determination of the
Company to deliver on its promises to the people of Rosia Montana.
The Company is currently reviewing the technical merits of Piatra Alba, the new
resettlement village to be built in Rosia Montana, as well as the process of
obtaining permits for this site.
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. A
number of archaeological discharge certificates are required for various parts
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
High Court of Cassation and Justice in December 2008. The Company has reviewed
the Court's written reasons for this decision and will seek a new archeological
discharge certificate through a revised application prepared by independent
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).
During the past year, the Company continued emergency maintenance work on 160
houses located in the historical center of Rosia Montana, with the aim to stop
their deterioration. While these houses are not designated as historic, their
restoration will contribute to maintaining the character of Rosia Montana
village. This emergency conservation work 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
On May 25, 2010 the Company announced the appointment of Jonathan Henry as
President and Chief Executive Officer, effective June 7, 2010. Mr. Henry is a
seasoned mining executive with a track record of success in building a strong
precious metals mining and development franchise, most recently as Chief
Executive Officer and Managing Director of Avocet Mining PLC, a UK based gold
mining company with operations and advanced development and exploration projects
in West Africa and South East Asia.
Liquidity and Capital Resources
Cash, cash equivalents and short term investments at June 30, 2010 totaled
$119.9 million.
The base budget for 2010 on the Project totals $46 million, of which $26.6
remains to be spent over the balance of the year. This includes significant
commitments to the Rosia Montana community in order to reduce the high
unemployment in the area. This budget includes expenditures and commitments to
maintain the value of the Company's 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 may spend an additional $33 million during
2010 on the acquisition of surface rights and various activities to acquire
permits and approvals required to apply for construction permits. Corporate
overhead costs are expected to total a further $3 million for the remaining part
of the year.
Financing Plan
The estimated capital cost to complete the development of the Rosia Montana
Project - including interest, financing and corporate costs - is approximately
US$1 billion. Under the guidance of the new CEO, management is in the process of
re-examining financing alternatives with a view to presenting the various
options open to the Company to the board of directors.
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 a 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.
-- In July 2010, the MOE confirmed that members of the TAC have been
provided with the documentation submitted originally by RMGC to the MOE
in 2004 and 2006 and once their period of review is completed, the MOE
will decide on the next steps regarding the EIA review process.
The new CEO is currently reviewing all aspects of the Project schedule with a
view to updating the market at the time of the Q3 results, if not earlier, of
any amendment to the timeline to first gold pour. At this stage management
believes that once the EIA for the Project is approved by the Romanian
Government, in the absence of any other extraordinary events, legal or
otherwise, 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 all financing.
Once construction of the mine begins, it is currently expected to take at least
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. Continue to win Romanian public and Government support and backing for
the Project
2. Obtaining approval of our EIA and all other required permits;
3. Raising the required financing to build the Project;
4. Beginning Project construction; and
5. Continue to maximize shareholder value, 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:
Results of Operations
in thousands of Canadian dollars,
except per share amounts 2010 Q2 2010 Q1 2009 Q4 2009 Q3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss
Loss $ 12,789 $ 15,439 $ 10,729 $ 7,082
Loss per share - basic and diluted 0.04 0.04 0.03 0.02
----------------------------------------------------------------------------
Balance Sheet
Working capital 110,278 124,604 148,715 95,838
Total assets 632,678 642,189 658,694 608,399
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working
capital changes 10,372 13,185 13,004 10,689
Cash flow from (used in) financing
activities 3,764 857 70,260 (435)
----------------------------------------------------------------------------
in thousands of Canadian dollars,
except per shareamounts 2009 Q2 2009 Q1 2008 Q4 2008 Q3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss (Income)
Loss (Income) $ 1,798 $ 6,969 $ (3,958) $ 2,782
Loss (Income) per share - basic
and diluted 0.01 0.03 (0.02) 0.01
----------------------------------------------------------------------------
Balance Sheet
Working capital 109,518 7,401 29,172 50,324
Total assets 624,991 522,618 530,135 508,010
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in development and
exploration including working
capital changes 7,389 11,158 8,171 19,237
Cash flow provided by financing
activities 112,906 3 - 82
----------------------------------------------------------------------------
Statement of Loss
3 months ended 6 months ended
in thousands of Canadian dollars, June 30, June 30,
except per share amounts 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total operating expenses for the
period $ 5,664 $ 4,344 $ 8,079 $ 11,062
Loss for the period 12,789 1,798 28,228 8,767
Loss per share - basic and diluted 0.04 0.01 0.08 0.03
Total operating expenses for the three-month period ended June 30, 2010
increased from the corresponding period in 2009 primarily due to the vesting of
750 thousand stock options valued at $2.4 million upon achievement of certain
milestones. The increase is partially offset by severance costs incurred in 2009
of $0.9 million. For the six-month period ended June 30, 2010, total operating
expenses decreased from 2009 due to $4.9 million resulting from non-recurring
retiring allowances and settlement payments, including the expensing of
share-based compensation, for the former CEO and two employees who departed the
Company during the first half of 2009. The decrease is partially offset by $2.4
million representing fair value of stock options which vested upon achievement
of certain milestones.
