Gabriel Resources Ltd.: Second Quarter Report


TORONTO, CANADA--(Marketwired - Aug. 1, 2014) - Gabriel Resources Ltd. ("Gabriel" or the "Company") (GBU.TO) announces the publication of its Second Quarter Financial Statements and Management's Discussion and Analysis Report for the period ended June 30, 2014.


Capitalised terms used in this summary section are defined in "Further Information" below.

  • Following the European Parliamentary elections of May 2014, political activities in Romania are currently focused on the November 2014 Presidential elections. Any key decisions in respect of permitting of the Project are therefore likely to be deferred until the outcome of the Presidential elections and the resulting political changes are completed.

  • Further TAC meetings were held in April and July 2014, however these were inconclusive on next steps for the TAC to recommend a position on the environmental assessment of the Project.

  • Given the continued political changes in Romania and the lack of clarity regarding the TAC review, the outlook in respect of approval of the environmental impact assessment and issuance of an environmental permit remains uncertain at this time. This will require a constructive and transparent dialogue with the Government regarding the necessary steps for completion of various permitting processes of the Project.

  • Repeated delays by the Government to properly address the assessment and permitting procedures for the Project necessitated the Company to reduce its cost base, which included the termination of 80 per cent of the employment contracts of RMGC in May 2014.

  • On May 30, 2014 the Company completed a Private Placement with a number of existing shareholders to raise aggregate gross proceeds of $35.0 million.

  • $58.0 million of cash and cash equivalents were held as at June 30, 2014.

Jonathan Henry, Gabriel's President and Chief Executive Officer, stated:

"The forthcoming Presidential elections, to be held in November this year, once again allow senior politicians to address the importance of the resource industry in Romania and the need for projects such as Roşia Montană to be developed in an environmentally safe and strategic way so that Romania can become a leading gold producer in Europe. The Company remains fully committed to constructing and operating a mine at Roşia Montană but this requires strong political will in order to proceed with the Project. Until such political will and tangible progress becomes evident, the Company continues to reduce its overhead costs and to look for ways to move the Project forward."

Further information and commentary on the operations and results in the second quarter of 2014, together with events anticipated in the short term, is given below. The Company has filed its Unaudited Condensed Interim Consolidated Financial Statements and Management's Discussion & Analysis on SEDAR at and each is available for review on the Company's website at

Further Information

Financial Performance

  • The net profit for the second quarter of 2014 was $0.7 million.

Liquidity and Capital Resources

  • Cash and cash equivalents at June 30, 2014 amounted to $58.0 million.

  • On May 30, 2014 the Company completed a private placement with a number of existing shareholders (the "Private Placement"). A total of 35,000 units were issued at a price of $1,000 per unit to raise aggregate gross proceeds of $35.0 million. Each unit consists of:

    • $1,000 principal amount of convertible, subordinated, unsecured notes with a coupon of 8% (the "Notes"). The Notes mature on June 30, 2019 and are convertible at any point prior to maturity at the option of the holder, into common shares of the Company at a conversion price of $1.255 per common share. Interest on the Notes is payable semi-annually commencing December 2014;

    • 398 common share purchase warrants (the "Warrants"), which entitle the holder to one common share of the Company at a price of $1.674 at any time prior to June 30, 2019; and

    • one arbitration value right ("AVR"), which will entitle the holder, subject to certain limitations and exclusions, to a pro-rata proportion of up to 5% (capped at an aggregate of $130 million) of any monies received by the Group pursuant to any settlement or arbitral awards irrevocably made in favour of the Group if bi-lateral investment treaty proceedings are instituted before June 30, 2019. The Company retains absolute discretion on whether to institute arbitration proceedings and if an arbitration filing is made, whether to settle or withdraw such filing, including the terms of any settlement or withdrawal.

