Gabriel Resources Ltd.
TSX : GBU

Gabriel Resources Ltd.

November 06, 2007 16:05 ET

Gabriel Resources Ltd.: Third Quarter Report

TORONTO, ONTARIO--(Marketwire - Nov. 6, 2007) - Gabriel Resources Ltd. (TSX:GBU) -

Highlights

"The third quarter was a difficult one for us," said Alan R. Hill, President and Chief Executive Officer. "With the completion of the Technical Assessment Committee review of our Rosia Montana EIA nearly in sight, the Romanian Ministry of the Environment arbitrarily suspended the review process, citing arguments with absolutely no basis in law." Hill affirmed that the Company will use "all resources at its disposal" to reverse the Ministry's arbitrary action and restart the TAC and continue the EIA process, terming it a "test of Romania's commitment to rule of law."

Financial performance

- Third quarter net loss was $6.8 million, or $0.03 per share. Year-to-date net loss was $15.2 million, or $0.06 per share.

- A total of $32.9 million was spent on our development projects during the quarter, $72.1 million for the first 9 months.

- Unrealized foreign exchange losses on US dollar cash balances held to finance planned future US dollar development activities were $6.6 million in the quarter, while year-to-date they were $10.4 million which accounted for a majority of the net loss.

Liquidity and capital resources

- Cash and cash equivalents and short-term investments at September 30, 2007 totaled $177 million.

- Working capital at September 30, 2007 totaled $147.3 million.

- Project related expenditures are expected to decline in the fourth quarter of 2007, as the Company places activities on hold in response to the arbitrary suspension of the EIA review process by the Romanian Environment Minister.

- Project financing discussions with traditional lenders have advanced as far as they can at this time. No further discussion can be held until the EIA process has been restarted.

Rosia Montana Project Development

Overview

- In September, the Romanian Minister of Environment and Sustainable Development ("MESD"), who had often expressed his opposition to the Project even as he pledged to support the legal review process, unilaterally suspended the Technical Assessment Committee ("TAC") meetings, asserting a linkage between a minor procedural certificate and the EIA process that lacks any basis in law.

- The Company is focused on doing everything within its power to restart the permitting process, as well as, ensuring that all licenses and approvals are maintained in good standing.

- The Project has long faced opposition from a group of foreign funded NGO's, certain Romanian organizations and the Hungarian Government. Over the past six months, however, the nature and magnitude of the opposition has changed significantly.

- Six months ago, Romania's current minority government opposed a draft parliamentary "private members bill" to institute a ban on cyanide use in mining, taking a position supportive of the Project and arguing the merits of mining conducted to high EU standards. Eight weeks later, the government reversed its position - changing its view to support the bill to ban cyanide in the mining industry, without explanation.

- In light of these recent events, management is reviewing all activities to reduce expenditures to ensure the Company remains financially strong.

Romania's Political Uncertainty

- It is becoming increasingly likely that a change in government will be required to restart the permitting process.

- A new minority government was formed in April, representing approximately 23 percent of the Parliament, under the Prime Minister with support from the Opposition. Romania's UDMR party - which relies on Hungarian ethnic minorities in Romania for electoral support, espouses a platform for autonomy for the Transylvania region in which the Rosia Montana Project is located - holds four ministries, including the Ministry of the Environment and Sustainable Development.

- A censure motion to bring down the government was filed in late September by an opposition party that had been supporting the minority government. For the motion to succeed, it required 50 percent of Parliament and Senate plus one vote which totals 232 required votes. The censure motion received 220 votes in favour of the censure (152 against) failing by 12 votes, as 20 members of the opposition party that filed the censure motion voted against the motion.

- Another opposition party has prepared a new censure motion listing the minority government's abuses of power, corruption and incompetence, but is not expected to file the motion in Parliament until after the country's EU elections slated for the end of November.

Environmental/Permitting

- Significant progress had been made this year until the MESD's decision. The Technical Assessment Committee ("TAC") held meetings on July 10, July 19 and August 9. The topic of those meetings included a general overview of the project, the technologies used, our plans for dealing with waste material and potential project impacts. Those topics are covered under the first four chapters of our EIA and represent the bulk of the EIA.

- The Company also participated in intergovernmental meetings between the Romanian and Hungarian Governments on July 30 and 31, 2007, as required under the Espoo Convention. The Hungarian Government has requested additional meetings as their experts arrived at the meeting with faulty data and, as a result, based their concerns on erroneous potential project impacts.

- On September 12, 2007 the Company received a letter from the Romanian Ministry of Environment and Sustainable Development ("MESD") indicating that the review process for the Environmental Impact Assessment ("EIA") for the Rosia Montana Project had been suspended. MESD based its unilateral administrative action on a court challenge by Alburnus Maior, an NGO opposing the project, to the validity of an urbanism certificate wholly unrelated to the EIA process.

- On September 21, 2007, the Company filed an Administrative Complaint against the Romanian MESD regarding its decision to suspend the TAC review process of our EIA. The MESD responded to the Administrative Complaint on October 19, 2007. The fourteen page response did not address the complaint. As a result, the Company intends to file a lawsuit.

- The MESD not only suspended our permitting process but has withheld our dam safety permits. Our dam safety permits were approved in the spring along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee in the spring have now received their necessary permits, we continue to wait final signature by the MESD.

- The Company plans to file an Administrative Complaint with the MESD regarding the withholding of the dam safety permits.

- The suspension of the EIA process has effectively stalled most of the other permits and approvals.

Surface Rights

- Construction of the Alba Iulia resettlement site began in July. Infrastructure is expected to be completed this winter, while construction of new homes began in October. It is expected to take approximately 18 months to complete the 100 homes at the Alba Iulia resettlement site.

- During the third quarter, the access road to Piatra Alba was completed and handed over to the local administration and tenders for construction of phase one of the new village were received. Final construction permits are expected to be issued this winter.

- As of October 31, 2007 the Company owns or has options on approximately 73 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, which are expected this winter, it would increase our ownership to approximately 80 percent of the three zones of the Project demonstrating the strong local support for the project.

- Ultimately, the Company's ability to obtain construction permits is predicated on securing the necessary surface rights.

Archaeology

- The opposition to our project has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. On July 11, 2006 we - along with the Minister of Culture and Religious Affairs - won our appeal when the Romanian Supreme Court (the "Court") decided that the series of lower court decisions that resulted in the annulment of the archaeological discharge certificate no. 4 ("Certificate No. 4") was not conducted properly, and as a result, overturned the previous annulment. The Supreme Court referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. The retrial, which began in October 2006, continues.

- The opposition has also challenged the issuance of archaeological discharge certificate no. 5 ("Certificate No. 5") on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts.

Rosia Montana Project Timeline

- The Company intends to use all means at its disposal to get the TAC process back on track, even as it continues to evaluate the implications associated with a prolonged delay. Once the TAC process recommences and in the absence of any other extraordinary events, Gabriel anticipates that it would take approximately 6 months to:



-- complete the EIA approval process;

-- complete the purchase of the outstanding properties;

-- receive all other permits and approvals, including construction
permits; and

-- update control estimate and complete financing.


- Construction of the mine would then take approximately 24 months.

- 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.

Expected Financing Plan

- Based on a definitive feasibility study completed in early 2006, the cost to construct the project was estimated at US$638 million. The Company has placed the updated cost estimate, referred to as the control estimate, on hold until the EIA process is restarted. While the estimate is not complete, costs are trending higher in line with trends witnessed throughout the industry.

- The estimated cost to develop the Rosia Montana project - including capital, interest, financing and corporate costs - was approximately US$750 million, which is subject to change once the control estimate is completed.

For more details, please see the third quarter Management Discussion and Analysis which follows. The Company will host its third quarter webcast and conference call on Tuesday, November 6th, 2007 at 5:30pm EST.

Call in details:

From North America 888 680 0879 / International 617 213 4856 Participation code - 81222656.

About Gabriel

Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project.

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three-and-nine-months ended September 30, 2007 and 2006. The MD&A should be read in conjunction with the unaudited consolidated financial statements and notes thereto ("Statements") of Gabriel Resources Ltd. ("Gabriel" or the "Company") as at and for the three-and-nine-months-ended September 30, 2007 and 2006, as well as the audited Consolidated Financial Statements of the Company as at and for the year ended December 31, 2006 including the notes thereto. The Company's Consolidated Financial Statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").

All amounts included in the MD&A are in Canadian dollars, unless otherwise specified. This report is dates as of November 6, 2007. Readers are encouraged to read the Company's Annual Information Form dated March 5, 2007, which can be reviewed on the SEDAR website (www.sedar.com).

Overview

Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is engaged in the exploration and development of mineral properties in Romania and is presently developing its 80% owned Rosia Montana gold project ("Project").

Our vision is to create value for all of our stakeholders from responsible mining. Our mission is to build Rosia Montana and, as a result, to be a catalyst as Romania enters its EU era for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, and operations and reclamation based on Best Available Techniques - all in the service of sustainable development. Whether the issue is corporate governance, community development, environmental responsibility or operational practices, we pledge to do it right.