Loss for the three-and-six-month periods ended June 30, 2010 increased from the
same periods in 2009 mainly due to an increase in foreign exchange loss of $9.7
and $22.5 million, respectively, as well as due to an increase in stock based
compensation expense.
The Company expects to incur operating losses until commercial production
commences and revenues are generated.
Expenses
Corporate, General and Administrative
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance $ 217 $ 237 $ 450 $ 434
External communications 247 123 439 288
Information technology 77 124 151 200
Legal 147 192 306 376
Payroll 920 798 1,589 3,985
Other 638 573 1,035 927
----------------------------------------------------------------------------
Corporate, general and administrative
expense $2,246 $2,047 $3,970 $6,210
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate, general and administrative costs are those costs incurred by the
corporate office in Toronto. Corporate, general and administrative costs for the
three-month period ended June 30, 2010 were comparable to the same period in
2009. For the six-month period ended June 30, 2010, corporate, general and
administrative costs are lower than in 2009 due to the non-recurring retiring
allowance of $2.4 million paid to the Company's former CEO in the first quarter
of 2009. Corporate, general and administrative costs are anticipated to rise
(excluding the cost of non- recurring items) once the Project is permitted and
the Company increases its staffing for construction and operations.
Stock Based Compensation
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - expensed (recovered) $ 178 $ (432) $ 145 $ 521
Stock option compensation - expensed 2,837 1,462 3,391 2,851
----------------------------------------------------------------------------
Stock based compensation - expensed $ 3,015 $ 1,030 $ 3,536 $ 3,372
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSUs - capitalized (capital
reduction) $ - $ (48) $ - $ 47
Stock option compensation -
capitalized 296 263 593 526
----------------------------------------------------------------------------
Stock based compensation -
capitalized $ 296 $ 215 $ 593 $ 573
----------------------------------------------------------------------------
----------------------------------------------------------------------------
DSU Compensation
Number of DSUs issued 362,806 22,668 368,768 36,389
Average value ascribed to each DSU
issued $ 4.20 $ 1.93 $ 4.20 $ 2.13
DSU costs for the second quarter 2010 reflect the issuance of 5 thousand DSU's
during the period and the increase in the DSU liability due to a higher share
price at quarter end compared to the Company's share price at the beginning of
the period.
During the three-month ended June 30, 2010 the Company issued 358 thousand DSU's
to the newly appointed CEO. The expense will be recognized as 50 percent of the
DSUs vest on the first anniversary and remaining 50 percent vest on the second
anniversary of commencement of the employment.
For the six-month ended June 30, 2010, the DSU costs reflect the issuance of 11
thousand units and the increase in the Company's share price at the beginning of
the period. The Company's closing share price at June 30, 2010 was $4.83 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. The change
in share price of the DSU's at the end of the period is charged to the Statement
of Loss. Overall, for the three-and-six month periods ended June 30, 2010, the
Company's share price increased by $0.62 compared to March 31, 2010 and $0.46
compared to December 31, 2009, while for the same period in 2009, the Company's
share price increased by $0.45 from March 31, 2009 and $0.43 compared to
December 31, 2008.
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
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Stock option compensation
Number of stock options
granted 4,050,000 1,550,000 4,050,000 2,150,000
Average value ascribed to
each regular vesting option
granted $ 4.64 $ 1.08 $ 4.64 $ 1.12
Options granted to corporate
employees, consultants,
officers, and directors 2,925,000 1,350,000 2,925,000 1,350,000
Options granted to
development project
employees and consultants 1,125,000 200,000 1,125,000 800,000
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
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.
Of the 4 million options issued in the second quarter of 2010, 2 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.
Project Financing Costs
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Project Financing Costs $ 353 $ 236 $ 465 $ 386
The project financing costs for the three-and-six month periods ended June 30,
2010 were comparable to those of the same period in 2009.
Project financing activities include advisory services.
Interest Income
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Income $ 73 $ 67 $ 194 $ 131
Higher interest income in the three-and-six month periods ended June 30, 2010
compared to the same periods in 2009 is the result of higher average cash
balances during the periods in 2010, partially offset by lower interest rates.