  • In 2014 the Company has continued with its underlying cost containment to preserve capital until such time as the Government moves ahead with permitting the Roşia Montană gold and silver project (the "Project"). The most significant element of this has been the decision to terminate the employment contracts of approximately 400 employees at Roşia Montana Gold Corporaton ("RMGC"), effective Q2 2014. There are total associated severance payments of approximately $2.6 million, of which approximately fifty per cent was paid in Q2 2014 with the remainder payable in Q4 2014.

  • The Company's average monthly net cash usage during Q2 2014 was $2.6 million (2013 full year average was $3.9 million, 2012: $4.9 million). Further, excluding a reduction in working capital and the RMGC severance payments, the Company's average monthly net cash usage during Q2 2014 was $2.0 million.

Capital Cost

  • Including interest, financing and corporate costs, the Company estimates the capital required to bring the Project into production and to a position of positive cash flow is approximately US$1.5 billion.

Political Environment

  • In March 2014, the Democratic Union of Hungarians in Romania ("UDMR") joined the coalition alliance of the Social Democrat party ("PSD"), the Conservative Party ("PC") and the National Union for the Progress of Romania ("UNPR") that made up the Government of Romania ("Government") led by Prime Minister Victor Ponta, following the withdrawal from Government of the National Liberal party ("PNL"). The UDMR was allocated certain ministerial and state secretarial offices, including, of particular relevance to the Project, the Ministries of Environment and Culture.

  • Political activities in Romania in the opening months of 2014 were focused on the European Parliamentary elections which took place at the end of May. The outcome of these elections was favourable for the PSD. The PNL fared less well, ultimately followed by the resignation of its leader, Crin Antonescu and the announcement of the "Christian Liberal Alliance", an initial alliance with the Liberal Democrat party ("PDL") for the Presidential elections that are to be held in November 2014 (to be followed by a full merger of the centre-right parties in 2015).

  • The political instability and continual changes to the constituent parties in the Government, together with the failed legislative initiatives of 2013, including the Special Draft Law noted below, and a revised Mining Law, have resulted in a lack of transparency in the foreseeable process for permitting the Project during 2014.

  • Looking to the immediate future, the political focus is firmly on the Presidential elections. Candidates include Prime Minister Ponta and Kelemen Hunor, leader of the UDMR and until recently Minister of Culture in the Government prior to his resignation to concentrate on UDMR political strategy. Any key decisions in respect of permitting of the Project are therefore likely to be deferred until the outcome of the Presidential elections and the resulting political changes are completed.

  • In light of the current situation, and the repeated delays of the Government to properly address the assessment and permitting procedures for the Project, a thorough review of all activities associated with the development of the Project has been undertaken, with a goal of further reducing expenditures to ensure the Company remains financially strong, while maintaining, as far as possible, all existing licenses and permits in good standing.

  • As noted above, following such review, and subsequent consultation with all relevant stakeholders, during the second quarter of 2014, approximately 80 per cent of the employment contracts of RMGC employees were terminated.

Special Draft Law in respect of the Project

  • In August 2013, the Government approved and issued a draft law "on certain measures related to the exploitation of the gold-silver deposits from Roşia Montană and stimulation and facilitation of mining development in Romania" ("Special Draft Law"). 

  • Parliament established a Special Joint Committee of the Senate and of the Chamber of Deputies ("Special Committee") to analyse the Special Draft Law which, on November 11, 2013 published its report (the "Report"), and voted in favour of a recommendation for the rejection of the Special Draft Law. The Report did not propose acceptance or rejection of the Project by the Parliament, notwithstanding that numerous and wide-ranging conclusions and recommendations were included in the Report.

  • On November 19, 2013 the Senate rejected the Special Draft Law, adopting the Report drawn-up by the Special Committee and on June 3, 2014 the Chamber of Deputies voted in line with the Senate. Therefore the Special Draft Law has now been definitively rejected by Parliament.

