Gabriel Resources Ltd.
TSX : GBU

Gabriel Resources Ltd.

May 07, 2008 06:00 ET

Gabriel Resources Ltd: First Quarter Report

TORONTO, ONTARIO--(Marketwire - May 7, 2008) - Gabriel Resources Ltd. (TSX:GBU) -

Highlights

"We are using every means at our disposal to get our EIA review process back on track," said Alan R. Hill President and CEO. "We have designed Rosia Montana to be a model project in every aspect - technically, environmentally, socially and culturally - and we are confident the merits of our project will be recognized."

Financial performance

- First quarter net income was $11 million, or $0.04 per share basic and diluted.

- The first quarter net income includes foreign exchange gains, amounting to $12.1 million on EURO cash balances held to finance planned future EURO-denominated development activities.

- A total of $16 million was spent on our development projects during the quarter, while $17.7 million was spent during the same period in 2007.

Liquidity and capital resources

- Cash, cash equivalents and short-term investments at March 31, 2008 totaled $139.2 million.

- Project related expenditures are expected to total $66 million in 2008, below 2007 levels as the Company placed most activities on hold until EIA approval.

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

Rosia Montana Project Development

Overview

- The Company faces a number of challenges put forward by the opposition and it has specific plans in place to address each one of them. The Company has stepped up its advocacy efforts in Romania, Brussels and elsewhere to ensure that our project and its benefits are well understood. Unfortunately, not all strategies can be visible to the investing public, but the Company believes it is making great strides in advancing its efforts.

- In addition to initiating court challenges designed to frustrate our ability to permit the Project in a timely manner, the opposition has orchestrated the tabling of a "private members bill" in the Romanian Parliament to ban the use of cyanide in mining operations in Romania.

- The industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, amended the bill to ban cyanide in excess of EU limits. The amended bill was placed on the agenda of the Chamber of Deputies on April 15, 2008 and it decided to have the amended bill sent back to the industry commission for further review. It is unclear, when or if this bill will re-emerge from the industry commission for vote by Parliament.

- Against the backdrop of a potential Romanian Parliamentary vote on a ban on the use of cyanide in the mining industry, the Romanian Government is also obliged, pursuant to the terms of the EU Directive on the management of waste from extractive industries (the "EU Mine Waste Directive"), to transpose the EU Mine Waste Directive into domestic Romanian law on or before May 1, 2008.

- The Company has designed the Project to be compliant with the EU Mine Waste Directive from day one of operations.

- One of the co-authors of the bill to ban cyanide, has put forward an initiative which would declare Rosia Montana an archaeological and natural reserve. It is our understanding that, similar to the procedures applied to the proposed bill to ban cyanide, specific committees still need to be assigned to deliberate on the initiative. The timing of this is uncertain as are the implications of this on our Project given the current legal framework.

- In September 2007, the Romanian Minister of Environment suspended the Technical Assessment Committee (the "TAC") meetings to review the environmental impact assessment (the "EIA"), asserting a linkage between a minor procedural certificate and the EIA review process that, we believe, lacks any basis in law.

- As a result of the Minister's arbitrary action, the Company is focused on doing everything within its power to restart the permitting process. To that end, the Company stepped up its advocacy efforts in Romania and abroad and has filed a lawsuit against the Ministry of the Environment to restart the permitting process.

- The Company continues to ensure that all licenses and approvals are maintained in good standing in order to preserve the value of our investment.

- In the latter part of 2007, Project opponents sought to engage the European Commission to oppose the Project. On January 24, 2008, the EC's Environmental Commissioner, writing for the European Commission, stated:

"Based on all the information received from local NGOs and individuals as well as from the Romanian competent authorities, the Commission considers that in principle the procedure (for the Rosia Montana Project) is in compliance with the EIA Directive and with the Espoo Convention..."

Romania's Political Uncertainty

- A new minority government comprised of the Liberal and UDMR parties, representing approximately 23 percent of the Parliament, was formed in April 2007 under the sitting Prime Minister. In the resulting reshuffle of ministry portfolios, the UDMR negotiated to obtain the Environment Ministry. The new Minister arbitrarily suspended the Project's EIA review process in September 2007. 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. Efforts on the part of the minority government to blunt or evade efforts to prosecute cases of high-level corruption were criticized by the European Commission in its January 2008 Post Accession Monitoring Report on Romania.

- While management is making every effort - legal and political - to restart the EIA review process, it is becoming increasingly likely that a change in government will be required to restart the permitting process. With a change in government the Company expects that the apparent obstruction by various government ministries we have seen will be replaced by a fair and open review process. The prospects for political change in Romania are real, as 2008 brings both local and national elections. Local elections are scheduled for June and national elections for November 2008.

Litigation

- While we have designed the Project to follow all applicable laws to protect against permitting delays of the Project, multiple legal challenges that abuse the privileged access to courts enjoyed by NGOs in Romania and the incorrect application of the law in some court decisions increase the litigation uncertainty and potential setbacks to the Project.

- Since summer 2007, the Company has lost a number of court cases, causing greater concern for the rule of law in Romania, as well as concern for potential setbacks to the Project. NGO Alburnus Maior has commenced legal action in the Alba Court of Appeal seeking an order compelling the National Agency for Mineral Resources (NAMR) to annul the Rosia Montana exploitation concession license, on the basis of a minor administrative fine imposed on Minvest in 2004. This action is the latest in a series of legal actions initiated by Alburnus Maior seeking the annulment of the Rosia Montana mineral license. A similar claim, seeking the cancellation of the Rosia Montana mineral license, was recently heard by the High Court of Cassation and Justice (the "Supreme Court") and was rejected on its merits. The action before the Alba Court of Appeal was suspended pending this ruling by the Supreme Court, and given the similarity of facts between the two cases, the Company remains hopeful that the law will be applied uniformly in the Alba case as well.

Environmental/Permitting

- The Ministry of Environment and Sustainable Development's (MESD's) suspension of the TAC review process was the most prominent of its efforts to stall the Project. MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts.

- The Company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. The MESD reconvened an extraordinary second meeting of the dam safety committee in March 2008 requesting that they reconsider their earlier decision to grant RMGC its permits.

- Despite this second meeting, the MESD again refuses to issue the final signature for our dam safety permits. As a result, we expect to file a second lawsuit against the MESD in the coming weeks.

- The Company may be similarly forced to commence litigation against the Ministry of Culture and Cults to compel the issuance of an archaeological discharge certificate which received all necessary approvals in February 2007, but remains un-issued over one year later.

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

Surface Rights

- As a result of the suspension of the EIA review process, and in order to align the Company's activity to the pace of the approval process, on February 1, 2008, the program was suspended indefinitely.

- As of February 2008, the Company owns or has options on approximately 77 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, our ownership will rise to approximately 85 percent of the three zones of the Project, further demonstrating the strong local support for the project.

- Ultimately, the Company's ability to obtain construction permits is predicated on securing 100 percent of the surface rights in the industrial zone.

Archaeology

- Here as on other issues, the opposition has used the Romanian courts to challenge the actions of the various Ministries of the Romanian Government. An NGO commenced legal action in the Alba Court of Appeal in 2004 and obtained an annulment with respect to archaeological discharge certificate no. 4. After a successful appeal to the Supreme Court and a retrial of the matter on its merits in the Brasov Court of Appeal, a second annulment of archaeological discharge certificate no. 4 was ordered by the Brasov Court of Appeal. Gabriel has appealed this second annulment to the Supreme Court. It is not possible to estimate how long it will take for this case to proceed through to the Supreme Court. If archaeological discharge certificate no. 4 is ultimately annulled, then Gabriel will reapply for a new discharge certificate.

- 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 is using 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, legal or otherwise, Gabriel anticipates that it would take at least 6 months to:



- complete the EIA approval process;
- complete the purchase of the outstanding properties;
- receive all other permits and approvals, including initial construction
permits; and
- update the control estimate and complete the financing plan.


- 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, subject to the Romanian courts dealing with litigation from NGO's in a timely manner.

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. For more information please visit the Company's website at www.gabrielresources.com.

The Company will be hosting its First Quarter 2008 Conference Call and Webcast Wednesday, May 7, 2008 at 9:30 am EST. North American callers dial 1-888-713-4218; International callers dial 617-213-4870.