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 90 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 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange gain (loss) -
realized $ (1,207) $ (759) $ (1,617) $ (868)
Foreign exchange gain (loss) -
unrealized (5,989) 3,240 (18,722) 3,034
----------------------------------------------------------------------------
Total foreign exchange gain
(loss) $ (7,196) $ 2,481 $ (20,339) $ 2,166
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----------------------------------------------------------------------------
During 2009, the Company converted the majority of the cash raised from two
private placements and public equity offering to foreign currencies to match
anticipated foreign denominated expenditures. Since the purchase of foreign
currencies, mainly EURO and US Dollar, the Canadian Dollar strengthened relative
to the foreign currencies acquired, resulting in realized and unrealized foreign
exchange losses for the three-and-six month periods ended June 30, 2010. As a
result of higher average cash balance in the first half of 2010 and
strengthening of Canadian Dollar to EURO and US Dollar, the realized and
unrealized foreign exchange losses for the three- and-six month periods ended
June 30, 2010 were higher by $9.7 million and $22.5 million, respectively, than
in the same periods 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.
The Company expects to continue to report foreign currency gains and losses as
it continues 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 aid incentives related to unrealized foreign
exchange gains on inter-company debt.
The Company seeks to obtain a reimbursement for the taxes paid in previous
years. The timeframe and process for seeking recovery of the full amount is
uncertain at this time. As of June 30, 2010 no recovery amount was recorded in
the financial statements.
Investing Activities
The most significant ongoing investing activities are for the 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 the
construction permit is received, the nature and magnitude of the expenditures
will increase, as roads, production facilities, open pits, tailings management
facilities and associated infrastructure is built.
Mineral Properties
All costs incurred in Romania related to development and exploration projects -
Rosia Montana, Bucium and Baisoara - are capitalized to mineral properties.
Listed below is a summary of expenditures at Rosia Montana for the three-and-six
months ended June 30, 2010 and 2009.
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance and administration $ 1,304 $ (1,436) $ 2,981 $ 1,173
External communications 1,678 3,875 4,179 5,087
Legal 2,030 1,205 3,243 2,396
Permitting 260 616 660 1,371
Community development 1,541 225 2,680 1,374
Project management and engineering 1,195 1,373 2,557 2,903
Exploration - Rosia Montana 136 178 300 350
Exploration - Bucium - - - -
Exploration - Baisoara 47 51 64 86
Capitalized depreciation and
disposals (851) (101) (963) (232)
Capitalized stock based compensation (296) (215) (593) (573)
Reclassification to mineral
properties - (3,564) - (3,564)
Decrease (increase) in resettlement
liabilities 335 8,631 556 7,778
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Total exploration and development
expenditures $ 7,379 $ 10,838 $ 15,664 $ 18,149
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the three-and-six month periods ended June 30, 2010, the finance and
administration costs increased compared to the corresponding 2009 periods
primarily due to reduced foreign exchange gains related to lower trade payable
and resettlement liability balances.
External communications costs decreased for the three-and-six-months ended June
30, 2010 compared to the same period last year mainly due to the reduction in
media advertising. The professional service agreement between the Company and an
international communications firm continues 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.
The increased legal costs for the three-and-six-months ended June 30, 2010
compared to the same periods last year reflect the additional fees associated
with the engagement of a new law firm in Romania.
Community development costs increased for the three-and-six-months ended June
30, 2010 compared to the same periods in 2009 mainly due to the acceleration of
certain commitments to the Rosia Montana community which will reduce the high
unemployment in the area.
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 Project is made.
Purchase of Capital Assets
3 months ended 6 months ended
June 30, June 30,
in thousands of Canadian dollars 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ - $ 2,620 $ 1 $ 4,738
Investment in long-lead-time equipment 403 5,081 1,328 11,889
Other 74 13 183 43
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Total investment in capital assets $ 477 $ 7,714 $ 1,512 $ 16,670
----------------------------------------------------------------------------
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Depreciation and disposal - expensed $ 50 $ 61 $ 108 $ 124
Depreciation and disposal -
capitalized to mineral properties $ 851 $ 101 $ 963 $ 232
The construction of all 125 homes at the Recea resettlement site in Alba Iulia
has been completed with 124 homes handed over to their respective owners.
The final installments for the mills are expected to be made in 2010 ($2.0
million) and 2011 ($50 thousand) 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 four main
locations in accordance with manufacturer's specifications.
Cash Flow Statement
Liquidity and Capital Resources
Until receipt of the environmental permits for Project, the only source of
liquidity is the Company's 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.
Under the guidance of the new CEO, management is in the process of re-examining
financing alternatives with a view to presenting the various options open to the
Company to the board of Directors. If the Company was unable to raise the
required funds, it 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 June 30, 2010, cash, cash equivalents, and short-term investments were
$119.9 million compared to $142.8 million at June 30, 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 Euros 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 $70 thousand.
-- 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 $1.0
million.
The Company's objective when managing capital is to safeguard its accumulated
capital in order to fund development of its 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 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 June 30, 2010, the Company had working capital, calculated as total
current assets less total current liabilities, of $110.3 million versus $148.7
million as at December 31, 2009. The decrease in working capital in the second
quarter of 2010 relates to the loss incurred during the period, investments in
mineral properties and payments for capital assets.