Environmental Permit

  • Government approval of the Environmental Permit ("EP") is pivotal to the future construction and operational permitting progress of the Project. A key factor in the Government decision is the recommendation of the Technical Assessment Committee ("TAC") of the Ministry of Environment and Climate Change ("MoE").

  • During 2013, there were four meetings of the TAC with the last of these meetings held on July 26, 2013. At that meeting, it was the Company's understanding that the TAC had completed all technical review aspects of the Environmental Impact Assessment ("EIA") process and was close to being in a position to issue a recommendation on the issuance of the EP. However, the Report appears to have introduced further delay to the TAC process.

  • A number of the recommendations in the Report, particularly relating to the preservation of cultural heritage, the risks of cyanide use, the utilization of alternative technologies for gold and silver recovery and the safety of the tailings management facility have already been addressed extensively by the competent authorities or institutions charged with assessing the Project, such as the TAC.

  • The Company notes that since his appointment as the Minister of Environment in March 2014, Mr. Attila Korodi has been reported as saying on several occasions that there could be a number of studies arising from the Report that need to be initiated by his Ministry and that two recent legal cases that upheld suspending or cancelling certain permits obtained for the Project may cause further delay.

  • After an eight month void, a meeting of the TAC was convened on April 2, 2014, primarily as an opportunity to consider environmental issues raised in the Report. RMGC noted its observations at that meeting, and subsequently in writing to the MoE, that all material environmental issues arising in the Report had been extensively considered at prior TAC meetings and, toits understanding, concluded upon by the TAC. No formal conclusions were noted at the meeting.

  • Following an additional three months delay, on July 24, 2014 a further TAC meeting was held. The principle agenda item was to discuss the MoE's indicated requirement for, and the related scope of, a further study on the permeability of the Project's tailings management facility, as recommended in the Report. The meeting finished without conclusion and the TAC members were tasked to consider further their respective positions on the need for and scope of the study. Amongst other matters, RMGC has submitted that a supplementary study at this stage is not necessary and its initiation by the MoE contravenes the environmental impact assessment procedure as regulated by law.

  • The Company remains confident that it will comply with, and in some aspects exceed, its obligations under EU and Romanian laws for environmental protection and guarantees. However, RMGC awaits formal feedback and guidance from the Government, the MoE and the TAC as to whether further meetings or documentation will be requested before the TAC is in a position to issue a recommendation to the Government.

  • Until such time as RMGC can initiate additional, meaningful dialogue with the relevant ministries of the Government and the TAC regarding the completion of environmental permitting and any proposals for further legislative processes through Parliament which may affect the Project, the Company remains unable to provide guidance on the timeframes to a final decision on environmental permitting of the Project from the TAC or the MoE or approval of the EP by the Government. Furthermore, Gabriel cannot provide any assurances or estimates of the likely time required to address and resolve matters such as those raised in the Report or as to the impact of recent events upon the permitting progress of the Project. 

Other Permitting

  • Since 2002, when the local council of Roşia Montană passed resolutions approving a zonal urbanism plan designating an industrial zone under the footprint of the proposed new mine at Roşia Montană ("2002 PUZ"), the Company has updated the design of the proposed mine, reduced the size of the footprint, expanded the protected zones and incorporated a number of additional changes to the proposed mine, all arising as a result of public consultation. Accordingly, in 2006, an amended PUZ for the industrial development area of the Project was initiated, and such PUZ was further updated in 2010 ("Industrial Area PUZ"). It is currently proposed that, subject to the receipt of the relevant approvals, the Industrial Area PUZ will replace the 2002 PUZ.

  • The Industrial Area PUZ is at an advanced stage, albeit there was limited progress in 2013. As at March 31, 2014, RMGC had obtained 19 out of the total number of 23 endorsements necessary for the approval of such PUZ. However, in April 2014, pursuant to a legal challenge launched by non-governmental organisations ("NGOs") opposing the Project, one of the 19 endorsements was cancelled by court order, as described further below. RMGC, together with the relevant authorities, has submitted an appeal against this decision. After obtaining all the necessary endorsements, the final approval for the Industrial Area PUZ will be required to be given by the local councils of Roşia Montană, Abrud and Bucium.