As discussed in previous reports, the Project has long faced opposition from a group of foreign-funded NGO's, certain Romanian organizations and the Hungarian Government. The media campaign launched by the opposition has been aimed at increasing the negative perception of the Project by the general public. Over the past six months, however, the nature and magnitude of the opposition has changed dramatically. Six months ago, Romania's current minority government opposed a draft parliamentary "private members bill" to institute a ban on cyanide use in mining, taking a position supportive of the Project and arguing the merits of mining conducted to high EU standards. Eight weeks later, the government changed its view to support the bill to ban cyanide in the mining industry, without explanation. In September, the Romanian Minister of Environment and Sustainable Development, who had often expressed his opposition to the Project even as he pledged to support the legal review process, announced it was impossible to continue the EIA procedure as he suspended the Technical Assessment Committee ("TAC") meetings, asserting a linkage between a minor procedural certificate and the EIA process that lacks any basis in law.

The Company is focused on doing everything within its power to restart the permitting process, as well as, ensure that all licenses and approvals are maintained in good standing.

In light of these recent events, management is reviewing all activities to reduce expenditures to ensure the Company remains financially strong.

Key Issues

Romania's Political Uncertainty

Romania became a full member of the European Union on January 1, 2007. Since accession, the country's ruling coalition has disintegrated, with the departure of two of the parties partnered in government, the first in January and the second in April, while open disputes between elected government officials dominate the political agenda. A new minority government, representing approximately 23 percent of the Parliament, was formed in April, under the Prime Minister but it requires support from the Opposition to pass legislation. The UDMR party - which relies on Hungarian ethnic minorities in Romania for electoral support espouses a platform for autonomy for the Transylvania region in which the Rosia Montana Project is located - holds four ministries, including the Ministry of the Environment and Sustainable Development. The current minority government has seen several resignations as ministers were charged with corruption, while other officials from the governing party have open files with Romania's anti-fraud investigators.

Adding to Romania's political ferment, President Traian Basescu was impeached in April by Parliament and a referendum took place on May 19, 2007 to determine his fate. The President received approximately 75% support for his reinstatement. A censure motion to bring down the government was filed in late September by the opposition party supporting the minority government. For the motion to succeed, it required 50 percent of the Parliament and Senate plus one vote which totals 232 required votes. The motion received 220 votes in favour of the censure (152 against) failing by 12 votes, as 20 members of the opposition party that filed the censure motion voted against the motion. As October ends, another opposition party has prepared a new censure motion listing the minority government's abuses of power, corruption and incompetence, but is not expected to file the motion in Parliament until after the country's EU elections slated for the end of November. Another test of confidence will be the passage of the 2008 budget scheduled for December. According to the Romanian constitution, failure to pass the budget would cause the government to be dissolved.

Parliamentary elections are scheduled for fall 2008; however, if the current coalition were to fall, elections could be accelerated in the event opposition parties were unable to agree on a new government.

It is becoming increasingly likely that a change in government will be required to restart the permitting process.

Certain members of the Romanian Government are being pressured by groups opposed to the development of the project to slow or stop the Rosia Montana Project. In addition to initiating the court challenge of our urbanism certificate, the opposition has orchestrated the tabling of a private members bill in the Romanian Parliament to ban the use of cyanide in Romania. This proposed bill is scheduled to be introduced in the fall Parliament session. This is the second time in two years that a private members bill has been brought forward to ban cyanide. The previous bill was not supported by the Romanian Government and was rejected. The bill presently pending was initially opposed by the minority Government when introduced in April 2007, which then changed its position without explanation to support the private members bill in June. As the current Government represents only a parliamentary minority, government support is discounted in a body where it appears a majority of legislators support a strong Romanian mining industry.

Before the bill can be introduced into Parliament, three commissions must review it. The legal commission has indicated the proposed bill poses no constitutional concerns. The environmental commission rejected the proposed bill. The industry commission has not completed its review. The commissions reviewing the draft ban are comprised of members of Parliament in proportion to each parties overall representation in Parliament.

Since the commission for environment's rejection of the proposed bill, it has become evident that the bill does not have Parliamentary support.

Environmental/Permitting

On September 12, 2007 the Company received a letter from the Romanian Ministry of Environment and Sustainable Development ("MESD") indicating that the review process for the Environmental Impact Assessment ("EIA") for the Rosia Montana Project had been suspended. MESD based its action on a court challenge by Alburnus Maior, an NGO opposing the Project, to the validity of an urbanism certificate wholly unrelated to the EIA process.

An urbanism certificate is an information document detailing the legal, economic and technical regime for any project, as well as the list of documents needed to apply for a construction permit. It is not a permit or approval and it does not authorize the undertaking of any activities. Anyone is entitled to ask for an urbanism certificate and the relevant local council is obligated to provide a copy to anyone who asks. Tens of thousands of these documents are provided each year across Romania as a matter of routine. To the Company's knowledge, only one - the Company's urbanism certificate - has been challenged in a Romanian court.

The Company's position, supported by legal counsel, is that an urbanism certificate is not required for the TAC review process. On September 21, 2007, the Company filed an Administrative Complaint against the Romanian MESD regarding its decision to suspend the TAC review process of our EIA. The MESD had 30 days to respond to the Administrative Complaint, after which the Company has the right to commence litigation. The MESD responded to the Administrative Complaint on October 19, 2007. The fourteen page response did not address the complaint. As a result, the Company intends to file a lawsuit.

The MESD's actions to contravene the law stopped the EIA process. Significant progress had been made this year until the MESD's decision.

During the second quarter, the Company responded to the official list of 5,610 questions and 93 statements received from the Romanian Government judged to require a response, which was in response to the public consultation process following the Environmental Impact Assessment ("EIA") filing in May 2006.

As required under Romanian law, the Romanian Government set up the Technical Assessment Committee ("TAC"), comprised of government officials from the various Ministries of the Romanian Government involved in the permitting process to review the project, the EIA and our responses to the questions asked during the public consultation. The Company met with the TAC on June 26, 2007, within the 40 business day time frame set out under Romanian law. The TAC advised the Company that because of the large volume of material to review (EIA - 5,000 pages and Annex - 13,000 pages) that more than one meeting would be required. The TAC held meetings on July 10, July 19 and August 9. The topic of those meetings included a general overview of the project, the technologies used, our plans for dealing with waste material and potential project impacts. Those topics are covered under the first four chapters of our EIA and represent the bulk of the EIA. Overall, there are 10 chapters to the EIA, which include Chapter 5 - Assessment of Alternatives, Chapter 6 - Monitoring, Chapter 7 - Risk Cases, Chapter 8 -Description of Difficulties, Chapter 9 - Non Technical Summary and Chapter 10 - Transboundary Impacts. The TAC meetings to date have been very constructive with a thorough technical analysis of the project.

Separately, the Company participated in intergovernmental meetings between the Romanian and Hungarian Governments on July 30 and 31, 2007, as required under the Espoo Convention. The two day meetings covered transboundary impacts in four key areas - ore processing and tailings management, stability of the tailings dam, accidents and risk assessment and water quality modeling. The Hungarian Government has requested additional meetings as their experts arrived at the meetings with faulty data and, as a result, based their concerns on erroneous potential project impacts.

The MESD not only suspended our permitting process but has withheld our dam safety permits. Our dam safety permits were approved in the spring along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee in the spring have now received their necessary permits, we continue to wait final signature by the MESD. The Company plans to file an Administrative Complaint with the MESD regarding the withholding of the dam safety permits which is a required precursor to litigation.

While the EIA is by far the most important project permit, there are a number of other permits and approvals required, such as the zonal urbanistic plans for the industrial and protected areas, the forestry and land use change permits, dam safety permits as well as other permits and approvals that follow the EIA approval, to obtain the construction permit. The processes for each of these permits and approvals is underway in parallel with the EIA review process and are expected to be completed within approximately 60 days of EIA approval. As Gabriel, through Rosia Montana Gold Corporation, is the first company to permit a new mining project under the new European legislation, it is pioneering with the Government of Romania the permitting process. The suspension of the EIA process has stalled most of the other permits and approvals.

Litigation

A number of foreign-funded NGO's, including the Hungarian-registered Alburnus Maior, the Soros Foundation - Romania (formerly Open Society Institute - Romania), the Independent Centre for the Development of Environmental Resources (a "new" NGO formed in 2007 by the members of Alburnus Maior), Terra Mileniul III Foundation and the Center for Legal Resources (working on behalf of Alburnus Maior, with Soros network funding) have initiated a multitude of legal challenges against virtually every local, regional and national Romanian regulatory authority that has the administrative authority to grant permits, authorizations and approvals for any aspect of the exploration and development of the Rosia Montana project. While few of the actions have been successful and most have been frivolous, they include both civil actions and criminal complaints against both the regulatory authorities and individuals within such regulatory authorities; in general, they claim that such regulatory authorities are acting in violation of Romanian laws and ask for cancellation of the permit or approval. Gabriel, through Rosia Montana Gold Corporation (RMGC), has intervened in the majority of these cases in order to ensure that the Romanian courts considering these actions are presented with a legally correct, fair and balanced analysis as to why the various Romanian regulatory authorities' actions are in accordance with the relevant and applicable laws. While we have designed the project to follow all applicable laws to protect against and prevent, as much as possible, potential legal challenges, the misapplication of the rule of law in Romania increases the litigation uncertainty and potential setbacks to our project.