As at June 30, 2010, the Company had current liabilities of $11.1 million of
which $4.9 million relates to 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 completed with 124 homes
handed over to their respective owners.
Net Change in Non-Cash Working Capital
Operating non-cash working capital decreased for the three-months ended June 30,
2010 compared to the same period in 2009 due to a decrease in payables and
accrued liabilities since the previous period end.
The decrease in investing non-cash working capital for the three-and-six-months
ended June 30, 2010 compared to the same period in 2009 is primarily due to a
decrease in payables and accrued liabilities of the Romanian subsidiary 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 were offered 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 costs 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 June 30, 2010, the Company had accrued resettlement liabilities totaling $4.9
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 completed with 124 homes handed over to their respective owners. The
Company is currently reviewing the technical merits of Piatra Alba, the new
resettlement village to be built in Rosia Montana, as well as the process of
obtaining the permits for this site. 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 June 30, 2010, the Company has accrued $0.5 million (December 31, 2009 -
$0.4 million) representing its total estimated delay penalty. During the
three-and-six-month period ended June 30, 2010, the Company paid $58 and $25
thousand respectively of delay penalties (2009 - $0.3 and $0.4 million
respectively).
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
$10.3 million at June 30, 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 June 30, 2010 outstanding commitments under such agreements totaled $2.0
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 $ 2,773 $ 185 $ 2,588 $ - $ - $ -
Resettlement 4,681 - 4,681 - - -
Goods and services 10,349 8,045 796 1,233 275 -
Long lead time
equipment 2,047 1,988 59 - - -
Rosia Montana
exploitation license 1,412 177 177 176 176 706
Surface concession
rights 849 11 21 21 21 775
Lease agreements 524 261 263 - - -
----------------------------------------------------------------------------
Total commitments $ 22,635 $ 10,667 $ 8,585 $ 1,430 $ 472 $ 1,481
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following is a summary of the long-lead-time equipment orders and the
payment status:
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems $ 42,032 $ 41,731
Crusher facilities 3,961 3,961
Foreign exchange movement 578 3,023
----------------------------------------------------------------------------
46,571 48,715
Amount paid to date:
Grinding area systems (40,123) (37,011)
Crusher facilities (3,881) (3,881)
Foreign exchange movement (520) (2,676)
----------------------------------------------------------------------------
Outstanding payment obligation $ 2,047 $ 5,147
----------------------------------------------------------------------------
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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 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, phase two,
implementation and education and is now advancing through phase three,
completion of all integration system and process changes. Management has
finalized component evaluation of its existing financial statement line items,
comparing Canadian GAAP to the corresponding IFRS guidelines, and identified a
number of differences. Many of the differences identified don't have a material
impact on the reported results and financial position.
Based on management's evaluation, 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 of 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. Management will continue on a regular basis to assess whether or not
impairment indicators are present and if the Project assets should be tested for
impairment based on criteria established in IAS 36.
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 2, the accounting policy will be retrospectively applied
to all equity instruments granted after November 7, 2002 that have not vested at
January 1, 2010. The Company will change both the method of amortization, which
will give rise to an accelerated compensation expense, and the method of
forfeiture recognition. As a result the impact of IFRS 2 adoption on the
transition date is expected to be approximately $1.5 million, and will impact
contributed surplus, accumulated deficit and mineral properties.
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 Baisoara. Once the Company applies the IASB
Framework at the transition date, mineral properties are expected to 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 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 no 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 management's evaluation, there is currently no
expected impact from the component accounting on earnings. Management expects
that once the Company enters commercial production the impact of 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 Project 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.
Upon adoption of IFRS, all resulting foreign exchange differences from
translation of the entities' assets, liabilities and income statement items are
expected to be recognized in other comprehensive income as a separate component
of equity. There is no expected impact at the transition date as under IFRS 1
the cumulative translation differences for all foreign operations are deemed to
be zero at the date of transition to IFRS.
During the second quarter of 2010, management determined the expected impact of
IFRS adoption at the transition date on the Company's financial statements, and
is in the process of finalizing the opening balance sheet with the required
notes disclosure. In the second half of the year management will update internal
accounting and business process documentation reflecting the transition to IFRS
and finalize the IT system set up to be able to generate all information
required under IFRS. The International Accounting Standards Board will 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 accounting standards applicable at the
conversion date are known.
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.
The Company's CEO and CFO certify that, as at June 30, 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 Canadian GAAP.
The control framework the Company's CEO and CFO used to design the Company's
ICFR is COSO. There is no material weakness relating to the design of ICFR.