  • In addition, in 2009, the local council of Roşia Montană initiated the process for the zonal urbanism plan for the Roşia Montană historical protected area ("Historical Area PUZ") and, as at the date of this document, 10 out of the total of 13 endorsements necessary for its final approval have been obtained.

  • The final approval of the PUZs follows after a series of endorsements and approvals from various authorities. There can be no assurance that the outstanding endorsements will be obtained in a timely fashion, that additional endorsements and approvals will not be required or that existing endorsements will not be the subject of legal challenge in the Romanian courts.

  • While the Company understands there is no formal link between the receipt of remaining endorsements for the Industrial Area PUZ, the Historical Area PUZ and the EIA review process, it believes that these respective remaining endorsements are likely to be obtained on, or after, the issuance of the EP.

  • There are a number of general urbanism plans and accompanying local regulations ("PUGs") relevant to the Project including the PUG for the Roşia Montană commune (approved in 2002); the PUG for Abrud (approved in 2002); the PUG for Campeni (approved in 2009); and the PUG for Bucium (approved in 1999). According to Romanian legislation, PUGs are required to be updated every ten years by the respective local council.

  • During 2012 the validity of the existing PUGs for Roşia Montană and Abrud were extended, for two years pursuant to local council decisions. In July 2014 the existing PUGs for Roşia Montană and Abrud were extended, pending the process for obtaining new PUGs, for a maximum term of three years. The processes for local councils to obtain new PUGs for Roşia Montană, Abrud and Bucium communes are ongoing and are subject to formal approval processes, including public consultation.

Archaeology and Preservation of Cultural Heritage

  • An archaeological review of the historical mining activity at Roşia Montană is a critical step in the granting of the construction permits to build the Project. A number of archaeological discharge certificates are required for various parts of the proposed Project footprint. In order to obtain such discharge certificates, the Company has conducted an extensive program of exploratory and preventative archaeology in order to ensure that valuable historical relics in the area are uncovered and preserved.

  • In July 2011, the Alba County Directorate for Culture and National Patrimony issued a new Archaeological Discharge Certificate ("ADC") to RMGC for the Carnic open-pit, which complemented those it already held for the Cetate and Jig open-pits. In January 2014, the Suceava Tribunal admitted a request for the temporary suspension of the ADC for the Carnic open pit and in April 2014 a ruling of the Suceava Court of Appeal rejected an appeal against the January 2014 decision. The ruling is irrevocable.


  • Key developments that have occurred in legal proceedings concerning the Project in the second quarter of 2014 and certain upcoming court hearings in the third quarter of 2014 are as follows:

    • As previously reported, on April 1, 2013 the Bucharest Tribunal rejected a claim brought by an NGO which sought the disclosure of certain documents pertaining to the Project's mining license. On October 2, 2013, the complainant NGO submitted an appeal against this decision to the Bucharest Court of Appeal. The appeal, which was rejected by Bucharest Court of Appeal on June 6, 2014, is final and cannot be appealed further.

    • The next hearing of a claim filed by three NGOs seeking the annulment of the Archaeological Discharge Certificate ("ADC") for the Carnic open-pit is scheduled to be heard by the Buzau Tribunal on September 8, 2014. An irrevocable decision on the merits of this case may not be issued for several months and possibly into 2015. This action follows a decision of the Suceava Court of Appeal on April 15, 2014 which upheld an earlier court ruling that suspended the ADC. The effect of such suspension is temporary, pending the irrevocable conclusion of the aforementioned annulment case.