Surface Rights

On October 9, 2006, the Company recommenced purchasing homes in the project area, which is comprised of the industrial zone, the Protected Area and the buffer zone. The focus of management's attention is to acquire the homes in the industrial zone, particularly those homes required for construction that are not already owned by the Company.

As a result of the arbitrary administrative suspension imposed by MESD, and in order to align the Company's activity to the pace of the approval process, management intends to meet with the community to discuss a partial or full shut down of the home purchase program until such time as the EIA process has been restarted.

The pace of property acquisitions accelerated during second quarter 2007 after the Company and the community reached a solution to a surge in the construction of illegal wood structures referred to as "cabins," for which sellers expected additional compensation.

Construction of the Alba Iulia resettlement site began in July. Infrastructure is expected to be completed this winter, while construction of new homes began in October. It is expected to take approximately 18 months to complete the 100 homes at the Alba Iulia resettlement site. Construction of Alba Iulia site will continue despite the MESD's decision to halt the EIA process. During the third quarter, the access road to Piatra Alba was completed and handed over to the local administration and tenders for construction for phase one of the new village were received. Final construction permits are expected to be issued this winter. The timing of commencement of construction of the resettlement site at Piatra Alba is under review.

In addition to the private properties required, the Company needs to acquire properties (about 35% of the project area) 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 well underway.

As of October 31, 2007 the Company owns or has options on approximately 73 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, which are expected this winter, it would increase our ownership to approximately 80 percent of the three zones of the Project, demonstrating strong local support for the project.

Ultimately, the Company's ability to obtain construction permits is predicated on securing the necessary surface rights.

Archaeology

An archaeological review of historic mining activity at Rosia Montana is a critical step in the granting of the construction permit to build the project. An archaeological discharge is required for all of the area under the footprint of the proposed mine. Over the past five years as our program progressed, we have been granted several discharge permits to acknowledge completion of the program.

Here as on other issues, the opposition has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. On July 11, 2006 we -- along with the Minister of Culture and Religious Affairs -- won our appeal when the Romanian Supreme Court (the "Court") decided that the series of lower court decisions that resulted in the annulment of our archaeological discharge certificate no. 4 ("Certificate No. 4") was not conducted properly, and as a result, overturned the previous annulment. Certificate No. 4 relates to the Cirnic pit, one of the two pits required for the first eight years of operations. The Supreme Court referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. The retrial, which began in October 2006, continues. The opposition has also challenged the issuance of archaeological discharge certificate no. 5 ("Certificate No. 5") on grounds similar to their challenge of Certificate No. 4, and this matter is also currently before the Romanian courts. Certificate No. 4 must be reinstated before the Company would be eligible to draw down on senior debt financing.

While to date the opposition's legal efforts have had little success, there can be no assurance that the validity of Certificate No. 4 and Certificate No. 5 will be upheld by the courts and there can be no assurance that other previously obtained discharge certificates will not be challenged. Any successful challenges could negatively impact the Company's development plans, require additional work and re-application for discharge certificates, or result in additional delays and expenses on our part.

Financing

Cash, cash equivalents and short-term investments at September 30, 2007 totaled $177 million. At September 30, 2007, we had $147.3 million in working capital. Our rate of expenditure for project development activities was $33 million during third quarter 2007. This rate is higher than 2006 when we spent $7 million, largely due to the commencement of the acquisition of properties, which began in the fourth quarter of 2006 and ordering of long-lead-time equipment.

The expenditure rate is expected to decline in the fourth quarter of 2007, as the Company places most activities on hold until the EIA process is restarted in response to the arbitrary suspension of the EIA review process by the MESD. The control estimate scheduled for completion during the fourth quarter, has been placed on hold until the EIA process is restarted. No further long-lead-time equipment orders will be placed and installment payments under equipment previously ordered will likely be deferred. Construction of the Alba Iulia resettlement site will continue while the development of the Piatra Alba resettlement site is subject to review. Management is also reviewing whether the home purchase program should be partially or fully shut down, in addition to assessing a reduction in staffing levels. Once the Company receives the construction permit, the nature and rate of expenditure changes significantly as site construction begins.

Project financing discussions with traditional lenders have advanced as far as they can at this time. No further discussions can be held until the EIA process has been restarted. All of the work to date has been to ensure that we can complete a final term sheet for both senior and subordinated debt to coincide with the expected timing of EIA approval. A key condition to accessing the debt facilities will be our progress on surface rights acquisition.

Expected Financing Plan

- The estimated cost to develop the Rosia Montana project - including capital, interest, financing and corporate costs was approximately US$750 million, which is subject to change once the control estimate is completed.

- The Company anticipates financing these costs with approximately 20 percent equity - US$150 million - and 80 percent debt, which could include senior and mezzanine or high yield debt.

- In addition, it is likely that the financing plan may have to include (i) a cost overrun facility, (ii) a financial guarantee (reclamation deposit), or (iii) hedging program if required.

Based on a definitive feasibility study completed in early 2006, the cost to construct the project was estimated at US$638 million. The Company has placed the updated cost estimate, referred to as the control estimate, on hold until the EIA process is restarted. While the estimate is not complete, costs are trending higher in line with trends witnessed throughout the industry. Once the control estimate has been completed, we will have to review our financing plan. While the feasibility study cost estimate to build and operate the project contained contingencies, continued strengthening of currencies against the United States dollar and escalating costs exceed the estimated project contingencies. The control estimate updates the feasibility study based on additional engineering undertaken since the definitive feasibility study was prepared, which provides a higher degree of accuracy including firm vendor bids for equipment, materials and labour, as well as incorporating the Company's actual experience to date in the placing of the long-lead-time equipment orders.

While the mining industry continues to witness capital and operating cost escalation, record high gold prices are more than offsetting the higher costs, resulting in improved project returns.

The Company raised $148.7 million during first quarter of 2007 to bring the total equity raised under the financing plan for the project to $242.6 million. The Company benefited from the strengthening of the Canadian dollar versus the US dollar during the second quarter and converted a majority of its cash balance to US dollars and EU Euros during the third quarter. The additional equity raised combined with the strengthening Canadian dollar provide a surplus to help offset some of the cost inflation expected and additional funding requirements previously identified.

Project Timeline

- The EIA was submitted in second quarter 2006.

- In January 2007, the Company received the list of official questions from the Romanian Government, raised during the public consultation process.

- The Company responded to the questions in the form of an Annex to the EIA, in early May 2007, in line with the spring 2007 target.

- TAC and Espoo Convention meetings went well during the third quarter, until TAC meetings were suspended in September.

The Company intends to use all means at its disposal to get the TAC process back on track, even as it continues to evaluate the implications associated with a prolonged delay. Once the TAC process recommences and in the absence of any other extraordinary events, Gabriel anticipates that it would take approximately 6 months to:

- complete the EIA approval process;

- complete the purchase of the outstanding properties;

- receive all other permits and approvals, including construction permits; and

- update the control estimate and complete financing.

Construction of the mine would then take approximately 24 months. 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.

2007 Outlook

Until the permitting process was stopped in September our key objectives for 2007 included:

1. Continuously improving communications with all stakeholders;

2. Gaining approval of the EIA by the Romanian Government;

3. Gaining reinstatement of the archaeological discharge currently before courts;

4. Acquiring the surface rights necessary to begin initial construction;

5. Obtaining the project construction permit; and

6. Obtaining funding to begin project construction.

However, with the suspension of the permitting process our key objectives for 2007 now include:

1. Pursuing all political and legal means to get the permitting process back underway;

2. Ensuring that the Company maintains all licenses and approvals in good standing;

3. Reviewing all project activities with a goal of reducing spending until the permitting process is underway; and

4. Ensuring that we maintain all activities that will position the Company to gain all approvals once the permitting process is recommenced.