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
second 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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Preferred shares Nil
Common shares 342,382,977
Common stock options 25,093,878
Common stock warrants 30,375,000
Deferred share units - common shares 592,991
----------------------------------------------------------------------------
Fully diluted share capital 398,444,846
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proven and Probable Mineral Reserves
The Company maintains an 80.46 percent economic interest in the Project which,
at year end 2009, has aggregate proven and probable reserves as follows, modeled
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 June 30, 2010
Consolidated Balance Sheets
As at June 30, 2010 and December 31, 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 92,651 $ 116,110
Short-term investments (note 3) 27,246 46,201
Accounts receivable 657 1,460
Prepaid expenses and supplies 872 788
----------------------------------------------------------------------------
121,426 164,559
Restricted cash (note 3) 137 126
Capital assets (note 4) 52,906 52,464
Mineral properties (note 5) 458,209 441,545
----------------------------------------------------------------------------
$ 632,678 $ 658,694
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 6,262 $ 10,402
Resettlement liabilities (note 6) 4,886 5,442
----------------------------------------------------------------------------
11,148 15,844
Other Liabilities (note 7) 2,211 3,908
----------------------------------------------------------------------------
13,359 19,752
----------------------------------------------------------------------------
Shareholders' Equity
Capital stock (note 9) 740,221 733,481
Common share purchase warrants (note 10) 11,393 11,393
Contributed surplus (note 12) 19,915 18,050
Deficit (152,210) (123,982)
----------------------------------------------------------------------------
619,319 638,942
----------------------------------------------------------------------------
$ 632,678 $ 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 six months ended June 30, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares
At January 1 $ 733,481 $ 560,052
Shares issued from a public and private offering
less share issue costs $ - $ 112,764
Shares issued on the exercise of stock options
(note 9) 4,621 3
Transfer from contributed surplus - exercise of
stock options (note 12) 2,119 1
----------------------------------------------------------------------------
At June 30 740,221 672,820
----------------------------------------------------------------------------
Common share purchase warrants
At June 30 11,393 -
----------------------------------------------------------------------------
Contributed surplus
At January 1 18,050 15,051
Stock-based compensation (note 12) 3,984 3,377
Exercise of stock options (note 12) (2,119) (1)
----------------------------------------------------------------------------
At June 30 19,915 18,427
----------------------------------------------------------------------------
Deficit
At January 1 (123,982) (97,084)
Net loss (28,228) (8,767)
----------------------------------------------------------------------------
At June 30 (152,210) (105,851)
----------------------------------------------------------------------------
Accumulated other comprehensive loss - -
----------------------------------------------------------------------------
Total shareholders' equity at June 30 $ 619,319 $ 585,396
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Loss
For the three-and-six-month periods ended June 30, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars and thousands of
shares)
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
Corporate, general and
administrative $ 2,246 $ 2,047 $ 3,970 $ 6,210
Stock based compensation (notes
7 & 11) 3,015 1,030 3,536 3,372
Project financing costs 353 236 465 386
Severance costs - 970 - 970
Amortization 50 61 108 124
----------------------------------------------------------------------------
5,664 4,344 8,079 11,062
----------------------------------------------------------------------------
Other expense (income)
Interest (73) (67) (194) (131)
Foreign exchange (gain) loss 7,196 (2,481) 20,339 (2,166)
----------------------------------------------------------------------------
Loss before income taxes 12,787 1,796 28,224 8,765
Income tax expense (note 13) 2 2 4 2
----------------------------------------------------------------------------
Loss for the period $ 12,789 $ 1,798 $ 28,228 $ 8,767
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss per share (basic and
diluted) $ 0.04 $ 0.01 $ 0.08 $ 0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of
shares (000') 341,092 266,268 340,198 262,300
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Loss
For the three-and-six-month periods ended June 30, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss for the period $ 12,789 $ 1,798 $ 28,228 $ 8,767
Other comprehensive loss - - - -
----------------------------------------------------------------------------
Comprehensive loss $ 12,789 $ 1,798 $ 28,228 $ 8,767
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statements of Cash Flows
For the three-and-six-month periods ended June 30, 2010 and 2009
(Unaudited and expressed in thousands of Canadian dollars)
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from (used in)
operating activities
Loss for the period $ (12,789) $ (1,798) $ (28,228) $ (8,767)
Items not affecting cash
Amortization 50 61 108 124
Stock-based compensation 3,015 1,030 3,536 3,372
Unrealized foreign exchange loss
(gain) 5,989 (3,240) 18,722 (3,034)
----------------------------------------------------------------------------
(3,735) (3,947) (5,862) (8,305)
DSU cash settlement (1,627) - (1,627) -
Net changes in non-cash working
capital (note 18) 1,378 (2,286) (172) 155
----------------------------------------------------------------------------
(3,984) (6,233) (7,661) (8,150)
----------------------------------------------------------------------------
Cash flows from (used in)
investing activities
Decrease (increase) in short-term
investments and restricted cash 19,640 (52,751) 18,944 (52,736)
Development and exploration
expenditures (7,379) (10,838) (15,664) (18,149)
Purchase of capital assets (477) (7,714) (1,512) (16,670)
Net changes in non-cash working
capital (note 18) (2,993) 3,449 (7,892) (398)
----------------------------------------------------------------------------
8,791 (67,854) (6,124) (87,953)
----------------------------------------------------------------------------
Cash flows from (used in)
financing activities
Proceeds from issuance of capital
stock, net of issue costs - 112,681 - 112,681
Proceeds from the exercise of
stock options 3,764 - 4,621 3
Net changes in non-cash working
capital (note 18) - 225 - 227
----------------------------------------------------------------------------
3,764 112,906 4,621 112,911
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 8,571 38,819 (9,164) 16,808
Effect of foreign exchange on cash
and cash equivalents (5,902) 1,113 (14,295) 984
Cash and cash equivalents -
beginning of period 89,982 50,093 116,110 72,233
----------------------------------------------------------------------------
Cash and cash equivalents - end of
period $ 92,651 $ 90,025 $ 92,651 $ 90,025
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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-and-six-month periods ended June 30, 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 currently in the process of obtaining permits to develop its 80.46%-owned
Rosia Montana gold project (the "Project"). Since acquiring the exploitation
license the Company has defined a world class orebody. In the last five years
the Company has been focused on engineering to design the size and scope of the
Project, environmental assessment and permitting, rescue archaeology and surface
rights acquisition activities.