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial condition and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three-months ended March 31, 2008 and 2007. The MD&A should be read in conjunction with the unaudited consolidated financial statements and notes thereto ("Statements") of Gabriel Resources Ltd. ("Gabriel" or the "Company") as at and for the three-months ended March 31, 2008 and 2007, as well as the audited Consolidated Financial Statements of the Company as at and for the year ended December 31, 2007 including notes thereto. The Company's Consolidated Financial Statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP").

All amounts included in the MD&A are in Canadian dollars, unless otherwise specified. This report is dated as of May 5, 2008. Readers are encouraged to read the Company's Annual Information Form dated March 26, 2008 and the Company's other public filings, 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 (the "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 European Union ("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 annual and quarterly reports, the Project has long faced opposition from a group of foreign-funded non-governmental organizations ("NGOs"), certain Romanian organizations and some members of the Hungarian Government. During 2007, however, the nature and magnitude of the opposition changed. A change in Romania's Government, resulting in the appointment of a Minister for the Ministry of Environment and Sustainable Development ("MESD") who is a member of Romania's ethnic-Hungarian political union, positioned anti-project political forces to delay the Project. In September 2007 the Minister of Environment announced it was impossible to continue the environmental impact assessment (the "EIA") review process for the Project and he suspended the Technical Assessment Committee (the "TAC") meetings to review the EIA, asserting a linkage between a minor procedural certificate and the EIA review process that, we believe, lacks any basis in law.

As a result of the Minister's arbitrary action, the Company is focused on doing everything within its power to restart the permitting process. To that end, the Company stepped up its advocacy efforts in Romania and abroad and has filed a lawsuit against the Ministry of the Environment to restart the permitting process. The Company continues to ensure that all licenses and approvals are maintained in good standing in order to preserve the value of our investment.

In light of the suspension of the EIA process last September, management conducted a thorough review of all activities associated with the development of the Project, with a goal of reducing expenditures to ensure the Company remains financially strong, while maintaining all existing licenses and permits in good standing and working to restart the permitting process. As a result, the Company retrenched staff, suspended engineering as well as procurement of long-lead-time equipment and surface rights acquisition, along with most other activities which had been stopped with the Minister of Environment's suspension of the EIA process.

Key Issues

Romania's Political Uncertainty

Romania became a full member of the EU on January 1, 2007. Since accession, however, 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 2007. Open disputes between the presidential and parliamentary branches of government now dominate the political agenda, causing gridlock and delay.

A new minority government comprised of the Liberal and UDMR parties, representing approximately 23 percent of the Parliament, was formed in April 2007 under the sitting Prime Minister. In the resulting reshuffle of ministry portfolios, the UDMR negotiated to obtain the Environment Ministry. The new Minister arbitrarily suspended the Project's EIA review process in September 2007.

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. Efforts on the part of the minority government to blunt or evade efforts to prosecute cases of high-level corruption were criticized by the European Commission in its January 2008 Post Accession Monitoring Report on Romania.

While management is making every effort - legal and political -- to restart the EIA review process, it is becoming increasingly likely that a change in government will be required to restart the permitting process. With a change in government the Company expects that the apparent obstruction by various government ministries we have seen will be replaced by a fair and open review process. The prospects for political change in Romania are real, as 2008 brings both local and national elections. Local elections are scheduled for June and national elections for November 2008.

In addition to initiating court challenges designed to frustrate our ability to permit the Project in a timely manner, the opposition has orchestrated the tabling of a "private members bill" in the Romanian Parliament to ban the use of cyanide in mining operations in Romania. This is the second time in recent 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 currently proposed bill was initially opposed by the minority government when introduced in April 2007, which argued the merits of mining conducted to high EU standards. The Romanian Government then changed its position without explanation to support the private members bill in June 2007.

Before the bill was introduced into Parliament, three commissions from the Chamber of Deputies reviewed it. The legal commission indicated the proposed bill poses no constitutional concerns in August 2007. The environmental commission rejected the proposed bill in September 2007. The industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, amended the bill to ban cyanide in excess of EU limits. The amended bill was placed on the agenda of the Chamber of Deputies on April 15, 2008 and it decided to have the amended bill sent back to the industry commission for further review. It is unclear, when or if this bill will re-emerge from the industry commission for vote by Parliament.

Against the backdrop of a potential Romanian Parliamentary vote on a ban on the use of cyanide in the mining industry, the Romanian Government is also obliged, pursuant to the terms of the EU Directive 2006/21/EC on the management of waste from extractive industries (the "EU Mine Waste Directive"), to transpose the EU Mine Waste Directive into domestic Romanian law on or before May 1, 2008. The EU Mine Waste Directive provides strict guidelines for the regulation of cyanide usage in ponds and specifically does not contemplate a blanket ban on its use. The Company has designed the Project to be compliant with the EU Mine Waste Directive from day one of operations.

As the current Government represents only a parliamentary minority, proposed bills require the support of a large portion of the opposition. Management has spent considerable time informing and educating parliamentarians on modern mining methods governing the safe use of cyanide. Management believes that a majority of legislators support a strong Romanian mining industry as evidenced by the rejection of the proposed ban on cyanide by the environmental commission and its amendment by the industry commission to permit cyanide use within EU limits (in accordance with the EU Mine Waste Directive). As a result, management continues to believe the proposed ban on cyanide is unlikely to have enough support in Parliament to become law.

If however, a cyanide ban were to pass, the Company would advocate and pursue all legal avenues possible to have the law overturned, as there are no other economic and environmentally safe technologies to develop the Rosia Montana Project. While the Company's legal and political positions would be strong, passage of the cyanide ban would cause further delays in the timeline to develop the Project. In addition, the passage of a cyanide ban would cause management to undertake an impairment test of the recoverability of capital assets and mineral properties.

One of the co-authors of the bill to ban cyanide, has put forward an initiative which would declare Rosia Montana an archaeological and natural reserve. It is our understanding that, similar to the procedures applied to the proposed bill to ban cyanide, specific committees still need to be assigned to deliberate on the initiative. The timing of this is uncertain as are the implications of this on our Project given the current legal framework.

Environmental/Permitting

On September 12, 2007 the Company received a letter from the MESD indicating that the review process for the EIA had been suspended. The MESD based its action on a court challenge by Alburnus Maior, an NGO opposing the Project, regarding the validity of an urbanism certificate wholly unrelated to the EIA review 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 nor 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 annulled 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 MESD regarding its decision to suspend the TAC review process. The MESD had 30 days to respond to the Administrative Complaint, after which the Company has the right to commence litigation. While the MESD responded to the Administrative Complaint on October 19, 2007, the MESD's fourteen page response failed completely to address the grounds of the complaint. As a result, the Company filed a lawsuit against the MESD in November 2007, with the first hearing taking place on February 20, 2008. The lawsuit is ongoing, and the Company expects the court to rule during 2008.

The MESD's suspension of the TAC review process was the most prominent of its efforts to stall the Project. MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 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, our permits alone await final signature by the MESD. The Company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. The MESD reconvened an extraordinary second meeting of the dam safety committee in March 2008 requesting that they reconsider their earlier decision to grant RMGC its permits. The dam safety committee again voted to grant RMGC its dam safety permits. Despite this second meeting, the MESD refuses to issue the final signature for our dam safety permits. As a result, we expect to file a second lawsuit against the MESD in the coming weeks. The Company may be similarly forced to commence litigation against the Ministry of Culture and Cults to compel the issuance of an archaeological discharge certificate which received all necessary approvals in February 2007, but remains un-issued over one year later.