Results of Operations

The results of operations are summarized in the following tables, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles:



Cdn $ thousands 2007 Q3 2007 Q2 2007 Q1 2006 Q4
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Statement of Loss
Loss $ 6,785 $ 5,966 $ 2,471 $ 5,103
Loss per share 0.03 0.02 0.01 0.03
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Balance Sheet
Working capital 147,329 199,257 213,623 79,903
Total assets 513,490 503,381 491,356 338,056
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Statement of Cash Flows
Investments in exploration and
development including working
capital changes 15,448 24,107 13,318 31,447
Cash flow (used in) provided by
financing activities (31) 18,389 152,091 1,954
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Cdn $ thousands 2006 Q3 2006 Q2 2006 Q1 2005 Q4
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Statement of Loss
Loss $ 2,156 $ 3,587 $ 1,767 $ 2,037
Loss per share 0.01 0.02 0.01 0.01
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Balance Sheet
Working capital 120,360 34,803 44,272 52,870
Total assets 330,489 235,685 238,026 238,343
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Statement of Cash Flows
Investments in exploration and
development including working
capital changes 6,663 8,460 6,445 4,369

Cash flow from financing
activities 94,641 1,190 361 30,539
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Statement of Loss
Loss for the Period

in thousands of Canadian 3 months ended 9 months ended
dollars, except September 30, September 30,
per share amounts 2007 2006 2007 2006
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Total operating expenses for
the period $ 2,365 $ 2,984 $ 9,320 $ 9,160

Loss for the period 6,785 2,156 15,222 7,510

Loss per share 0.03 0.01 0.06 0.04


Total operating expenses for the third quarter and for the nine-month period of 2007 are comparable to the corresponding 2006 periods, while the higher loss for the three-and-nine-month periods of 2007 compared to the same periods of 2006 relates to foreign exchange losses on foreign currency cash balances held to finance planned foreign currency long-lead-time equipment expenditures, partially offset by higher interest income.

We expect to incur losses until commercial production commences and revenues are generated.



Expenses

Corporate, General and Administrative

3 months ended 9 months ended
in thousands of Canadian September 30, September 30,
dollars 2007 2006 2007 2006
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Corporate, general and
administrative expense $ 1,580 $ 2,032 $ 7,020 $ 5,994
DSU recovered (expensed) 481 (163) 491 (414)
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Corporate, general and
administrative expense
before DSU's $ 2,061 $ 1,869 $ 7,511 $ 5,580
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---------------------------------------------------------------------------


Excluding the effect of the change in value of the deferred share units ("DSUs"), corporate, general and administrative costs increased for the three-and-nine-month periods ending September 30, 2007 due primarily to higher advisory, information technology and overhead costs. Corporate, general and administrative costs are anticipated to remain at current levels for the foreseeable future.

The decrease in DSU costs relates to the decrease in our share price during the quarter and the nine-months ended September 30, 2007. The DSUs are revalued each period based on the closing share price at the period end, with the difference between the total value of the DSUs at period end compared to the value at the end of the previous period. If the value is higher, as it was at the end of the third quarter of 2006, the difference is charged to the Statement of Loss, increasing costs for the period. If the share price declines, the lower value of the DSUs is credited against costs during the period. Overall, for the nine-month period ended September 30, 2007, our share price decreased by $2.54 compared to last year when our share price increased from the close of the previous year end by $1.73.



Stock Based Compensation

3 months ended 9 months ended
in thousands of Canadian September 30, September 30,
dollars 2007 2006 2007 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
Stock based compensation -
expensed $ 526 $ 352 $ 1,366 $ 1,452
Stock based compensation -
capitalized 375 220 $ 977 220
Number of stock options granted 210,000 - 1,615,000 1,125,000
Average value ascribed to each
option granted $ 1.56 - $ 1.84 $ 1.23
Options granted to corporate
employees, officers, and
directors 210,000 - 1,140,000 900,000
Options granted to development
project employees - - 475,000 225,000


The average value ascribed to each stock option granted in 2007 is higher than the value ascribed to 2006 grants due primarily to a longer expected option life and a higher average share price at the time of the grant.

The fair value of stock options when granted is amortized over the period in which the options vest. For those options that vest on issuance, the entire fair value of the options is recognized immediately. Fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.



Project Financing Costs

3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2007 2006 2007 2006
--------------------------------------------------------------------------
Project financing costs $ 224 $ 548 $ 760 $ 1,631


For the three-months ended September 30, 2007 project financing costs declined from the year earlier quarter. In addition to project financing advisory services, the 2006 third quarter included costs to complete the Risk Assessment Report ("RAR") for the banks. For the 2007 nine-month period, project financing costs declined compared to 2006 due to a 2006 accrual for the termination fee of an agreement entered into during 2000 for advisory services and the costs to complete the RAR in 2006.

We restarted project financing activities in January 2006, toward a goal of finalizing project financing term sheets in parallel with EIA approval. Project financing activities include advisory services and completion of term sheet negotiations for the various facilities under our financing plan. Project finance discussions with the banks have been placed on hold until the permitting process has been restarted.



Interest Income

3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2007 2006 2007 2006
------------------------------------------------------------------------
Interest income $ 2,145 $ 822 $ 5,484 $ 1,645


The increase in interest income in 2007 relates to the higher cash balance resulting from two equity issues, one during the third quarter of 2006 and the second during the first quarter of 2007. Interest income should decrease in the fourth quarter of 2007, as our cash balance declines due to continued permitting and development activities at our Rosia Montana project and lower interest rates on US dollar/EU Euro cash balances.

The Company maintains an investment policy that prohibits investments in asset-backed-commercial-paper, accordingly the Company has not been exposed to the credit risk of the asset-backed-commercial-paper market. Approximately 80% of cash balances are invested in government guaranteed treasury instruments with the balance invested in Banker Acceptances and overnight term deposits.



Foreign Exchange

3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2007 2006 2007 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
Foreign exchange gain (loss) -
realized $ 18 $ 6 $ (1,029) $ 5
Foreign exchange loss -
unrealized (6,583) - (10,357) -
------------------------------------------------------------------------
Total foreign exchange gain
(loss) $ (6,565) $ 6 $ (11,386) $ 5
------------------------------------------------------------------------
------------------------------------------------------------------------


During the year, we converted the majority of our Canadian dollar cash balances to foreign currencies to match anticipated foreign denominated expenditures. The Canadian dollar strengthened relative to the foreign currencies acquired, therefore causing an unrealized foreign exchange loss.

The Company maintains a relatively small Canadian dollar cash position, to fund corporate, general and administrative activities, as future development expenditures are expected to be denominated in foreign currencies.

We would expect to continue to report foreign currency gains and losses as we continue to hold foreign currencies.

Taxes

The Company has subsidiaries in countries that have differing tax laws and rates. The provision for income taxes is based on a number of estimates and assumptions made by management including its understanding of domestic and international tax rules. Advice is also sought from professional tax advisors.

During the third quarter of 2007, domestic tax authorities in Romania initiated various tax reviews to assess the appropriateness the Company's tax filing positions since January 1, 2005. As a consequence of the first review being concluded, during the third quarter 2007, the Company accrued $700 thousand of withholding tax liabilities arising from payments made to non-Romanian resident suppliers of services where the Company did not have a proper tax exemption from the country of residency of the supplier. The entire accrual was charged to mineral properties in the period. The Romanian tax authorities continue to review other tax filings of the Company including its application of the disadvantaged zone tax status. A reassessment could result in a significant tax liability.

Investing Activities

The most significant ongoing investing activities are for our Rosia Montana development project in Romania. Most of the expenditures to date have been for identifying and defining the size of the four ore bodies, for engineering to design the size and scope of the project, for environmental assessment and permitting, as well as surface rights/property acquisition. Once we receive our construction permit, the nature and magnitude of the expenditures will increase as we build roads, production facilities, prepare for mine excavation, tailings management facilities and associated infrastructure.

Mineral Properties

We capitalize all costs incurred in Romania related to our development and exploration projects, Rosia Montana, Bucium and Baisoara, to mineral properties.

During 2007, expenditures at Rosia Montana increased in all the major project areas.



3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Finance and administration $ 5,984 $ 3,194 $ 14,807 $ 10,183
Permitting 1,736 1,720 6,119 5,371
Community development 18,791 504 37,710 2,832
Project management and engineering 6,445 873 13,317 2,016
Exploration - Rosia Montana 269 391 541 732
Exploration - Bucium 105 553 903 926
Exploration - Baisoara 32 - 96 -
Capitalized depreciation net of
disposals (147) (14) (451) (404)
Capitalized stock based compensation (333) (220) (930) (220)
---------------------------------------------------------------------------
Total exploration and development
expenditures $ 32,882 $ 7,001 $ 72,112 $ 21,436
---------------------------------------------------------------------------
---------------------------------------------------------------------------


During the third quarter and year-to-date 2007, finance and administration costs increased due to higher legal and advisory costs related to ongoing legal challenges, public relations and consulting efforts with respect to permitting and development activities. Project management and engineering costs increased in the third quarter and year-to-date 2007, due to detailed engineering required to order long-lead-time equipment, complete the cost estimate and prepare for site construction.

The increase in community development costs relates to purchasing of homes and associated properties in 2007 compared to the three percent option payments in the same periods of 2006. The third quarter 2007 results include an accrual for the additional cost of those residents electing the resettlement option. The accrual reflects the anticipated additional cost associated with providing replacement homes. Since the 2006 feasibility study estimate was completed, design changes, including an increase in home sizes, and the strengthening of the Romanian RON, which has appreciated by approximately 30% have led to the additional accrual.

The Company is reviewing all planned expenditures as a result of the suspension of the permitting process.