    • On April 15, 2014, the Covasna Tribunal admitted a request filed by two NGOs for the annulment of the Strategic Environmental Assessment ("SEA") endorsement, which was issued by the Regional Agency for Environmental Protection of Sibiu in March 2011 in respect of the Industrial Area PUZ. The SEA is one of a number of endorsements required for the Industrial Area PUZ. The ruling is not irrevocable and is the subject of an appeal by RMGC and others to the Brasov Court of Appeal, the next hearing of which is scheduled to be heard on September 18, 2014.

    • On April 16, 2014, the Bacau Tribunal postponed the hearing of a claim initiated by two NGOs seeking the suspension of the SEA following the submission by the claimants' lawyers of the decision of the Covasna Tribunal on April 15, 2014 (see above). The next hearing of this suspension claim is scheduled for September 10, 2014.

    • The first substantive hearing of a claim registered by three NGOs seeking the annulment of UC-47 is scheduled to be heard the Bistrita Tribunal on September 11, 2014.

  • Due to the inherent uncertainties of the judicial process, the Company is unable to predict the ultimate outcome or impact, if any, with respect to matters challenged in the Romanian courts. In all circumstances, the Company and/or RMGC will vigorously maintain its legal rights and will continue to work with local, county and federal authorities to ensure the Project receives a fair and timely evaluation in accordance with Romanian and European Union laws. However, there can be no assurance that any claims will be resolved in favour of the Company, RMGC or the Project. The implications of a negative court ruling will only be known once such a decision is issued formally by the relevant Court and the position of the Government is assessed, and may have a material adverse effect on the timing and/or outcome of the permitting process for the Project and the Company's financial condition.

Other Legal Proceedings

  • In November 2013, RMGC was informed of an investigation by the Ploiesti Public Prosecutor's Office ("PPPO") into alleged tax evasion and money laundering on the part of the principals/key shareholder(s) of a group of companies including Kadok Interprest LLC ("Kadok Group"). The PPPO has extended its investigation of the Kadok Group to at least 100 other companies, including RMGC, that had entered into commercial business relationships with the Kadok Group.

  • RMGC is challenging the legality of a restriction order on the equivalent of $0.3 million held in one of RMGC's Romanian bank accounts pending the outcome of the PPPO investigation. The restricted amount represents the value of the goods procured by RMGC from the Kadok Group during 2012, all of which were received and paid for in full by RMGC, including related sales tax. RMGC no longer has any business relationship with Kadok Group. RMGC is continuing to cooperate fully with the PPPO and to provide evidence to the PPPO of its legitimate business dealings with the Kadok Group.


  • The Company's key objectives in the short term include to:
    • Continue efforts to engage formally with the Government and its agencies for permitting the Project;
    • Continue to highlight the key economic, environmental, social and cultural benefits brought to Romania by the Project in order to demonstrate the merits of the Project to all stakeholders;
    • Understand and progress to finalization and completion the measures required to obtain approval of the EP;
    • Continue appropriate stewardship of cash resources; and
    • Maximize shareholder value, while optimizing benefits of the Project to all stakeholders.

About Gabriel

Gabriel is a Canadian TSX-listed resource company focused on permitting and developing its world-class Roşia Montană gold and silver project. The exploitation license for the Project, the largest undeveloped gold deposit in Europe, is held exclusively by Roşia Montană Gold Corporation, a Romanian company in which Gabriel currently owns an 80.69 percent equity interest, with the 19.31 percent balance held by Minvest Roşia Montană S.A., a Romanian state-owned mining enterprise. Gabriel and RMGC are committed to responsible mining and sustainable development in the communities in which they operate. The Project is anticipated to bring over US$24 billion (at US$1,200/oz gold) to Romania as potential direct and indirect contribution to GDP. The Project will generate thousands of employment opportunities. Gabriel intends to build a state-of-the-art mine using best available techniques and implementing the highest environmental standards whilst preserving local and national cultural heritage in Romania.

For more information please visit the Company's website at

Forward-looking Statements

This press release contains "forward-looking information" (also referred to as "forward-looking statements") within the meaning of applicable Canadian securities legislation. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans and allowing investors and others to get a better understanding of Gabriel's operating environment.