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 in the absence of any other extraordinary events, legal or otherwise, are expected to be completed within at least six months of EIA approval, however most of these other permits and approvals have been stopped by virtue of the suspension of the EIA permitting process. As Gabriel, through RMGC, is the first company to apply for a permit to develop a new mining project under the new Romanian and European environmental 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 NGOs, 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 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 license, permit or approval. Gabriel, through 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 permitting delays of the Project, multiple legal challenges that abuse the privileged access to courts enjoyed by NGOs in Romania and the incorrect application of the law in some court decisions increase the litigation uncertainty and potential setbacks to the Project. Since summer 2007, the Company has lost a number of court cases, causing greater concern for the rule of law in Romania, as well as concern for potential setbacks to the Project. Alburnus Maior has commenced legal action in the Alba Court of Appeal seeking an order compelling the National Agency for Mineral Resources (NAMR) to annul the Rosia Montana exploitation concession license, on the basis of a minor administrative fine imposed on Minvest in 2004. This action is the latest in a series of legal actions initiated by Alburnus Maior seeking the annulment of the Rosia Montana mineral license. A similar claim, seeking the cancellation of the Rosia Montana mineral license, was recently heard by the High Court of Cassation and Justice (the "Supreme Court") and was rejected on its merits. The action before the Alba Court of Appeal was suspended pending this ruling by the Supreme Court, and given the similarity of facts between the two cases, the Company remains hopeful that the law will be applied uniformly in the Alba case as well.

Surface Rights

As a result of the suspension of the EIA review process, and in order to align the Company's activity to the pace of the approval process, management met with the community to discuss a full shut down of the home purchase program. As a result, on February 1, 2008, the program was suspended indefinitely.

Construction of the Alba Iulia resettlement site began in July 2007. Infrastructure is expected to be completed during the second quarter 2008, while construction of new homes began in October 2007. It is expected to take approximately 18 months to complete the 126 homes at the Alba Iulia resettlement site. Construction of the Alba Iulia site will continue despite the MESD's decision to halt the EIA process. During the third quarter, the access road to the Piatra Alba resettlement site 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 were expected to be issued during the first half of 2008, however the Ministry of Forestry has refused to grant our forestry license essentially preventing RMGC from moving forward on the resettlement site. In any event, commencement of construction of the resettlement site at Piatra Alba is suspended until EIA approval.

In addition to the private properties required, the Company needs to acquire properties (about 35 percent of the surface area of the Project) which are owned by institutions, including the local administrations of Rosia Montana and Abrud, as well as certain churches and state-owned mining companies. The process to acquire the institutional properties is well underway.

As of February 2008, when the purchase program was suspended, the Company owns or has options on 77 percent of the homes in the industrial zone, protected area and the buffer zone. Once we complete the agreements for institutional properties, our ownership will rise to approximately 85 percent of the three zones of the Project, further demonstrating strong local support for the Project.

Ultimately, the Company's ability to obtain construction permits for the mine and plant is predicated on securing 100 percent of the surface rights in the industrial zone.

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. An NGO commenced legal action in the Alba Court of Appeal in 2004 and obtained an annulment with respect to archaeological discharge certificate no. 4. After a successful appeal to the Supreme Court and a retrial of the matter on its merits in the Brasov Court of Appeal, a second annulment of archaeological discharge certificate no. 4 was ordered by the Brashov Court of Appeal. Gabriel has appealed this second annulment to the Supreme Court. It is not possible to estimate how long it will take for this case to proceed through to the Supreme Court. If archaeological discharge certificate no. 4 is ultimately annulled, then Gabriel will reapply for a new discharge certificate.

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.

Financing

Cash, cash equivalents and short-term investments at March 31, 2008 totaled $139.2 million. During the first quarter of 2008, we spent $16 million for Project development activities compared to $17.7 million in the first quarter of 2007. The higher expenditure rate in 2007 reflects the commencement of the acquisition of properties, which began in the fourth quarter of 2006 and extended throughout 2007, as well as ordering of long-lead-time equipment in addition to other permitting activities. The higher levels of expenditures in 2007 were in response to and in anticipation of continued professional conduct of the permitting process by the Romanian Government.

The budgeted expenditures for the Rosia Montana Project for 2008 are approximately $66 million as the Company placed most activities on hold until the EIA permit is approved. This is the minimum level of expenditures required to maintain the value of our investment. The control estimate scheduled for completion during the fourth quarter 2007 has been placed on hold until the EIA permit is approved. No further long-lead-time equipment orders will be placed and installment payments under equipment previously ordered will be deferred to the extent possible under the terms of the agreements. Construction of the Alba Iulia resettlement site will continue while the home purchase program and the development of the Piatra Alba resettlement have been suspended. 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 permit has been approved. A key condition to accessing the debt facilities will be acquiring 100 percent of the surface rights in the industrial zone.

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 EIA approval. 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 estimate is not complete, costs are trending higher. Once the EIA is approved, we will update the control estimate and revise our Financing Plan. As a result, the updated Financing Plan will look very different from the original Financing Plan announced in the spring of 2006. 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. General inflationary tendencies in the resource industry are causing many projects costs to be materially over feasibility study estimates.

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

With the recent and well publicized global credit crises in today's marketplace, credit is more restricted and likely more expensive than management originally contemplated. We believe that based on the recent experience of other mining companies, the high-yield bond market option is closed and we have no basis upon which to predict when it might re-open. The conventional debt market appears to be open, however, we believe that any company seeking to finance a project of our magnitude will face additional concerns with respect to a bank's ability to syndicate the transaction; additionally we will need to address the concerns bankers are likely to raise with respect to estimating the required amount of contingent overrun funding in an environment where capital costs are rising. Historically, contingent funding required by banks has been 10-15 percent of capital cost. In the current market we expect it to be higher, perhaps as much as 20-30 percent. This is expected to result in higher financing costs or perhaps a larger equity component.

The Company raised $148.6 million during first quarter of 2007 to bring the total equity raised over the past two years to develop the Project to $241.6 million. The proceeds of the offering were and will continue to be used to finance the development of the Rosia Montana Project, specifically to complete the permitting process, acquire necessary surface rights, engineering, ordering long-lead-time equipment, construction of resettlement sites and corporate overhead.

Project Timeline

- The EIA was submitted in the second quarter of 2006.

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

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

- TAC and Espoo Convention meetings went well during the third quarter, until TAC meetings were suspended in September 2007.

The Company is using 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, legal or otherwise, Gabriel anticipates that it would take at least 6 months to:

- complete the EIA approval process;

- complete the purchase of the outstanding properties;

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

- update the control estimate and complete the financing plan.

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, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.

2008 Outlook

With the suspension of the EIA permitting process our key objectives for 2008 include:

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

2. Obtaining approval of our EIA and all other required permits;

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

4. Reviewing all Project activities with a goal of reducing spending until the EIA permitting process is underway;

5. Ensuring that we maintain all activities that will position the Company to gain all approvals once the EIA permitting process is recommenced; and

6. Strengthening dialogue and communications with all stakeholders.



Results of Operations

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


in thousands of Canadian dollars 2008 Q1 2007 Q4 2007 Q3 2007 Q2
----------------------------------------------------------------------------
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Statement of Loss (Income)
Loss (Income) $ (10,970) $ 7,821 $ 6,785 $ 5,966
Loss (Income) per share (0.04) 0.03 0.03 0.02
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Balance Sheet
Working capital 110,197 118,461 147,329 199,257
Total assets 521,269 507,955 513,490 503,381
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Statement of Cash Flows
Investments in exploration and
development including working
capital changes 17,211 24,708 15,448 24,107
Cash flow (used in) provided by
financing activities (52) - (31) 18,389
----------------------------------------------------------------------------


in thousands of Canadian dollars 2007 Q1 2006 Q4 2006 Q3 2006 Q2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss (Income)
Loss (Income) $ 2,471 $ 5,103 $ 2,156 $ 3,587
Loss (Income) per share 0.01 0.03 0.01 0.02
----------------------------------------------------------------------------
Balance Sheet
Working capital 213,623 79,904 120,360 34,803
Total assets 491,356 338,056 330,489 235,685
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in exploration and
development including working
capital changes 13,318 31,490 6,663 8,460
Cash flow from financing
activities 152,091 1,953 94,641 1,190
----------------------------------------------------------------------------



Statement of Loss (Income)
Loss (Income) for the Period

3 months ended
in thousands of Canadian dollars, except per share March 31,
amounts 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total operating expenses for the period $ 2,484 $ 3,056

Loss (income) for the period (10,970) 2,471

Loss (income) per share - basic and diluted (0.04) 0.01


Total operating expenses for the three-month period ending March 31, 2008, decreased due to lower corporate, general and administrative and financing costs, partially offset by higher stock-based compensation costs compared to the corresponding 2007 period. Income for the three-month period ended March 31, 2008 was due to foreign exchange gains on foreign currency cash balances held to finance planned foreign currency expenditures and higher interest income due to higher average cash balances compared to the first quarter of 2007.