Capital Assets

3 months ended 9 months ended
September 30, September 30,
in thousands of Canadian dollars 2007 2006 2007 2006
---------------------------------------------------------------------------
Total investment in capital assets $ 12,444 $ 402 $ 17,397 $ 1,613
Investment in long-lead-time
equipment 8,419 - 11,662 -
Depreciation - expensed 76 52 215 83
Depreciation - capitalized to
mineral properties 147 14 451 404


Capital asset additions in 2007 consist primarily of long-lead-time equipment orders and commencement of site construction of the two resettlement sites. Construction of the new resettlement site in Alba Iulia is expected to continue, installment payments under long-lead-time equipment orders are expected to be deferred if possible while construction of Piatra Alba resettlement site is under review. Capital additions in 2006 consist mainly of information technology equipment.

Cash Flow Statement

Liquidity and Capital Resources

Our only sources of liquidity until we receive our environmental permits for Rosia Montana -- at which point we will be in a position to move toward completion of debt financing -- are our cash balance, bridge financing, exercise of warrants and stock options outstanding, and the equity markets. We updated the cost to construct the project in first quarter 2006 at US$638 million and preparation of the control estimate, which would update the cost to construct the project, was underway until placed on hold until the EIA process is restarted. While the control estimate has not been completed, costs are trending higher in line with industry trends, as a result of the Romanian RON and EU Euro appreciation compared to the US dollar, design improvements from ongoing engineering and higher material and labour costs. To complete the development of the project, the Company will need additional external financing. The ability to develop Rosia Montana hinges on our ability to raise the necessary financing for construction. If we were unable to raise the required funds, we would seek strategic alternatives to move the project toward development. We remain confident, however, that we will be able to obtain the necessary financing to construct the mine on reasonable commercial terms.

Working Capital

As at September 30, 2007, we had working capital of $147.3 million versus $79.9 million as at December 31, 2006. The increase in working capital in 2007 relates to an equity offering and exercise of warrants totaling $170 million, partially offset by the loss incurred and the investment in capital assets and mineral properties during the year. In 2005, we issued share purchase warrants. Each warrant entitled the holder to acquire one common share at a price of Cdn$2.75 on or before March 31, 2007 and during the first half of 2007 a total of 7.5 million warrants were exercised for total proceeds of $20.5 million.

Net Change in Non-Cash Working Capital

The net change in operating non-cash working capital decreased for the quarter ended September 30, 2007 compared to the same quarter last year, due to a reduction of trade payables, while for the nine-months ended September 30, 2007 the increase in non-cash working capital is comparable to that of the prior year.

The net change in investing non-cash working capital increased for the three-and-nine-month periods ended September 30, 2007, primarily as a result of higher accruals related to a higher level of activity related to the Rosia Montana project and the addition of resettlement liabilities related to those residents of Rosia Montana who have sold their homes in exchange for a new home in one of the two development sites the Company is building.

The decrease in financing non-cash working capital in the three-and-nine-month periods ended September 30, 2007, is due to the payment of accrued legal costs related to the equity offering during 2006 while the increase during 2006 relates to the accrual of 2006 share issue costs.

Related Party Transactions

The Company paid $34 thousand (2006 - $8 thousand) during the third quarter to a director of the Company for consultation services provided to the Company. For the nine-months ended September 30, 2007 the Company paid $39 thousand (2006 - $23 thousand)

In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, who hold an aggregate of 20% of the shares of RMGC to facilitate a statutory requirement to increase RMGC's total share capital. The loans are non-interest bearing and are to be repaid as and when RMGC distributes dividends to its shareholders.

The loans and related minority interest contribution have been offset on the balance sheet until such time as the loans are repaid. Once the loans are repaid the minority interest component will be reflected on the balance sheet.

Resettlement Liabilities

During the fourth quarter of 2006, the Company recommenced purchasing homes in the project area. Residents have two choices. They can either chose to take the sales proceeds and move to a new location of their choosing or they can exchange their properties for a new property to be built by the Company at one of the two new resettlement sites. At September 30, 2007, the Company had resettlement liabilities totaling $16 million, obligating the Company to deliver a new property under those contracts by September 30, 2007. A penalty of 0.5% per month of delay past September 30 will have to be paid. As at September 30, 2007, included in resettlement liabilities is $0.4 million (December 31, 2006 - Nil) in respect of delay penalties.

Contractual Obligations

During third quarter 2006, the Company received the Baisoara exploration license which obligates the Company to spend US$3.2 million over its five-year term, which expires July 2011. As at September 30, 2007, the remaining expenditure commitment was US$3.1 million (December 31, 2006 - US$3.2).

The Company has a number of agreements with arms-length third parties who provide a wide range of goods, services and long-lead-time equipment. Typically, these agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days, other than for long-lead-time equipment for which the commitments may extend beyond one year and are binding for the full value of the equipment. As at September 30, 2007 commitments under such agreements totaled $68.4 million (December 31, 2006 - $6 million). The increase in the year reflects the ordering of machinery including processing equipment totaling US$56 million. Contractual obligations are not expected to rise during the fourth quarter of 2007 as no further long-lead-time equipment orders are expected to be placed until permitting activities are restarted.

During the fourth quarter of 2005, RMGC initiated a program whereby owners of property in the impacted area of the Project could agree (the "Promissory Agreement") to either: (a) sell their property for cash consideration, or (b) exchange their property for property owned by RMGC in Piatra Alba or Alba Iulia within 180 days of the issuance by the Romanian authorities of the environmental impact assessment ("EIA") for the Project. Although the agreements expired June 30, 2007, the Company notified home owners of its intention to exercise its purchase right. RMGC agreed to pay owners who signed the Promissory Agreement an immediate up-front payment of 3% of the Property Value (as agreed in the Promissory Agreement).

CEO/CFO Certification

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded at September 30, 2007 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at September 30, 2007 that management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting as required by the Ontario Securities Commission Internal Control certification requirements.

New Accounting Policies

Effective January 1, 2007, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments -Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income; see note 2 of our Consolidated Financial Statements. The adoption of these new standards had no impact on the Company's consolidated financial statements.

Outstanding Share Data

The Company's fully diluted share capital as at the report date was:



Outstanding
---------------------------------------------------
Preferred shares Nil
Common shares 254,898,485
Common stock options 8,667,444
Common stock warrants 2,625,000
Deferred share units - common shares 254,417
---------------------------------------------------
Fully diluted share capital 266,445,346
---------------------------------------------------
---------------------------------------------------


Forward-Looking Statements

Certain statements included herein, including capital costs estimates, future ability to finance the project and other statements that express management's expectations or estimates regarding the timing of completion of various aspects of the projects' development or of our future performance, constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Canadian securities legislation. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule", and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. In particular, the Management's Discussion and Analysis includes many such forward-looking statements and such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual financial results, performance or achievements of the Company to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements and its forward-looking statements are not guarantees of future performance. These risks, uncertainties and other factors include, but are not limited to: changes in the worldwide price of precious metals; fluctuations in exchange rates; legislative, political or economic developments including changes to mining and other relevant legislation in Romania; operating or technical difficulties in connection with exploration, development or mining; environmental risks; the speculative nature of gold exploration and development, including the risks of diminishing quantities or grades of reserves; and the Company's requirements for substantial additional funding.

Gabriel Resources Ltd. expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise.



Gabriel Resources Ltd.

Interim Consolidated Financial Statements
(Unaudited)
For the period ended September 30, 2007



Consolidated Balance Sheets

Gabriel Resources Ltd.
As at September 30, 2007 and December 31, 2006
(Unaudited and expressed in thousands of Canadian dollars)

2007 2006
---------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 150,403 $ 12,598
Short-term investments (note 3) 26,511 77,717
Accounts receivable 952 2,326
Prepaid expenses and supplies 672 583
---------------------------------------------------------------------------

178,538 93,224
Capital assets (note 4) 20,118 3,491
Mineral properties (note 5) 314,834 241,341
---------------------------------------------------------------------------

$ 513,490 $ 338,056
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 14,957 $ 8,928
Resettlement liabilities (note 6) 16,252 4,393
---------------------------------------------------------------------------
31,209 13,321

Other Liabilities (note 7) 1,535 1,387
---------------------------------------------------------------------------
32,744 14,708

Shareholders' Equity
Capital Stock (note 9) 558,277 385,444
Common Share Purchase Warrants (note 10) - 1,946
Contributed Surplus (note 12) 7,637 5,904
Accumulated Other Comprehensive Income (note 2) - -
Deficit (85,168) (69,946)
---------------------------------------------------------------------------
480,746 323,348
$ 513,490 $ 338,056
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Nature of operations and going concern (note 1)

Minority interest (note 8(c))

Commitments and contingencies (note 14)


Approved by the Board of Directors

Michael Parrett Alan Thomas
Director Director


The accompanying notes are an integral part of these consolidated financial
statements.