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 Project. 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 in Romania or in the European Union, re- designation of the Project area
as an 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 Company's 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 June 30, 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
the Project delays.
Under the guidance of the new CEO, management is in the process of re-examining
financing alternatives with a view to presenting the various options open to the
Company to the board of directors. The timeline to build the Project is
dependant on a number of factors which include both the permitting and financing
processes.
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 the Company's 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
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Money market investments with maturities
from the date of acquisition of 4 - 12
months $ 27,246 $ 46,201
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Short-term investments held at period end yielded a weighted average
interest rate of 0.19% in 2010 (2009 - 0.67%).
Restricted cash
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted cash (1) $ 137 $ 126
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Restricted cash represents environmental guarantees for future clean up
costs.
4. Capital Assets
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost
Office equipment $ 3,989 $ 4,207
Building 1,083 1,082
Vehicles 1,292 1,282
Leasehold improvements 215 215
Construction in progress (1) 50,794 50,249
----------------------------------------------------------------------------
57,373 57,035
----------------------------------------------------------------------------
Less: Accumulated amortization
Office equipment 3,035 3,122
Building 68 63
Vehicles 1,172 1,207
Leasehold improvements 192 179
----------------------------------------------------------------------------
4,467 4,571
----------------------------------------------------------------------------
Net book value
Office equipment 954 1,085
Building 1,015 1,019
Vehicles 120 75
Leasehold improvements 23 36
Construction in progress (1) 50,794 50,249
----------------------------------------------------------------------------
$ 52,906 $ 52,464
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Amounts included in construction in progress are not subject to
amortization. Construction in progress includes the following amounts:
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ 1,168 $ 1,951
Long-lead-time equipment 49,626 48,298
----------------------------------------------------------------------------
$ 50,794 $ 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) 16,301 - 16,301
Exploration costs (1) 299 - 64 363
----------------------------------------------------------------------------
Balance - June 30, 2010 $ 447,169 $ 10,459 $ 581 $ 458,209
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Mineral property additions of $16.7 million (2009 - $34.5 million) is
$1.0 million higher than the amount reported in the Consolidated Statements
of Cash Flows of $15.7 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 has certain
rights to 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 obligated 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 Project. In
December 2009, in order to replenish the net asset position of RMGC in
accordance with the 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
Project. RMGC has the exclusive right to conduct mining operations at the
Project for an initial term of 20 years expiring in 2019, and thereafter with
successive five-year renewal periods.
RMGC holds rights to an exploration license over the Bucium property. The
license was extended in 2004 and expired on May 19, 2007. 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 a response from the authorities
on this item. No additional work on the Bucium property is planned until the
license is converted from an exploration to an exploitation license and until
the Project progresses further.
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 were offered 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 June 30, 2010, the Company had accrued resettlement liabilities totaling $4.9
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 completed with 124 homes handed over to their respective owners. The
Company is currently reviewing the technical merits of Piatra Alba, the new
resettlement village to be built in Rosia Montana, as well as the process of
obtaining permits for this site. 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 June 30, 2010, the Company has accrued $0.5 million (December 31, 2009 -
$0.4 million) representing its total estimated delay penalty. During the
three-and-six-months period ended June 30, 2010, the Company paid $58 and $25
thousand respectively of delay penalties (2009 - $0.3 and $0.4 million
respectively).