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

Expenses

Corporate, General and Administrative



3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
Payroll $ 740 $ 723
Legal 117 242
External communications 287 483
Information technology 129 337
Other 716 638
----------------------------------------------------------------------------

Corporate, general and administrative expense $ 1,989 $ 2,423
----------------------------------------------------------------------------


Corporate, general and administrative costs, are those costs incurred by the corporate office in Toronto, decreased for the three-month period ending March 31, 2008 due to lower legal, external communications and information technology costs. Corporate, general and administrative costs are anticipated to remain current levels for the foreseeable future, while external communication expenses are anticipated to above 2007 levels.



Stock Based Compensation

3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
DSUs - expensed (recovered) $ (124) $ (141)
Stock option compensation - expensed 520 389
----------------------------------------------------------------------------
Stock based compensation - expensed 396 248
----------------------------------------------------------------------------

DSUs - capitalized $ (16) $ (15)
Stock option compensation - capitalized 266 299
----------------------------------------------------------------------------
Stock based compensation - capitalized 250 284
----------------------------------------------------------------------------

DSU compensation
Number of DSUs granted 14,793 5,841
Average value ascribed to each DSU granted $ 1.69 $ 4.28


For the three-months ended March 31, 2008 and 2007, the decrease in DSU costs relate to the decrease in our share price during the periods. Initially valued at the market price of the stock at the date of issue, 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, the difference is charged to the Statement of Loss, increasing costs for the period. If the share price declines, as it was at the end of the first quarter of 2008 and 2007, the lower value of the DSUs is credited against costs during the period. Overall, for the three-month period ended March 31, 2008, our share price decreased by $0.28 compared to December 31, 2007, and for the same period in 2007, our share price decreased by $0.76 from December 31, 2006.



3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------

Stock option compensation
Number of stock options granted - 955,000
Average value ascribed to each option granted - $ 2.00
Options granted to corporate employees,
consultants, officers, and directors - 480,000
Options granted to development project
employees - 475,000


The fair value of stock options when granted is amortized over the period in which the options vest which is normally three years. For those options that vest on issuance, the entire fair value of the options is recognized immediately, while for those options that begin to vest after a deferral period, the fair value of the options is amortized proportionately over the total vesting and delay period. Fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.



Project Financing Costs

3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
Project financing costs $ 22 $ 322


For the three-months ended March 31, 2008, Project financing costs declined compared to the same period of 2007 as a result of financing activities being put on hold with the suspension of the permitting process.

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 will remain on hold until receipt of EIA approval.

Severance and Termination Costs

In December 2007, in light of the suspension of the EIA review process, the Company announced and enacted plans to scale back activities. In the fourth-quarter 2007, the Company expensed $1.4 million being its total liability related to the retrenchment of 170 employees in Romania.

As at March 31, 2008 the Company paid $0.3 million in respect of termination benefits. The Company has modified the payment terms of its remaining obligation and classified half of the remaining $1.2 million obligation as current liability.



Interest Income

3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
Interest income $ 1,343 $ 893



The higher interest income in 2008 relates to the higher cash balance resulting from the issuance of equity during the first quarter of 2007. For the remainder of 2008, interest income should decrease as our cash balance declines due to ongoing resettlement site development costs, installment payments under our long-lead-time equipment orders and corporate and Romanian overhead costs as well as lower interest rates on cash balances when compared to 2007.

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 87 percent of cash balances are invested in government guaranteed instruments with the balance invested in Term Deposits.



Foreign Exchange

3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
Foreign exchange gain (loss) - realized $ 417 $ 4
Foreign exchange gain (loss) - unrealized 11,694 (312)
----------------------------------------------------------------------------
Total foreign exchange gain (loss) $ 12,111 $ (308)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During 2007, we converted the majority of our Canadian dollar cash balances to foreign currencies to match anticipated foreign denominated expenditures. In the three-months ended March 31, 2008, the Canadian dollar weakened relative to the remaining foreign currencies acquired; therefore, causing realized and unrealized foreign exchange gains in the period.

The Company maintains a Canadian dollar cash position, to fund corporate, general and administrative activities, while the balance of its cash resources are in foreign currencies.

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

Taxes

The Company has subsidiaries in countries that have differing tax laws and rates, primarily Canada and Romania. 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.

Domestic tax authorities in Romania regularly initiate various tax audits to assess the appropriateness of the Company's tax filing positions. Regulators may interpret tax regulations different than the Company which may cause changes to the estimates made.

During the third quarter of 2007, tax authorities in Romania initiated various tax audits to assess the appropriateness the Company's tax filing positions since January 1, 2005. As a consequence of the tax audits being undertaken, 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. The entire accrual was charged to mineral properties in the period.

During the first quarter of 2008, the Company received a tax assessment for $4.8 million related to a second Romanian tax audit completed during the first quarter of 2008. The Company, having accrued in 2006 its then estimated tax liability, accrued an additional $3.7 million in respect of the assessment which arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities have misapplied the legislation and the Company plans to vigorously contest the States position in court. It is expected to take approximately 18 months to resolve the court case. The first hearing in the case is scheduled for during the second quarter 2008.

On April 10, 2008, the Company was advised that the Romanian tax authorities would expand the scope of their previous tax audits and therefore, gave notice that they would begin auditing fiscal years 2003 and 2004 on April 15, 2008. The audit involves the review of previous audits conducted by the fiscal authorities.

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, open pits, tailings management facilities and associated infrastructure.

Mineral Properties

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

Listed is a summary of expenditures at Rosia Montana for the first quarters of 2008 and 2007.



3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance and administration $ 5,370 $ 4,729
Permitting 655 2,333
Community development 9,080 5,504
Project management and engineering 2,526 2,708
Exploration - Rosia Montana 103 104
Exploration - Bucium 41 382
Exploration - Baisoara 41 30
Capitalized depreciation net of disposals (130) (158)
Capitalized stock based compensation (250) (284)
Reclassification to mineral properties (25) -
Increase in resettlement liabilities (3,570) (631)
----------------------------------------------------------------------------
Total cash exploration and development
expenditures $ 13,841 $ 14,717
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three-months ended March 31, 2008, finance and administration costs increased due to higher legal and advisory costs related to ongoing legal challenges and foreign exchange loss on Euro denominated liabilities as a result of the strengthening of EU Euro against the Romanian RON and the Canadian dollar. Permitting costs decreased in the period compared to corresponding period in 2007 due to lower level of activity as a result of the EIA process suspension.

Community development costs increased in 2008 with the announcement of the suspension of the surface rights acquisition program. As a result of the announcement, a number of residents chose to sell their properties. The 2008 community development results also include an accrual for the additional cost of those residents who elected the resettlement option in 2008. The accrual reflects the anticipated additional cost associated with providing replacement homes. Since the 2006 feasibility study estimate was completed, design changes, including an average increase of 23 percent in home sizes, and the strengthening of the Romanian RON, against the US dollar, have led to the additional accrual.

The Company has conducted a detailed review of all expenditures as a result of the suspension of the permitting process and as a result along with staffing reductions it suspended the property purchase program, engineering for the cost control estimate and construction of the Piatra Alba resettlement site. Construction of the Alba Iulia resettlement site is planned to continue throughout 2008 and into 2009.

Management believes that its planned expenditures in 2008 represent only those required to maintain the value of its investments in Romania, accordingly, investments in Mineral Properties are anticipated to be decrease from 2007 levels.

The major expenditures on Mineral Properties in 2008 revolve around those activities to maintain our existing licenses and permits in good standing and our efforts to restart the EIA permitting process. No additional work is planned on the Bucium property until the exploration license is converted to an exploitation license and the Rosia Montana EIA is approved.



Capital Assets
3 months ended
March 31,

in thousands of Canadian dollars 2008 2007
----------------------------------------------------------------------------
Resettlement site development costs $ 1,313 $ 375
Investment in long-lead-time equipment 861 2,304
Other 20 311
----------------------------------------------------------------------------
Total investment in capital assets $ 2,194 $ 2,990
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation - expensed 77 63
Depreciation - capitalized to mineral properties 130 158


Construction activities during the first quarter 2008 were hampered due to severe and lengthy winter conditions and are anticipated to accelerate during the second quarter 2008.