Consolidated Statements of Loss and Deficit
Gabriel Resources Ltd.
For the three-and-nine-month periods ended September 30, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars, except per share
data)

3 months ended 9 months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Expenses
Corporate, general and
administrative $ 1,580 $ 2,032 $ 7,020 $ 5,994
Stock based compensation
(note 11) 526 352 1,366 1,452
Project financing costs 224 548 760 1,631
Amortization 35 52 174 83
---------------------------------------------------------------------------
2,365 2,984 9,320 9,160
---------------------------------------------------------------------------

Other expense (income)
Interest (2,145) (822) (5,484) (1,645)
Foreign exchange 6,565 (6) 11,386 (5)
---------------------------------------------------------------------------
Loss for the period 6,785 2,156 15,222 7,510
Deficit - beginning of period 78,383 62,687 69,946 57,333
---------------------------------------------------------------------------
Deficit - end of period $ 85,168 $ 64,843 $ 85,168 $ 64,843
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Loss per share $ 0.03 $ 0.01 $ 0.06 $ 0.04
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average number of
shares 254,864,738 193,252,037 241,264,593 182,688,616
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Consolidated Statements of Comprehensive Loss
Gabriel Resources Ltd.
For the three-and-nine-month periods ended September 30, 2007
(Unaudited and expressed in thousands of Canadian dollars)

3 months ended 9 months ended
September 30, 2007 September 30, 2007
-------------------------------------------------------------------

Loss for the period $ 6,785 $ 15,222
Other comprehensive loss - -
-------------------------------------------------------------------
Comprehensive loss $ 6,785 $ 15,222
-------------------------------------------------------------------
-------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial
statements.


Consolidated Statements of Cash Flows
Gabriel Resources Ltd.
For the three-and-nine-month periods ended September 30, 2007 and 2006
(Unaudited and expressed in thousands of Canadian dollars)

3 months ended 9 months ended
September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------------------------

Cash flows used in operating
activities
Loss for the period $ (6,785) $ (2,156) $(15,222) $ (7,510)
Items not affecting cash

Amortization 76 52 215 83

Stock option compensation 526 352 1,366 1,452

Unrealized foreign exchange
loss on cash and cash
equivalents 6,585 - 10,358 -

Deferred share units (480) 163 (491) 414
--------------------------------------------------------------------------
(78) (1,589) (3,774) (5,561)

Net changes in non-cash
working capital (note 15) (671) (134) 287 508
--------------------------------------------------------------------------
(749) (1,723) (3,487) (5,053)
--------------------------------------------------------------------------

Cash flows (used in) provided
by investing activities

Decrease (increase) in
short-term investments (17,238) (71,631) 51,206 (48,660)

Exploration and development
expenditures (note 15) (32,882) (7,001) (72,112) (21,436)

Purchase of capital assets (12,444) (402) (17,397) (1,613)

Net changes in non-cash
working capital (note 15) 17,434 339 19,503 (175)
--------------------------------------------------------------------------
(45,130) (78,695) (18,800) (71,884)
--------------------------------------------------------------------------
Cash flows (used in) provided
by financing activities

Proceeds from issuance of
capital stock, net of issue
costs 7 94,413 148,550 95,963

Proceeds from the exercise of
share purchase warrants - - 20,489 -

Proceeds from the exercise of
stock options 112 - 1,214 -

Net changes in non-cash
working capital (note 15) (150) 228 196 228
--------------------------------------------------------------------------
(31) 94,641 170,449 96,191
--------------------------------------------------------------------------

Increase (decrease) in cash
and cash equivalents (45,910) 14,223 148,162 19,254

Effect of foreign exchange on
cash, cash equivalents and
non-cash working capital (6,583) - (10,357) -

Cash and cash equivalents -
beginning of period 202,896 30,337 12,598 25,306
--------------------------------------------------------------------------
Cash and cash equivalents -
end of period $ 150,403 $ 44,560 $ 150,403 $ 44,560
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Supplemental cash flow information (note 15)

The accompanying notes are an integral part of these consolidated financial
statements.


Notes to Consolidated Financial Statements

For the three-and-nine-month periods ended September 30, 2007 and 2006
(Unaudited and tabular amounts in thousands of Canadian dollars, unless otherwise stated)

1. Nature of operations and going concern

Gabriel Resources Ltd. (the "Company") is a Canadian based resource company engaged in the exploration and development of mineral properties in Romania and is presently developing its 80% owned Rosia Montana gold project (the "Project"). Since acquiring the exploitation license, the Company has been focused on identifying and defining the size of the four ore bodies, engineering to design the size and scope of the Project, environmental assessment and permitting, rescue archaeology as well as surface rights acquisitions.

The underlying value of the Company's mineral properties is dependent upon the existence and economic recovery of such reserves in the future and the ability of the Company to raise long-term financing to complete the development of the properties. In addition, the Project may be subject to sovereign risk, including political and economic stability, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. These may adversely affect the investment and may result in the impairment or loss of all or part of the Company's investment.

The Company does not have sufficient cash to fund the development of the Project and therefore will require additional funding which, if not raised, would result in the curtailment of activities and result in Project development delays. Management expects that additional financing will be available and may be sourced in time to allow the Company to continue its planned activities in the normal course. While the Company has been successful in the past, there can be no assurance it will be able to raise sufficient funds in the future.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. However, there can be no assurances that the Company's activities will be successful and as a result there is substantial doubt regarding the "going concern" assumption. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, may be necessary.

The accompanying interim consolidated financial statements have been prepared in accordance with Canadian GAAP for the preparation of interim financial information. Accordingly, they do not include all of the information and disclosures required by Canadian GAAP for annual consolidated financial statements. The accounting policies and methods of computation used in the preparation of these unaudited interim consolidated financial statements are the same as those described in our audited consolidated financial statements and notes thereto for the year ended December 31, 2006, except as described below in note 2. To ensure comparability of financial information, certain prior period amounts have been reclassified to conform to the current year presentation.

In the opinion of management, the accompanying interim financial statements include all adjustments considered necessary for fair and consistent presentation of financial statements. These interim consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements and notes for the year ended December 31, 2006.

2. Adoption of new accounting standards

Financial Instruments and Comprehensive Income

Effective January 1, 2007, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income.

Under these new standards, all financial instruments, including derivatives, included on the consolidated balance sheet are either classified as held for trading, held-to-maturity investments, loans and receivables or available-for-sale categories and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. After initial recognition, the financial instruments are measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which are measured at amortized cost. The gain or loss arising from a change in the fair value of a financial asset or financial liability classified as held for trading is included in earnings for the period in which it arises. If a financial instrument is classified as available-for-sale, the gain or loss is recognized in other comprehensive income until the financial instrument is derecognized and the cumulative gains or losses are then recognized in earnings. The Company has classified its cash and cash equivalents and short-term investments as held for trading. The accounts receivable and deposits were classified as loans and receivables, and the accounts payable were classified as other financial liabilities.

Transaction costs, related to financial assets and liabilities, are accounted for as financial expenses. An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host contract and accounted for as a derivative in the balance sheet, at its fair value. The Company has elected to recognize embedded derivatives in its consolidated balance sheet, if applicable. This accounting change had no impact in the financial statements of the Company.

Derivatives that qualify as hedging instruments must be designated as either a "cash flow hedge," when the hedged item is a future cash flow, or a "fair value hedge," when the hedged item is the fair value of a recognized asset or liability. The effective portion of unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value in the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings. The Company has not entered into any forward exchange contracts.

The adoption of these new standards had no impact on the Company's consolidated financial statements.



3. Short-term investments

September 30, December 31,
2007 2006
------------------------------------------------------------------------
Money market investments with maturities
from the date of acquisition of

4 - 6 months $ 26,339 $ 68,446

7 - 12 months - 8,763

Restricted cash 172 508
------------------------------------------------------------------------
$ 26,511 $ 77,717
------------------------------------------------------------------------


Restricted cash represents collateral of Nil (2006 - $325 thousand) on corporate credit cards and environmental guarantees for future clean up costs of $172 thousand (2006 - $183 thousand).



4. Capital Assets

September 30, December 31,
2007 2006
--------------------------------------------------------------
Cost
Office equipment $ 4,001 $ 3,508
Buildings 1,082 1,015
Vehicles 1,270 1,269
Leasehold improvements 206 131
Construction in progress (1) 16,654 -
--------------------------------------------------------------
23,213 5,923
--------------------------------------------------------------

Less: Accumulated amortization
Office equipment 1,913 1,552
Buildings 40 35
Vehicles 1,018 736
Leasehold improvements 124 109
--------------------------------------------------------------
3,095 2,432
--------------------------------------------------------------

Net book value
Office equipment 2,088 1,956
Buildings 1,042 980
Vehicles 252 533
Leasehold improvements 82 22
Construction in progress (1) 16,654 -
--------------------------------------------------------------

$ 20,118 $ 3,491
--------------------------------------------------------------
--------------------------------------------------------------
(1) Amounts included in construction in progress are not subject
to amortization.