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 11 4.20 49
Settled (374) 4.35 (1,627)
Change in fair value - - 95
----------------------------------------------------------------------------
Balance - June 30, 2010 237 $ 4.83 $ 1,134
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 (214)
----------------------------------------------------------------------------
Balance accrued - June 30, 2010 $ 1,077
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Other Liabilities $ 2,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) DSUs
The Company implemented a Deferred Share Unit ("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 they elect to
settle the DSU in cash or shares of the Company. If the holder elects to settle
the DSU in shares of the Company, 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.
During the second quarter of 2010 the Company issued 358 thousand DSU units to
the newly appointed CEO. The expense will be recognized as 50 percent of the
DSU's vest on the first anniversary and the remaining 50 percent vest on the
second anniversary of commencement of employment.
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.
3 months ended 6 months ended
June 30, June 30,
Deferred Share Units ("DSUs") 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed (recovered) 178 (432) $ 145 $ 521
Capitalized - (48) $ - $ 47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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. The
change in share price of the DSUs at the end of the period is charged to the
Statement of Loss.
(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 June 30, 2010, $1.0 million (December 31, 2009
- $1.3 million) has 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 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) 2,881 4,621
Transfer from contributed surplus - exercise
of stock options (note 12) - 2,119
----------------------------------------------------------------------------
Balance - June 30, 2010 342,081 $ 740,221
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 $117 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
(see Note 10). 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 June 30, 2010, the following share purchase warrants were issued and
outstanding:
Warrants issued Number of Exercise
to two financial warrants price Assigned
institutions (000's) (dollars) Value Expiry date
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2008
(1) and 2009 1,125 $ 4.88 US$1,500 November 28, 2010
Warrants settled (1) (750) (US$1,000) November 28, 2010
----------------------------------------------------------------------------
Balance - June 30, 2010 375 US$500 November 28, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The assigned value of the warrants vested, being US$1.5 million,
represents their cash settlement value. The Company 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.
Warrants issued Number of Exercise
to BSG Capital warrants price Assigned
Markets PCC Limited (000's) (dollars) Value Expiry date
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2008
(1) - $ - $ -
July 18, 2011 to
Warrants issued (2) 2.50-
30,000 $ 3.00 $ 11,393 December 18, 2011
----------------------------------------------------------------------------
Balance - December 31, 2009 July 18, 2011 to
and June 30, 2010 30,000 $ 11,393 December 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.
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 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 half of 2010.
During 2009, the Company closed a private placement with BSG. 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 June 30, 2010, 8.8 million options are available for issuance under the
Plan (December 31, 2009 - 6.6 million).
As at June 30, 2010, common share stock options held by directors, officers,
employees and consultants are as follows:
Outstanding Exercisable
------------------------------------- ------------------------
Weighted Weighted Weighted
Range of average average average
exercise Number of exercise remaining Number of exercise
prices options price contractual options price
(dollars) (thousands) (dollars) life (Years) (thousands) (dollars)
------------- ------------ ----------- ------------ ------------ -----------
$ 1.18 - 2.00 12,255 $1.74 2.6 8,245 $ 1.65
2.01 - 3.00 5,328 2.53 2.3 4,129 2.54
3.01 - 5.23 7,820 4.45 3.9 2,519 4.38
------------ ----------- ------------ ------------ -----------
25,403 $ 2.74 2.9 14,893 $2.36
------------ ----------- ------------ ------------ -----------
During the year ended December 31, 2009 and the six-month period ended June 30,
2010, director, officer, employee and consultants stock options were granted,
exercised, forfeited and cancelled as follows:
Number of Weighted 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 4,050 4.64
Options forfeited / cancelled - -
Options exercised (2,881) 1.60
----------------------------------------------------------------------------
Balance - June 30, 2010 25,403 $ 2.74
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
During the six-month period ended June 30, 2010, the Company granted 4 million
options. Of the 4 million options issued, 2 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.