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 stock options outstanding, and the equity markets. We updated the cost to construct the Project in first quarter 2006 at US$638 million and while we halted the update to our control estimate for Project construction during the fourth quarter of 2007 due to the suspension of the EIA process, initial capital costs are trending higher, 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.

As we move towards receipt of construction permits, management will be in a position to develop and finalize the financing plan in light of market conditions at that time. At present, management remains confident that it can obtain conventional project financing for the Project. However, the overall financing plan may differ materially from the plan originally contemplated due to rising costs of the Project and the state of the credit markets at the time of financing. This is expected to impact the cost of financing and potentially the ratio of debt to equity and timing of financing.

As at March 31, 2008, we had cash, cash equivalents and short-term investments of $139.2 million compared to $147.3 million at December 31, 2007. Substantially all of the Company's cash, cash equivalents and short-term investments are invested in government guaranteed investments. The Company's investment policy prohibits investments in asset-backed-securities. The Company has no need to write down any investments due to the "credit crisis".

The Company manages its foreign currency risks through matching its expected foreign denominated expenditures with foreign currency investments. The Company has not entered into any derivatives hedging activities. The Company maintains Canadian dollar investments to fund corporate costs while most investments are denominated in either US dollars or Euros to match planned foreign currency expenditures. The Company incurs foreign currency gains and losses on those foreign denominated investments as the currencies move against each other. Accordingly the Company will continue to experience foreign exchange gains and losses as long as it maintains foreign currency investments.

Based on management's knowledge and experience of the financial markets, the Company believes the following movements are "reasonably possible" over a three month period.

- Cash and cash equivalents include deposits at call which are at floating interest rates. Sensitivity of cash, cash equivalents, and short term investment to a plus or minus 1% change in earned interest rates would affect net income by $345.

- The Company holds significant balances in foreign currencies, and this gives rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 1% change in foreign exchange rates would affect net income by $1,255.

The Company's objective when managing capital is to safeguard its accumulated capital in order to fund development of its Rosia Montana project. The Company manages its capital structure and makes adjustments to it based on the level of funds on hand and anticipated future expenditures. The Company expects that it will be able to obtain equity, long-term debt and/or project-based financing sufficient to build and operate the Rosia Montana project. There are no assurances that these initiatives will be successful. To safeguard capital and to mitigate currency risk, the Company invests its surplus capital in highly liquid, highly rated financial instruments that reflect the currency of the planned expenditure.

The Company is forecasting a cash, cash equivalents and short-term investments position at December 31, 2008 of approximately $70 million. This forecast assumes total 2008 spending on the Rosia Montana Project of $66 million, which includes: approximately $24.6 million on long-lead-time equipment in order to avoid substantial cost escalation for milling equipment should management choose to postpone scheduled fabrication activities; $22.3 million for community development activities associated with construction of the Alba Iulia resettlement site and property purchases, both expenditures being contemplated in the original US$638 million cost estimate; and other permitting activities and overheads in Romania. Corporate overheads are expected to total $6.2 million net of interest income in 2008. A payment of $5.2 million for tax arising from 2008 Romanian tax assessments was paid in April 2008. The Company is challenging the tax assessment but it is expected to take approximately 18 months to resolve.

Working Capital

As at March 31, 2008, we had working capital of $110.2 million versus $118.5 million as at December 31, 2007. The decrease in working capital in 2008 relates to the investment in capital assets and mineral properties offset by the foreign exchange gain and interest income during the period.

Net Change in Non-Cash Working Capital

The net change in operating non-cash working capital decreased for the three-months ended March 31, 2008 compared to same period of 2007 due to an increase in prepaid expenses and a reduction of trade payables and accrued liabilities.

The net change in investing non-cash working capital decreased for the three-months ended March 31, 2008 due to an increase in accounts receivable and a reduction of trade payables and accrued liabilities.

There is no change in financing non-cash working capital in the three-month period ended March 31, 2008, while the decrease in the same quarter last year is due to an increase in receivables related to exercised warrants offset by accrued legal costs related to the equity offering during March 2007.

Related Party Transactions

The Company paid $6 thousand (2007 - Nil) during the first quarter to a director of the Company for consultation services provided to the Company.

In December 2004, the Company loaned a total of US$971 thousand to the four minority shareholders, who hold an aggregate of 20 percent 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 choose 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 March 31, 2008, the Company had resettlement liabilities totaling $20.7 million, obligating the Company to deliver a new property under those contracts by September 30, 2007, November 30, 2007, May 30, 2008, and August 1, 2008. The Company has not met or believes it will not meet all obligations and is accruing a penalty of 0.5% of the agreed upon unpaid property value per month of delay as required by the agreement including all amendments. Under the terms of the original resettlement agreements, if the Company failed to fulfill its obligation by the end of the 12-month penalty period, the Company would be required to pay the owner the agreed upon unpaid property value, plus the related penalties, and the owner would retain the right to occupy the home for an undetermined period of time. The Company has been working with those residents who choose the resettlement option to extend the delivery dates of the contracts for an additional six months. Management believes most of the residents will agree to the extension. For those residents who do not agree to the extension, we will work to provide there homes within the agreed upon time frame. As at March 31, 2008 the Company has accrued $0.9 million (December 31, 2007 - $0.5 million) in respect of the additional 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 March 31, 2008, the remaining expenditure commitment was US$2.9 million (December 31, 2007 - US$3.0).

The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services which totaled $9.0 million at March 31, 2008 (December 31, 2007 - $9.3 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

During 2007, the Company entered into purchase agreements for long-lead-time equipment, the cost of which is to be paid over three years beginning 2007. As at March 31, 2008 outstanding commitments under such agreements totaled $45.4 million (December 31, 2007 - $42.4). Contractual obligations are not expected to rise during 2008 as no further long-lead-time equipment orders are expected to be placed until the EIA is approved, however the reported amount in the Company's financial statements will fluctuate as currencies fluctuate on the foreign denominated obligations.

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



2012 and
Total 2008 2009 2010 2011 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Baisoara exploration
license $ 3,044 $ 224 $ 652 $ 1,336 $ 832 $ -
Resettlement 20,710 20,710 - - - -
Goods and services 9,033 7,563 1,036 10 10 414
Long lead time
equipment 45,366 27,035 18,331 - - -
Rosia Montana
exploitation license 285 26 26 26 26 181
Surface concession
rights 873 15 20 20 20 798
Lease agreements 1,725 517 639 401 168 -
----------------------------------------------------------------------------
Total commitments $ 81,036 $ 56,090 $ 20,704 $ 1,793 $ 1,056 $ 1,393
----------------------------------------------------------------------------
----------------------------------------------------------------------------



The following is a summary of the long-lead-time equipment orders and the
payment status:


March 31, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total purchase agreements:
Grinding area systems $ 46,140 $ 46,140
Crusher facilities 6,976 6,976
Other process equipment 2,646 2,646
Foreign exchange movement 3,793 -
----------------------------------------------------------------------------
59,555 55,762
Amounts paid as at March 31, 2008:
Grinding area systems (11,043) (11,043)
Crusher facilities (2,035) (2,018)
Other process equipment (267) (267)
Foreign exchange movement (844) -
----------------------------------------------------------------------------
Outstanding payment obligation $ 45,366 $ 42,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Although contractually committed to their acquisition, the Company has placed $8.0 million of orders on hold pending the restart of the permitting process. Should the Company ultimately cancel the orders, its future obligation under those contracts is not expected to exceed $30 thousand. At March 31, 2008 the outstanding obligation for those orders is $7.4 million (December 31, 2007 - $6.9 million) and has been allocated to 2009 on the payment schedule.

CEO/CFO Certification

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded at March 31, 2008 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at March 31, 2008 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

Capital Disclosures and Financial Instruments - Disclosures and Presentation

The CICA issued three new accounting standards: Handbook Section 1535, "Capital Disclosures", Handbook Section 3862, "Financial Instruments - Disclosures", and Handbook Section 3863, "Financial Instruments - Presentation". These standards are effective for interim and annual consolidated financial statements for the Company's reporting period beginning on October 1, 2007.

Section 1535 specifies the disclosure of (i) an entity's objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv)if it has not complied, the consequences of such non-compliance. The Company has included disclosures recommended by the new Handbook section in note 16 to the interim financial statements.