5. Mineral Properties

Rosia Montana Bucium Baisoara Total
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Balance - December 31, 2005 $ 172,988 $ 8,337 $ - $ 181,325

Development costs 58,024 - - 58,024

Exploration costs 898 1,053 41 1,992
---------------------------------------------------------------------------
Balance - December 31, 2006 231,910 9,390 41 241,341

Development costs 71,953 - - 71,953

Exploration costs 541 903 96 1,540
---------------------------------------------------------------------------

Balance - September 30, 2007 $ 304,404 $ 10,293 $ 137 $ 314,834
---------------------------------------------------------------------------
---------------------------------------------------------------------------


The Company's principal asset is its 80% direct ownership interest in a Romanian company, Rosia Montana Gold Corporation ("RMGC"), which holds two mineral licenses in Romania, being Rosia Montana and Bucium. Minvest S.A. ("Minvest"), a Romanian state-owned mining company, together with three other private Romanian companies, hold a 20% interest in RMGC, and the Company holds the pre-emptive right to acquire the 20% minority interest. The Company is required to fund 100% of all expenditures related to the exploration and development of these properties and holds a preferential right to recover all funding plus interest from future cash flows prior to the shareholders receiving dividends.

An exploitation license is held by RMGC as the titleholder in respect of the Rosia Montana property. RMGC has the exclusive right to conduct mining operations at the Rosia Montana property for an initial term of 20 years commencing in 1998, and thereafter with successive five-year renewal periods.

RMGC holds an exploration license over the Bucium property. The license, which was extended in 2004, expired on May 19, 2007. The Company spent US$3.4 million over the term of the license extension period. The expiring exploration license can be converted into an exploitation license upon submission and approval of a feasibility study. During the quarter, the Company filed the necessary documentation to convert the exploration license into an exploitation license.

The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), received an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. The Company is obligated to spend US$3.2 million over the term of the license. Field work commenced in the fourth quarter of 2006.

6. Resettlement liabilities

The Company entered into resettlement agreements with certain property owners in the Project area. Under the agreements, some property owners have sold their properties to the Company in exchange for a new property to be constructed by the Company. The Company was obligated to deliver the new property by September 30, 2007. The Company has not met this obligation and is accruing a penalty of 0.5% of the agreed upon property value per month of delay, to a maximum of 12 months as required by the agreement. If the Company fails to fulfill its obligation by the end of the 12-month penalty period, the Company shall pay the owners the agreed upon property value, plus the related penalties, and the owners retain the right to occupy the home for an undetermined period of time. As at September 30, 2007 the Company has accrued $0.4 million (December 31, 2006 - Nil) in respect of delay penalties.



7. Other liabilities

Price per
Common Share
Deferred Share Units ("DSU") (a) DSU's (dollars) Value
----------------------------------------------------------------
----------------------------------------------------------------
Outstanding - December 31, 2005 158 $ 2.84 $ 449
Granted 205 4.07 833
Settled (125) 2.75 (344)
Change in fair value - - 265
----------------------------------------------------------------
Outstanding - December 31, 2006 238 5.06 1,203
Granted 22 3.46 75
Settled (5) 4.75 (24)
Change in fair value - - (613)
----------------------------------------------------------------
Balance - September 30, 2007 255 $ 2.52 $ 641
----------------------------------------------------------------
----------------------------------------------------------------


Fidelity bonus and other benefits (b) Value
-----------------------------------------------
-----------------------------------------------
Balance accrued - December 31, 2005 $ -
Additions 184
-----------------------------------------------
Balance accrued - December 31, 2006 184
Additions 710
-----------------------------------------------
Balance accrued - September 30, 2007 894
-----------------------------------------------
Other liabilities $ 1,535
-----------------------------------------------
-----------------------------------------------


(a) DSUs

The Company implemented a DSU Plan under which qualifying participants receive certain compensation in the form of DSUs in lieu of cash. On retirement, participants may redeem their DSUs for common shares of the Company, cash, or a combination of common shares and cash. The Company, at its sole discretion, can elect to pay the amount in common shares either purchased from the open market, or issued from treasury.

The change in the fair market value of the DSUs has been recorded in corporate, general and administrative expense except for costs relating to personnel working on projects in Romania, which are capitalized.



3 months ended 9 months ended
September 30, September 30,
2007 2006 2007 2006
--------------------------------------------------------------------

Expensed (recovered) $ (481) 163 $ (491) 414

Capitalized (recovered) $ (43) 64 $ (48) 64


(b) Fidelity Bonus and other benefits

Under the Collective Bargaining Agreement between RMGC and its employees, under certain conditions, employees of RMGC are entitled to a bonus equal to one month of average gross salary when celebrating 3, 5, 10, 15, 20, and 25 years of uninterrupted service as well as other benefits related to death benefits and termination of employment. As of September 30, 2007, $894 thousand (December 31, 2006 - $184 thousand) has been accrued for these benefits.

8. Related Party Transactions

The Company had related party transactions, with directors and employees of the Company or associated corporations, which were in the normal course of operations and were measured at the exchange amounts as follows:

(a) The Company paid $34 thousand (2006 - $8 thousand) during the third quarter to a director of the Company for consultation services provided to the Company. For the nine months ended September 30, 2007 the Company paid $39 thousand (2006 - $23 thousand).

(b) In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, who hold an aggregate of 20% of the shares of RMGC, to facilitate a statutory requirement to increase RMGC's total share capital. The loans are non-interest bearing and are to be repaid as and when RMGC distributes dividends to its shareholders.

The loans and related minority interest contribution have been offset on the balance sheet until such time as the loans are repaid. Once the loans are repaid the minority interest component will be reflected on the balance sheet.



9. Capital Stock

Authorized
Unlimited number of common shares without par value
Unlimited number of preferred shares,
issuable in series, without par value

Common shares issued and outstanding
Number of shares Amount
---------------------------------------------------------------------------

Balance - December 31, 2005 177,074 $ 284,987
Shares issued from a public offering (a) 31,050 97,808
Less: Share issue costs (a) - (4,780)
Shares issued on the exercise of stock
options (note 11) 2,628 5,079
Exercise of stock options - transfer from
contributed surplus (note 12) - 1,963
Stock-based compensation - settlement of
DSUs (note 7(a)) 125 344
Shares issued from the exercise of share
purchase warrants (10 (a)) 14 39
Exercise of share purchase warrants -
transfer from common share purchase warrants - 4
---------------------------------------------------------------------------

Balance - December 31, 2006 210,891 385,444
Shares issued from a public offering (b) 35,938 156,328
Less: Share issue costs (a) (b) - (7,778)
Shares issued on the exercise of stock
options (note 11) 614 1,213
Exercise of stock options - transfer from
contributed surplus (note 12) - 620
Shares issued on the settlement of DSU
(note 7) 5 24
Shares issued from the exercise of share
purchase warrants (note 10 (a)) 7,450 20,489
Exercise of share purchase warrants -
transfer from common share purchase warrants - 1,937
---------------------------------------------------------------------------
Balance - September 30, 2007 254,898 $ 558,277
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(a) In the third quarter of 2006, the Company issued 31.1 million common shares at $3.15 per share to a syndicate of underwriters for aggregate net proceeds of $93 million, after deducting underwriting fees of $4.3 million plus various professional fees related to the offering of $0.7 million of which $0.2 million was recorded in 2007.

(b) In the first quarter of 2007, the Company issued 35.9 million common shares at $4.35 per share to a syndicate of underwriters and Newmont Canada Limited ("NCL"). Aggregate net proceeds of $148.7 million were received, after deducting underwriting fees of $6.9 million plus various professional fees related to the offering of $0.7 million. The Company intends to use the net proceeds of the offering to advance the development of the Rosia Montana gold deposit in Romania including completing surface rights acquisition, advancing detailed engineering, purchasing of long lead-time equipment, development of the new resettlement sites, site mobilization costs and general corporate purposes.

NCL, a subsidiary of Newmont Mining Corporation, participated to acquire 20% (7.2 million common shares) of the total offering. As of the closing of the offering, NCL held 46.9 million common shares or 18.4% of the issued and outstanding common shares.

10. Common Share Purchase Warrants

(a) In first quarter 2005, the Company issued 15 million units priced at $2.00 per unit by way of a public offering for gross proceeds of $30 million. Each unit consisted of one common share and one half of one common share purchase warrant with an exercise price of $2.75 and expiry date of March 31, 2007. The purchase warrants had an assigned value of $1.95 million.

Share purchase warrants were outstanding and exercised as follows:



Exercise
Number of price
warrants (dollars) Expiry date
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Balance - December 31, 2005 7,500 $ 2.75 March 31, 2007
Warrants exercised (14) 2.75 March 31, 2007
--------------------------------------------------------------------------
Balance - December 31, 2006 7,486 2.75 March 31, 2007
Warrants exercised (7,451) 2.75 March 31, 2007
Warrants expiring unexercised (35) 2.75 March 31, 2007
--------------------------------------------------------------------------
Balance - September 30, 2007 - - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Under the terms of the common share purchase warrant indenture the expiry dates of these warrants were extended to April 2, 2007, as March 31, 2007 was a non-business day.