These forward-looking statements may include statements with respect to the future financial or operating performance of the Company and its subsidiaries, the perceived merit of properties, exploration results and budgets, mineral reserves and mineral resources estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, including the Company's plans and expectations relating to the Project, the anticipated outcomes of the application processes for permits, endorsements and licenses, including but not limited to the ongoing review of the environmental impact assessment, required for the Project, or other statements that are not statements of fact.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as "expects", "is expected", "anticipates", "believes", "plans", "projects", "estimates", "assumes", "intends", "strategy", "goals", "objectives", "potential", "possible" or variations thereof or stating that certain actions, events, conditions or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of fact and may be forward-looking statements.

Forward-looking statements are based upon certain assumptions and other important factors regarding present and future business strategies and the environment in which the Company will operate in the future, which could prove to be significantly incorrect.

Forward-looking statements are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company and/or its subsidiaries to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, without limitation, the political and economic risks of operating in Romania, including those related to controls, regulations, political or economic developments and government instability in Romania; uncertainty of estimates of capital costs, sustaining capital costs, operating costs, production and economic returns; permitting risks, including the risk that permits and governmental approvals necessary to develop and operate the Project will not be available on a timely basis or at all, risks of maintaining the validity and enforceability of necessary permits and risks of replacing expired/cancelled permits and approvals; uncertainties relating to the assumptions underlying the Company's mineral resource and mineral reserve estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs; risk related to the acquisition of all necessary surface rights for the development of the Project, including the risk that the Company may not acquire all such rights, or acquire such rights at acceptable prices; risks related to the Company's ability to commence production and generate material revenues or obtain adequate financing for its planned exploration and development activities; risks of defective title to mineral property, including the risk of successful legal challenges to the validity of the Company's exploitation license; risks related to the Company's ability to finance the development of the Project through external financing, strategic alliances, or otherwise; litigation risks, including the uncertainties inherent in current and future legal challenges relating to the Project; risks related to the availability of infrastructure, water, energy and other inputs;
uncertainty inherent in litigation including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges and the possibility that decisions may be reversed on appeal; uncertainties relating to prices for energy inputs, labour, material costs, supplies and services (including, but not limited to, labour, cement, steel, capital equipment, reagents and fuel); risks related to changes in law and regulatory requirements, including environmental regulation; risks related to the subjectivity of estimating mineral resources and mineral reserves and the reliance on available data and assumptions and judgments used in interpretation of such data; risks related to currency fluctuations, particularly in the value of the United States dollar and/or the Canadian dollar relative to each other and to the Euro and the Romanian leu; risks related to the future market prices of gold and silver and other mineral and commodity price fluctuations, and volatility in metal prices; risks related to the need for reclamation activities on the Company's properties and uncertainty of cost estimates related thereto; risks associated with maintaining substantial levels of indebtedness, including potential financial constraints on operations; dependence on cooperation of state-owned joint venture partner in the development of the Project; risks related to the loss of key employees and the Company's ability to attract and retain qualified management and technical personnel; risks related to market events and volatility of global and local economic climate; taxation, including change in tax laws and interpretations of tax laws; mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labour disputes or other unanticipated difficulties with or interruptions in development, construction or production; risks related to opposition to the Project from non-governmental organizations or civil society; share capital dilution and share price volatility; and increased competition in the mining industry.

Forward-looking information contained herein is made as of the date of this press release. There can be no assurance that forward-looking information or statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information or statements. Accordingly, for the reasons set forth above, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements, except in accordance with applicable securities laws.

Gabriel Resources Ltd.
Jonathan Henry
President and Chief Executive Officer
Mobile: +44 7798 801783

Gabriel Resources Ltd.
Max Vaughan
Chief Financial Officer
Mobile: +44 7823 885503

Bobby Morse
+44 20 7466 5000

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