The new Sections 3862 and 3863 replace Handbook Section 3861, "Financial Instruments -Disclosure and Presentation", revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company has included disclosures recommended by the new Handbook section in note 15 to the interim financial statements.

Other New Accounting Pronouncement

CICA 1400 "General Standards of Financial Statement Presentation" has been amended to include requirements for management to assess and disclose an entity's ability to continue as a going concern, effective for interim and annual financial statements for years beginning on/after January 1, 2008. The Company has included disclosures recommended by the new Handbook section in note 1 to the interim 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 15,853,004
Common stock warrants 2,625,000
Deferred share units - common shares 589,181
----------------------------------------------------------------------------
Fully diluted share capital 273,965,670
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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.

While Gabriel may elect to, Gabriel is under no obligation to and does not undertake to update this information at any particular time, except as required by law.



Gabriel Resources Ltd.
Interim Consolidated Financial Statements
(Unaudited)
For the period ended March 31, 2008



Consolidated Balance Sheets
As at March 31, 2008 and December 31, 2007
(Unaudited and expressed in thousands of Canadian dollars)

2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 128,840 $ 147,244
Short-term investments (note 3) 10,342 162
Accounts receivable 2,708 1,237
Prepaid expenses and supplies 1,189 990
----------------------------------------------------------------------------

143,079 149,633
Capital assets (note 4) 21,013 18,961
Mineral properties (note 5) 357,177 339,361
----------------------------------------------------------------------------

$ 521,269 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 12,172 $ 14,032
Resettlement liabilities (note 6) 20,710 17,140
----------------------------------------------------------------------------
32,882 31,172

Other Liabilities (note 7) 2,536 2,688
----------------------------------------------------------------------------
35,418 33,860
----------------------------------------------------------------------------

Shareholders' Equity
Capital Stock (note 9) 558,277 558,277
Contributed Surplus (note 12) 9,593 8,807
Deficit (82,019) (92,989)
----------------------------------------------------------------------------

485,851 474,095
----------------------------------------------------------------------------
$ 521,269 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Nature of operations and going concern (note 1)
Minority interest (note 8(b))
Commitments and contingencies (note 16)

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



Consolidated Statements of Loss and Deficit
For the three-month periods ended March 31, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars,
except per share data)

2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses
Corporate, general and administrative $ 1,989 $ 2,423
Stock-based compensation (note 7 & 11) 396 248
Project financing costs 22 322
Amortization 77 63
----------------------------------------------------------------------------

2,484 3,056
----------------------------------------------------------------------------
Other income (expense)
Interest income 1,343 893
Foreign exchange 12,111 (308)
----------------------------------------------------------------------------

Income (loss) before income taxes 10,970 (2,471)
Provision for income taxes (note 13) - -
----------------------------------------------------------------------------

Income (loss) for the period $ 10,970 $ (2,471)
Deficit - beginning of period (92,989) (69,946)
----------------------------------------------------------------------------

Deficit - end of period $ (82,019) $ (72,417)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings (loss) per share
Basic $ 0.04 $ (0.01)
Diluted $ 0.04 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted average number of shares
Basic 254,898 214,732
Diluted 256,410 214,732
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Consolidated Statements of Comprehensive Loss
For the three-month periods ended March 31, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars)

2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Income (loss) for the period $ 10,970 $ (2,471)
Other comprehensive loss - -
----------------------------------------------------------------------------
Comprehensive income (loss) $ 10,970 $ (2,471)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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



Consolidated Statements of Cash Flows
For the three-month periods ended March 31, 2008 and 2007
(Unaudited and expressed in thousands of Canadian dollars)

2008 2007
----------------------------------------------------------------------------
Cash flows from (used in) operating activities

Income (loss) for the period $ 10,970 $ (2,471)
Items not affecting cash
Amortization 77 63
Stock-based compensation 396 248
Unrealized foreign exchange loss (gain) on cash and
cash equivalents (11,312) 48
----------------------------------------------------------------------------
131 (2,112)

Net changes in non-cash working capital (note 18) (592) 465
----------------------------------------------------------------------------

(461) (1,647)
----------------------------------------------------------------------------

Cash flows from (used in) investing activities
Decrease (increase) in short-term investments (10,180) 68,213
Development and exploration expenditures (13,841) (14,717)
Purchase of capital assets (2,194) (2,990)
Net changes in non-cash working capital (note 18) (3,370) 1,663
----------------------------------------------------------------------------

(29,585) 52,169
----------------------------------------------------------------------------

Cash flows from (used in) financing activities
Proceeds from issuance of capital stock, net of
issue costs - 148,716
Proceeds from the exercise of share purchase
warrants - 4,389
Proceeds from the exercise of stock options - 295
Proceeds from (used in) DSU settlement (52) -
Net changes in non-cash working capital (note 18) - (1,309)
----------------------------------------------------------------------------

(52) 152,091
----------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents (30,098) 202,613
Effect of foreign exchange on cash, cash equivalents
and non-cash working capital 11,694 (312)
Cash and cash equivalents - beginning of period 147,244 12,598
----------------------------------------------------------------------------

Cash and cash equivalents - end of period $ 128,840 $ 214,899
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 18)

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



Notes to Consolidated Financial Statements
For the three-month periods ended March 31, 2008
(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 and surface rights acquisitions.

The underlying value of the Company's mineral properties is dependent upon the existence and economic recovery of such reserves in the future and the ability of the Company to obtain all necessary permits, raise long-term financing to complete the development of the properties. In addition, the Project may be subject to sovereign risk, including political and economic instability, changes in existing government regulations, for example, a ban on the use of Cyanide in mining, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. The suspension of the EIA process by the Minister of Environment in September 2007 demonstrates the significant risks that this Project faces. These risks may adversely affect the investment and may result in the impairment or loss of all or part of the Company's investment.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at March 31, 2008 the Company had no sources of operating cash flows, and had an accumulated deficit of $82 million. Accordingly, 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 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. 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.

2. Basis of presentation and new accounting policies

The accompanying interim consolidated financial statements have been prepared in accordance with Canadian GAAP for the preparation of interim financial information. Accordingly, they do not include all of the information and disclosures required by Canadian GAAP for annual consolidated financial statements. The accounting policies and methods of computation used in the preparation of these unaudited interim consolidated financial statements are the same as those described in our audited consolidated financial statements and notes thereto for the year ended December 31, 2007. 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, 2007.

Capital Disclosures and Financial Instruments - Disclosures and Presentation

The CICA issued three new accounting standards: Handbook Section 1535, "Capital Disclosures", Handbook Section 3862, "Financial Instruments - Disclosures", and Handbook Section 3863, "Financial Instruments -Presentation". These standards are effective for interim and annual consolidated financial statements for the Company's reporting period beginning on October 1, 2007.

Section 1535 specifies the disclosure of (i) an entity's objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The Company has included disclosures recommended by the new Handbook section in note 16 to these interim financial statements.

The new Sections 3862 and 3863 replace Handbook Section 3861, "Financial Instruments - Disclosure and Presentation", revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company has included disclosures recommended by the new Handbook section in note 15 to these interim financial statements.



3. Short-term investments
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Money market investments with maturities from the
date of acquisition of

4 - 6 months $ 10,166 $ -
7 - 12 months - -
Restricted cash(1) 176 162
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$ 10,342 $ 162
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(1) Restricted cash represents environmental guarantees for future clean up
costs of $176 thousand (2007 - $162 thousand).

Short term money market investment held at period end yielded an average
interest rate of 2.08% in 2008 (2007 - Nil).