The valuation of the stock options granted in the three-and-six-month periods
ended June 30, 2010 and 2009 was calculated with the following assumptions:
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average risk-free
interest rate 1.68% 1.51% 1.68% 1.49%
Volatility of the expected
market price of share 103% 100% 103% 100%
Weighted average expected
life of options 2.6 Years 2.7 years 2.6 Years 2.7 years
Weighted average cost per
option $ 2.77 $ 1.08 $ 2.77 $ 1.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As of June 30, 2010, the remaining fair value of outstanding measurable unvested
options to be expensed and capitalized is $7.2 million and$4.2 million,
respectively. For the three-and-six-month periods ended June 30, 2010 and 2009,
the fair value of stock options expensed and capitalized is as follows:
3 months ended 6 months ended
June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed $ 2,837 $ 1,462 $ 3,391 $ 2,851
Capitalized $ 296 $ 263 $ 593 $ 526
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 3,984
Exercise of stock options (2,119)
----------------------------------------------------------------------------
Balance - June 30, 2010 $ 19,915
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 seeks to obtain a reimbursement for the taxes paid in previous
years. The timeframe and process for seeking recovery of the full amount is
uncertain at this time. As of June 30, 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:
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Romania $ 510,842 $ 493,697
Canada 273 312
----------------------------------------------------------------------------
Total $ 511,115 $ 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
France 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 short-term 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 June 30, 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 June 30, 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 June 30,
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 June 30, 2010 and December 31,
2009:
Financial assets and liabilities as at
June 30, 2010(i)
-------------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash $ - $ 7,115 $ - $ 7,115
Cash Equivalents - 85,536 - 85,536
Short-term investments (note 3) - 27,246 - 27,246
Deferred Share Units (note 7) (1,134) - - (1,134)
$ (1,134) $ 119,897 $ - $ 118,763
---------------------------------------------------------------------------=
Financial assets and liabilities as at
December 31, 2009(i)
-------------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash $ - $ 13,674 $ - $ 13,674
Cash Equivalents - 102,436 - 102,436
Short-term investments (note 3) - 46,201 - 46,201
Deferred Share Units (note 7) (2,617) - - (2,617)
----------------------------------------------------------------------------
$ (2,617) $ 162,311 $ - $ 159,694
----------------------------------------------------------------------------
(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 June
30, 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 $70 thousand.
-- The Company holds significant balances in foreign currencies, and this
gives rise to exposure to foreign exchange risk. As of June 30, 2010 a
plus or minus 1% change in foreign exchange rates would affect net
income by $1.0 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.
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) $ 2,773 $ 185 $ 2,588 $ - $ - $ -
Resettlement (note 6) 4,681 - 4,681 - - -
Goods and services (a) 10,349 8,045 796 1,233 275 -
Long lead time
equipment (b) 2,047 1,988 59 - - -
Rosia Montana
exploitation license
(c) 1,412 177 177 176 176 706
Surface concession
rights (d) 849 11 21 21 21 775
Lease agreements (e) 524 261 263 - - -
----------------------------------------------------------------------------
Total commitments $ 22,635 $ 10,667 $ 8,585 $ 1,430 $ 472 $ 1,481
----------------------------------------------------------------------------
(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 $10.3 million at June 30, 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:
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total purchase agreements:
Grinding area systems $ 42,032 $ 41,731
Crusher facilities 3,961 3,961
Foreign exchange movement 578 3,023
----------------------------------------------------------------------------
46,571 48,715
Amount paid to date:
Grinding area systems (40,123) (37,011)
Crusher facilities (3,881) (3,881)
Foreign exchange movement (520) (2,676)
----------------------------------------------------------------------------
Outstanding payment obligation $ 2,047 $ 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 9 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 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 annual
fee of 450,000 EUR and 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 225,000 EUR for the 2010 annual fee as at June 30, 2010.
18. Supplemental Cash Flow
Information
3 months ended 6 months ended
(a) Net changes in June 30, June 30,
non-cash working capital 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid
expenses and supplies $ 108 $ (33) $ (174) $ (179)
Accounts payable and accrued
liabilities 1,309 (2,478) - 188
Unrealized gain (loss) on
working capital (39) 225 2 146
----------------------------------------------------------------------------
$ 1,378 $ (2,286) $ (172) $ 155
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investing activities:
Accounts receivable, prepaid
expenses and supplies $ 200 $ 418 $ 893 $ 3,341
Accounts payable and accrued
liabilities (3,144) 1,129 (4,355) (5,642)
Unrealized gain (loss) on
short-term investments (49) 1,902 (4,430) 1,903
----------------------------------------------------------------------------
$ (2,993) $ 3,449 $ (7,892) $ (398)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financing activities:
Accrued share issue costs $ - $ 227 $ - $ 227
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) Exploration and development
expenditures
Balance sheet change in
mineral properties $ (8,191) $ (6,087) $(16,664) $(14,740)
Reclassification of mineral
properties from construction
in progress $ - $ 3,564 $ - $ 3,564
Decrease in resettlement
liabilities (335) (8,631) (556) (7,778)
Non-cash depreciation and
disposal capitalized 851 101 963 232
Stock based compensation
capitalized 296 215 593 573
----------------------------------------------------------------------------
Development and exploration
expenditures per cash flow
statement $ (7,379) $(10,838) $(15,664) $(18,149)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Cash and cash equivalents is
comprised of:
Cash $ 7,115 $ 2,119 $ 7,115 $ 2,119
Short-term investments (less
than 90 days) -
weighted average interest of
0.19% (2009 - 0.44%) 85,536 87,906 85,536 87,906
----------------------------------------------------------------------------
$ 92,651 $ 90,025 $ 92,651 $ 90,025
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. Reclassification of Comparative Figures
Certain comparative figures have been reclassified to conform to the current
period's presentation.
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