(b) The Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project during fourth quarter 2006. As part of the proposed compensation of the financial institutions, the Company is prepared to issue up to a total of 2.625 million common share purchase warrants (the "Warrants"). The Warrants have an exercise price of $4.88 per warrant, a four year term and will vest upon achievement of project financing milestones, including public announcement of a committed underwriting by such financial institutions of a syndicated bank credit facility in an amount up to US$350 million (the "Facility"), execution of definitive credit documentation for the Facility, and first draw-down under the Facility.

11. Stock Options

The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants. The exercise price of the options equals the closing price on the day prior to the option allotment. For options granted during a blackout period, the exercise price of the options equals the closing price on the day after the date the blackout is cleared. The majority of options granted vest over three years and are exercisable over five years from the date of issuance.

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 ungranted options.

As at September 30, 2007, 16.8 million options are available for issuance under the Plan (December 31, 2006 - 1.7 million).

As at September 30, 2007, common share stock options held by directors, officers, employees and consultants are as follows:



Outstanding Exercisable
----------------------------------- ---------------------
Weighted
Weighted average Weighted
average remaining Average
Range of exercise exercise contractual Exercise
prices Number of price life Number of Price
(dollars) options (dollars) (Years) options (dollars)
----------------- ----------------------------------- ---------------------
$1.48 - $2.00 2,984 $ 1.55 2.5 2,418 $ 1.56
2.01 - 3.00 2,638 2.50 2.9 1,699 2.48
3.01 - 5.00 3,045 4.49 4.0 858 4.59
----------------------------------- ---------------------
8,667 $ 2.87 3.2 4,975 $ 2.39
----------------------------------- ---------------------
----------------------------------- ---------------------


During the periods ended 2007 and 2006, director, officer, employee and consultants stock options were granted, exercised and cancelled as follows:



Weighted average
Number of exercise price
options (dollars)
------------------------------------------------------------

Balance - December 31, 2005 10,293 $ 2.59
Options granted 2,450 3.71
Options expired (50) 2.65
Options cancelled (482) 4.34
Options exercised (2,628) 1.93
------------------------------------------------------------

Balance - December 31, 2006 9,583 2.96
Options granted 1,615 4.43
Options expired (862) 5.50
Options cancelled (1,055) 4.47
Options exercised (614) 1.98
------------------------------------------------------------
Balance - September 30, 2007 8,667 $ 2.87
------------------------------------------------------------
------------------------------------------------------------


The exercise of the outstanding stock options would be anti-dilutive in the loss per share calculation.

The fair value of 1,615 thousand options granted during the nine-month period ended September 30, 2007 (September 30, 2006 - 1,125 thousand) has been estimated at the date of grant using a Black-Scholes option pricing model. The current period's valuation was calculated with the following assumptions:



9 months ended
September 30,
2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average risk-free interest rate 4.22% 4.06%

Volatility of the expected market price of share 60% 69%

Weighted average expected life of options 2.7 years 2.6 years

Weighted average cost per option $1.84 $1.23


The estimated fair value of the options is amortized over the vesting period and expensed to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet. For the nine-month period ended September 30, 2007, the amount expensed was $1,366 thousand (2006 - $1,452 thousand) and the amount capitalized was $977 thousand (2006 - $220 thousand).

12. Contributed Surplus

The following table identifies the changes in contributed surplus for the periods indicated:



Total
---------------------------------------------------

Balance - December 31, 2005 $ 5,687

Stock-based compensation 2,180

Exercise of stock options (1,963)
---------------------------------------------------

Balance - December 31, 2006 5,904

Stock-based compensation 2,344

Exercise of stock options (note 11) (620)

Warrants expiring unexercised (note 10) 9
---------------------------------------------------

Balance - September 30, 2007 $ 7,637
---------------------------------------------------
---------------------------------------------------


13. Segmented Information

The Company has one operating segment: the acquisition, exploration and development of precious metals. All costs incurred in Romania related to our three development and exploration projects, Rosia Montana, Bucium and Baisoara are capitalized to mineral properties.

Geographic segmentation of capital assets and mineral properties is as follows:



September 30, December 31,
2007 2006
----------------------------------------
----------------------------------------

Romania $ 334,110 $ 243,899

Canada 842 933
----------------------------------------
$ 334,952 $ 244,832
----------------------------------------
----------------------------------------


14. Commitments and Contingencies

The following is a summary of contractual commitments of the Company including payments due for each of the next five years and thereafter.



2011 and
Total 2007 2008 2009 2010 thereafter
---------------------------------------------------------------------------
Baisoara exploration
license (note 5) $ 3,062 $ 55 $ 246 $ 638 $ 1,308 $ 815
Goods, services and
long lead equipment(a) 68,399 25,193 36,600 6,184 9 413
Rosia Montana
exploitation license(b) 303 27 27 27 27 195
Surface concession
rights(c) 859 - 20 20 20 799
Lease agreements (d) 1,649 169 497 414 401 168
---------------------------------------------------------------------------
Total commitments $ 74,272 $ 25,444 $ 37,390 $ 7,283 $ 1,765 $ 2,390
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods, services and long-lead equipment which totaled $68.4 million at September 30, 2007 (December 31, 2006 - $6 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination. During the year, the Company entered into several purchase agreements for various machinery including processing equipment for a total value of US$56 million. The cost of the equipment will be paid over three years, 2007 to 2009. As of September 30, 2007, US$3 million of deposits have been made.

(b) Under the terms of the Company's exploitation mineral license for the Rosia Montana project, an annual fee is required to be paid to maintain the license in good standing. The current annual fee is approximately $27 thousand. These fees are indexed annually by the Romanian Government and the license has 12 years remaining.

(c) RMGC has approximately 44 years remaining on a concession agreement with the Local Council of Rosia Montana Commune by which it is granted exploitation rights in property located on and around the proposed Cirnic pit for an annual payment of $21 thousand.

(d) The Company has entered into agreements to lease premises for various periods until May 31, 2011. The annual rent of premises consists of minimum rent plus realty taxes, maintenance and utilities.

The following is a summary of contingencies of the Company.

(a) During the fourth quarter of 2005, RMGC initiated a program whereby owners of property in the impacted area of the Project could agree (the "Promissory Agreement") to either: (a) sell their property for cash consideration, or (b) exchange their property for property owned by RMGC in Piatra Alba or Alba Iulia within 180 days of the issuance by the Romanian authorities of the environmental impact assessment ("EIA") for the Project. Although the agreements expired June 30, 2007, the Company notified all homeowners of its intention to exercise its purchase right. RMGC agreed to pay owners who signed the Promissory Agreement an immediate up-front payment of 3% of the Property Value (as agreed in the Promissory Agreement).

(b) The Company has an agreement with a consulting firm to provide financial advisory services in relation to defining and implementing the financing plan for development of the Rosia Montana gold project. A success fee of up to US$4 million will be payable on execution of definitive credit agreements and/or financing documents for the senior, mezzanine and cost overrun debt facilities for the Project.

15. Supplemental Cash Flow Information

(a) Net changes in non-cash working capital



3 months ended 9 months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------------------------------------

Operating activities:
Accounts receivable, prepaid
expenses and supplies $ 148 $ (412) $ 1,153 $ (410)
Accounts payable and accrued
liabilities (817) 278 (865) 918
Unrealized foreign exchange loss
on working capital (2) - (1) -
---------------------------------------------------------------------------
$ (671) $ (134) $ 287 $ 508
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Investing activities:

Accounts receivable, prepaid
expenses and supplies $ 70 $ 34 $ 236 $ (634)
Accounts payable and accrued
liabilities 7,774 305 7,408 459
Resettlement liabilities 9,590 - 11,859 -
---------------------------------------------------------------------------
$ 17,434 $ 339 $ 19,503 $ (175)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Financing activities:
Accrued share issue cost (150) 228 196 228
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(b) Exploration and development
expenditures

Balance sheet change in
Mineral properties $ (33,362) $ (7,235) $(73,493) $ (22,060)
Non-cash depreciation and
disposal capitalized 147 14 451 404
Stock based compensation
capitalized 333 220 930 220
---------------------------------------------------------------------------
Exploration and development
expenditures per cash
flow statement $ (32,882) $ (7,001) $(72,112) $ (21,436)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(c) Cash and cash equivalents is
comprised of:

September 30, December 31,
2007 2006
--------------------------------------------------------------------------
Cash $ 11,860 $ 8,611
Short-term investments (less than 90
days) weighted average interest of
4.1% (2006 4.4%) 138,543 3,987
--------------------------------------------------------------------------
$ 150,403 $ 12,598
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The Company maintains an investment policy that prohibits investments in asset-backed-commercial-paper, accordingly the Company has not been exposed to the credit risk of the asset-backed-commercial-paper market. Approximately 80% of cash balances are invested in government guaranteed treasury instruments with the balance invested in Banker Acceptances and overnight term deposits.

The Company did not pay any interest or income taxes during the periods ended September 30, 2007 and 2006.

Contact Information