4. Capital Assets

March 31, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Office equipment $ 3,928 $ 3,908
Buildings 1,082 1,082
Vehicles 1,270 1,270
Leasehold improvements 206 206
Construction in progress(1) 17,921 15,681
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24,407 22,147
----------------------------------------------------------------------------

Less: Accumulated amortization
Office equipment 2,104 1,949
Buildings 45 43
Vehicles 1,110 1,065
Leasehold improvements 135 129
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3,394 3,186
----------------------------------------------------------------------------

Net book value
Office equipment 1,824 1,956
Buildings 1,037 1,039
Vehicles 160 205
Leasehold improvements 71 77
Construction in progress(1) 17,921 15,681
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$ 21,013 $ 18,961
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Amounts included in construction in progress are not subject to
amortization. Construction in progress includes the following amounts:

2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development costs $ 3,731 $ 2,353
Long-lead-time equipment 14,190 13,328
----------------------------------------------------------------------------
$ 17,921 $ 15,681
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5. Mineral Properties

Rosia Montana Bucium Baisoara Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2006 $ 231,910 $ 9,390 $ 41 $ 241,341

Development costs 96,192 - - 96,192
Exploration costs 702 985 141 1,828
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Balance - December 31, 2007 328,804 10,375 182 339,361

Development costs(1) 17,631 - - 17,631
Exploration costs(1) 103 41 41 185
----------------------------------------------------------------------------
Balance - March 31, 2008 $ 346,538 $ 10,416 $ 223 $ 357,177
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(1) Mineral property additions of $17,816 includes $3,975 of non-cash items
principally related to amortization, stock based compensation, and
resettlement liabilities, therefore the net cash investment during the
period was $13,841.


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 RMGC holds the pre-emptive right to acquire the 20% minority interest. RMGC 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 third quarter of 2007, the Company filed the necessary documentation to convert the exploration license into an exploitation license. No additional work on Bucium's project economics is planned until the license is converted from an exploration to an exploitation license and until the EIA is approved.

The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. 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, 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 some new properties by September 30, 2007 and November 30, 2007, however these obligations were not met. The Company is obligated to deliver additional properties by May 30, 2008, and August 1, 2008. If the Company fails to deliver properties on time, the Company will incur a penalty of 0.5% of the agreed upon property value per month of delay as required by the agreement. For some agreements, 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 unpaid property value, plus the related penalties, and the owners retain the right to occupy the home for an undetermined period of time. The Company believes it can deliver most of the homes within the penalty period but is working with those residents who chose the resettlement option to obtain an extension of three to six months due to the delay in permitting and the poor weather over the winter season. As at March 31, 2008, the Company has accrued $0.9 million (December 31, 2007 - $0.5 million) in respect of delay penalties, while the balance of the resettlement accrual represents the remaining obligation to those homeowners that chose the resettlement option.



7. Other liabilities

Price per
DSU's Common Share
Deferred Share Units ("DSU")(a) ( 000's) (dollars) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding - December 31, 2006 238 $ 5.06 $ 1,204
Granted 370 1.62 599
Settled (5) 4.75 (24)
Change in fair value - - (592)
----------------------------------------------------------------------------
Outstanding - December 31, 2007 603 1.97 1,187
Granted 15 1.69 25
Settled (28) 1.82 (52)
Change in fair value - - (165)
----------------------------------------------------------------------------
Balance - March 31, 2008 589 $ 1.69 $ 995
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Fidelity bonus and other benefits (b) Value
----------------------------------------------------------------------------
Balance accrued - December 31, 2006 $ 184
Additions 665
----------------------------------------------------------------------------
Balance accrued - December 31, 2007 849
Foreign exchange movement 67
----------------------------------------------------------------------------
Balance accrued - March 31, 2008 $ 916
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Long-term portion of Severance and Termination costs(c) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance accrued - December 31, 2007 $ 652
Reclass to current liabilities (83)
Foreign exchange movement 56
----------------------------------------------------------------------------
Balance accrued - March 31, 2008 $ 625
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Total Other liabilities $ 2,536
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(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. It is at the holder's discretion as to whether he/she elects to settle the DSU in cash or shares of Gabriel. If the holder elects to settle the DSU in shares of Gabriel, the Company, at its sole discretion, can elect to pay the amount in common shares either purchased from the open market, or issued from treasury.

The change in the fair market value of the DSU liability has been recorded in stock based compensation expense except for costs relating to personnel working on projects in Romania, which are capitalized.



Three months ended March 31,
2008 2007
----------------------------------------------------------------------------
Recovered $ (124) $ (141)
Capitalized $ (16) $ (15)
----------------------------------------------------------------------------


(b) Fidelity Bonus

Under the Collective Bargaining Agreement between RMGC and its employees, under certain conditions, employees of RMGC are entitled to a bonus equal to one month of average gross salary when celebrating 3, 5, 10, 15, 20, and 25 years of uninterrupted service as well as other benefits related to death benefits and termination of employment. As of March 31, 2008, $916 thousand (December 31, 2007 - $849 thousand) has been accrued for these benefits.

(c) Severance and Termination Costs

On December 4, 2007, in light of the suspension of the EIA review process, the Company announced and enacted plans to scale back activities. In the fourth-quarter 2007, the Company accrued $1.4 million in costs related to the retrenchment of 170 employees.

As at March 31, 2008 the Company paid $0.3 million in respect of termination benefits. The Company has modified the payment terms of its remaining obligation and has classified half of the remaining obligation as current liability.



December FX March
31, 2007 Payment Reclassification movement 31, 2008
----------------------------------------------------------
----------------------------------------------------------
Current portion 796 (324) 83 69 624
Long term portion 652 - (83) 56 625
----------------------------------------------------------
Total Costs 1,448 (324) - 125 1,249
----------------------------------------------------------
----------------------------------------------------------


8. Related Party Transactions

The Company had related party transactions, with directors, officers 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 $6 thousand (2007 - Nil) during the first quarter to a director of the Company for consultation services provided to the Company.

(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 (000's) Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2006 210,891 385,444

Shares issued from a public offering(a) 35,937 156,328

Less: Share issue costs - (7,778)

Shares issued on the exercise of stock options
(note 11) 614 1,213

Stock-based compensation - exercise of stock
options (note 12) - 620

Stock-based compensation - settlement of DSUs
(note 7(a)) 5 24

Shares issued from the exercise of share
purchase warrants (note 10(a)) 7,451 20,489

Exercise of share purchase warrants - transfer
from common share
Purchase warrants - 1,937
----------------------------------------------------------------------------
Balance - December 31, 2007 and March 31, 2008 254,898 558,277
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(a) 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 $148.6 million were
received, after deducting underwriting fees of $6.9 million plus various
professional fees related to the offering of $0.7 million. The net
proceeds of the offering are being used 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.



Earnings per share

The following is a reconciliation of the numerator and denominator of
earnings per share computations:

March 31, March 31,
2008 2007
----------------------------------------------------------------------------

Net income (loss) for the period $ 10,970 $(2,471)
Adjustment for diluted earnings - -
----------------------------------------------------------------------------
Net income (loss) for diluted earnings per
share $ 10,970 $(2,471)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted average number of common shares
outstanding 254,898 214,732
Effect of dilutive securities 1,512 -
----------------------------------------------------------------------------
Diluted weighted average number of shares
outstanding 256,410 214,732
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per share
Basic $0.04 $(0.01)
Diluted $0.04 $(0.01)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Options to purchase 5,299 (2005 - n/a) common shares were excluded from the March 2008 computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. For March 2007, the exercise of outstanding options would be anti-dilutive in the loss per share calculation and were therefore excluded.

10. Share Purchase Warrants

During fourth quarter 2006, the Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project. 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 March 31, 2008, 13.1 million options are available for issuance under the Plan (December 31, 2007 - 12.6 million).

As at March 31, 2008, common share stock options held by directors, officers, employees and consultants are as follows:



Outstanding Exercisable
---------------------------------- ---------------------
Weighted
Weighted average Weighted
average remaining Average
Number exercise contractual Exercise
Range of exercise of price life Number of Price
prices (dollars) options (dollars) (Years) options (dollars)
----------------- -------------------------------- ---------------------

$1.48 - $2.00 7,154 $ 1.56 3.6 3,116 $ 1.55
2.01 - 3.00 2,616 2.50 2.4 2,032 2.48
3.01 - 5.00 2,633 4.47 3.8 1,158 4.53
-------------------------------- ---------------------
-------------------------------- ---------------------
12,403 $ 2.37 3.4 6,306 $ 2.40
-------------------------------- ---------------------
-------------------------------- ---------------------


During the year ended 2007 and the three-month period ended March 31, 2008, 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, 2006 9,583 2.96
Options granted 5,965 2.34
Options expired (941) 5.17
Options forfeited / cancelled (1,067) 4.46
Options exercised (614) 1.98
----------------------------------------------------------------------------

Balance - December 31, 2007 12,926 2.44
Options granted - -
Options expired (250) 4.70
Options forfeited / cancelled (273) 3.30
Options exercised - -
----------------------------------------------------------------------------

Balance - March 31, 2008 12,403 $ 2.37
----------------------------------------------------------------------------
----------------------------------------------------------------------------


No options were granted during the three-month period ended March 31, 2008 (March 31, 2007 - 955 thousand). The fair value of options granted is estimated at the date of grant using a Black-Scholes option pricing model.The estimated fair value of stock options is amortized over the period in which the options vest which is normally three years. For those options that vest on issuance, the entire fair value of the options is recognized immediately, while for those options that begin to vest after a deferral period, the fair value of the options is amortized proportionately over the total vesting and delay period. Fair value of stock options granted to personnel working on development projects is capitalized over the vesting period. For the three-month period ended March 31, 2008, the amount expensed was $520 thousand (2007 - $389 thousand) and the amount capitalized was $266 thousand (2007 - $299 thousand).

12. Contributed Surplus

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



Total
----------------------------------------------------------------------------
Balance - December 31, 2006 $ 5,904
Stock-based compensation 3,516
Exercise of stock options (620)
Expiry of unexercised warrants 7
----------------------------------------------------------------------------
Balance - December 31, 2007 8,807
Stock-based compensation 786
Exercise of stock options -
Expiry of unexercised warrants -
----------------------------------------------------------------------------
Balance - March 31, 2008 $ 9,593
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. Income Taxes

In the fourth quarter of 2007, in response to a Romanian tax assessment received in early 2008, being the result of the second tax audit undertaken in 2007, the Company accrued an additional $3.7 million in respect of tax liabilities arising from the disallowance of the application of state tax incentives to unrealized foreign exchange gains on inter company debt. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities have misapplied their domestic legislation and the Company plans to vigorously contest the State's position in court.

During April 2008, the Company was advised that the Romanian tax authorities would expand the scope of their previous tax audits and therefore, gave notice that they would begin auditing fiscal years 2003 and 2004 on April 15, 2008.

14. Segmented Information

The Company has one operating segment: the acquisition, exploration and development of precious metal projects located in Romania.

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



March 31, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Romania $ 377,503 $ 357,558
Canada 687 764
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$ 378,190 $ 358,322
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15. Financial Instruments

The recorded amounts for cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities approximate fair values based on the short-term nature of those instruments.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

Credit risk

The Company's credit risk is primarily attributable to value-added taxes receivable. Value-added taxes receivable are collectable from the Romanian government. In addition, the majority of the Company's cash and cash equivalents are on deposit with two Canadian banks. A lesser amount is held in local banks in Romania.

Liquidity risk

The Company has sufficient funds March 31, 2008 and December 31, 2007 to settle current and long-term liabilities

Market risk

(a) Interest rate risk

The Company has significant cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in investment-grade short-term money market investments. The Company monitors the investments it makes and is satisfied with the credit ratings.

(b) Foreign currency risk

The Company's functional currency is primarily the Canadian dollar. The Company's operations expose it to significant fluctuations in foreign exchange rates. The Company has monetary assets and liabilities denominated in Romanian Ron, United States dollars and European Union Euros, and are, therefore, subject to exchange variations against the functional and reporting currency, the Canadian dollar.

Sensitivity analysis

The Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value. As of March 31, 2008, the carrying amount of the financial instruments equals fair market value. Based on management's knowledge and experience of the financial markets, the Company believes the following movements are "reasonably possible" over a three month period.

- Cash and cash equivalents include deposits at call which are at floating interest rates. Sensitivity of cash, cash equivalents, and short term investment to a plus or minus 1% change in earned interest rates would affect net income by $345.

- The Company holds significant balances in foreign currencies, and this gives rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 1% change in foreign exchange rates would affect net income by $1,255.

16. Capital Management

The Company's objective when managing capital is to safeguard its accumulated capital in order to fund development of its Rosia Montana project. The Company manages its capital structure and makes adjustments to it based on the level of funds on hand and anticipated future expenditures. The Company expects that it will be able to obtain equity, long-term debt and/or project-based financing sufficient to build and operate the Rosia Montana project. There are no assurances that these initiatives will be successful. To safeguard capital and to mitigate currency risk, the Company invests its surplus capital in highly liquid, highly rated financial instruments that reflect the currency of the planned expenditure.

17. Commitments and Contingencies

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



2012 and
Total 2008 2009 2010 2011 thereafter
----------------------------------------------------------------------------
Baisoara exploration
license (note 5) $ 3,044 $ 224 $ 652 $ 1,336 $ 832 $ -
Resettlement (note 6) 20,710 20,710 - - - -
Goods and services(a) 9,033 7,563 1,036 10 10 414
Long lead time
equipment(b) 45,366 27,035 18,331 - - -
Rosia Montana
exploitation license(c) 285 26 26 26 26 181
Surface concession
rights(d) 873 15 20 20 20 798
Lease agreements(e) 1,725 517 639 401 168 -
----------------------------------------------------------------------------
Total commitments $ 81,036 $ 56,090 $ 20,704 $ 1,793 $ 1,056 $ 1,393
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services which totaled $9.0 million at March 31, 2008 (December 31, 2007 - $9.3 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

(b) During 2007, the Company entered into purchase agreements for long-lead-time equipment, the cost of which is to be paid over three years beginning 2007. The following is a summary of the long-lead-time equipment orders and the payment status:



March 31, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total purchase agreements:
Grinding area systems $ 46,140 $ 46,140
Crusher facilities 6,976 6,976
Other process equipment 2,646 2,646
Foreign exchange movement 3,793 -
----------------------------------------------------------------------------
59,555 55,762
Amounts paid as at March 31, 2008:
Grinding area systems (11,043) (11,043)
Crusher facilities (2,035) (2,018)
Other process equipment (267) (267)
Foreign exchange movement (844) -
----------------------------------------------------------------------------
Outstanding payment obligation $ 45,366 $ 42,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Although contractually committed to their acquisition, the Company has placed $8.0 million of orders on hold pending the restart of the permitting process. Should the Company ultimately cancel the orders, its future obligation under those contracts is not expected to exceed $30 thousand. At March 31, 2008 the outstanding obligation for those orders is $7.4 million (December 31, 2007 - $6.9 million) and has been allocated to 2009 on the payment schedule.

(c) Under the terms of the Company's exploitation mineral license for the Rosia Montana project, an annual fee is required to be paid to maintain the license in good standing. The current annual fee is approximately $26 thousand. These fees are indexed annually by the Romanian Government and the license has 11 years remaining.

(d) RMGC has approximately 43 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 $20 thousand.

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

The following is a contingency of the Company.

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.



18. Supplemental Cash Flow Information

(a) Net changes in non-cash working capital

March 31, March 31,
2008 2007
----------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid expenses and supplies $ (318) $ 980
Accounts payable and accrued liabilities (304) (515)
Unrealized foreign exchange loss in non-cash working
capital 30 -
----------------------------------------------------------------------------

(592) 465
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Investing activities:
Accounts receivable, prepaid expenses and supplies (1,443) 76
Accounts payable and accrued liabilities (1,517) 1,323
Unrealized foreign exchange loss in non-cash working
capital (410) 264
----------------------------------------------------------------------------
(3,370) 1,663
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financing activities:
Accounts receivable for exercise of purchase warrants - (1,709)
Accrued share issue cost - 400
----------------------------------------------------------------------------
$ - $ (1,309)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Exploration and development expenditures
Balance sheet change in Mineral Properties $ (17,816) $ (15,790)
Non-cash depreciation and disposal capitalized 130 158
Reclassification to Mineral Properties 25 -
Stock based compensation capitalized 250 284
Increase in resettlement liabilities 3,570 631
----------------------------------------------------------------------------
$ (13,841) $ (14,717)
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----------------------------------------------------------------------------

(c) Cash and cash equivalents is comprised of:
Cash $ 602 $ 20,072
Short-term investments (less than 90 days) -
weighted average interest of 3.5% (2007 - 4.5%) 128,238 194,827
----------------------------------------------------------------------------
$ 128,840 $ 214,899
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company did not incur interest expense during 2008 and 2007.


19. Reclassification of Comparative Figures

Certain comparative figures have been reclassified to conform to the current year's presentation.

Contact Information