Gabriel Resources Ltd.
TSX : GBU

Gabriel Resources Ltd.

March 05, 2009 06:00 ET

Gabriel Resources Ltd: Fourth Quarter 2008 Report

TORONTO, CANADA--(Marketwire - March 5, 2009) - Gabriel Resources Ltd. (TSX:GBU) -

Highlights

Financial performance

- Fourth quarter net income was $4.0 million, or $0.02 per share. Year-to-date net loss was $4.1 million, or $0.02 per share.

- For the fourth quarter, foreign exchange gains on foreign currency cash balances generated net income. For the year, a $15.8 million foreign currency gain reduced the loss for the year significantly. The foreign exchange gains resulted from a weakening of the Canadian dollar.

- A total of $23.2 million was spent on our development projects during the quarter, while $75.8 million was spent during 2008.

Updated Capital and Operating Costs / Expected Financing Plan

- The cost to complete the Project was updated in first quarter 2009 to US$876 million (excluding working capital) compared to US$638 million in 2006 an increase of US$238 million (excluding sunk costs of approximately US$147, which includes approximately US$90 million for surface rights, US$13 million for engineering and project management and US$44 million for long-lead-time mill equipment).

- Including interest, financing and corporate costs the estimated capital required is approximately US$1 billion an increase of US$250 million over the previous financing plan announced in 2006 of US$750 million.

- The Company anticipates financing these costs with approximately 25 percent equity and 75 percent debt.

- The Project is estimated to produce 626,000 ounces of gold annually during its first five years of operation and an average of 511,000 ounces per year over its 16 year mine life.

- The estimated total cash cost(1) to produce gold over the first five years is estimated at US$272 per ounce and is expected to average US$335 per ounce over the life of the Project.

- The Company has filed the 43-101 Technical Information Update for the Project which provides the basis for the updated cost estimates. (This document can be viewed at www.sedar.ca. A full list of Qualified Persons which certified this report can be found in the MD&A in the "Updated Capital and Operating Costs" section.)

(1) Total cash cost is a non-GAAP financial measure. Total cash costs represent all costs absorbed into inventory, plus royalties and production taxes, less by-product revenues and exclude amortization and accretion.

"Having built a number of mines around the world, I am confident that the Rosia Montana project will be considered a world leader and benchmark for others to aspire to," said Alan R. Hill, President and CEO. "As a company, we have worked to demonstrate our commitment to the Rosia Montana community, and we trust that the development of our project will resolve many of the issues that the region currently suffers from - insufficient infrastructure, high unemployment and existing environmental degradation. Looking from Rosia to Romania as a whole, we believe that once the EIA review process resumes and our project proceeds, it will be seen as encouragement to other investors around the world to come to Romania once again to develop projects - bringing the country not only greater economic prosperity but also a commitment to 'best practices' in environmental and social responsibility and sustainable development."

Liquidity and capital resources

- Cash and cash equivalents at December 31, 2008 totaled $72.2 million.

- The base budget for 2009 on the Rosia Montana Project totals $60 million with corporate overheads expected to total a further $10 million in 2009. In total the Company expects to spend approximately $70 million to run the corporate office and complete EIA permitting activities.

- The Company started 2009 with $72.2 million in cash and cash equivalents and therefore irrespective of how the Project progresses the Company will require additional capital in 2009.

- Once the EIA is approved, the activity level will increase, including the acquisition of remaining surface rights, completion of a control estimate, payment of land use taxes and other payments required to obtain construction permits.

- These additional activities are expected to cost approximately US$150 million. These activities can only commence once additional financing is raised. The updated financing plan assumes that neither the conventional bank debt market nor the bond market will be available in time to meet the Company's financing needs.

- Management has been advised by its financial advisors that while financing the Project will be challenging due to the financial crisis, financing from government agencies and non traditional lenders should be available even in the current environment because of the economic and other benefits resulting from the Project.

Rosia Montana Project Development

Overview

- Since the fall of 2007 the Project's environmental impact assessment (the "EIA") has been suspended as a result of a decision taken by the former Minister of Environment.

- Since that time Management has taken all steps within its power to restart the permitting process.

- National elections were held in Romania in November of 2008 and a new coalition government was formed shortly thereafter. The two major parties that formed the opposition in the previous government today form the new coalition. Management is hopeful that under the new government the Project, and its EIA, will receive an open and transparent review.

Political Situation

- A new coalition government was formed on December 22nd 2008, comprising the Democrat-Liberal Party ("PDL") and the Social Democrat Party ("PSD"), the two largest parties in the country.

- Together the two parties received over 70 percent of the electoral seats in the new Parliament. This is a change from the government which governed from April 2007 until November 2008, having approximately 23 percent of the Parliament. The two parties which formed the previous government today form the government opposition and therefore do not hold any ministerial positions.

Private Members Bills

- The change in government may well affect several of our opposition's efforts to delay the Project.

- As reported previously, under the previous government, three "private member bills" were introduced for consideration by the Romanian Parliament. Each bill was intended to block the Project, either by banning the use of cyanide in mining operations, or by creating a protected status for the area designated for mining. One of these bills was voted down and the other two remain in the Parliamentary Committee process.

- The sponsors of the bills are no longer members of Parliament. With a new Parliament in place, it is not possible to determine whether or if any of these bills will be tabled for consideration and a vote taken in the Chamber of Deputies.

Environmental/Permitting

- Management is hopeful that the Technical Analysis Committee ("TAC") process will restart in the near term.

- The TAC process had been suspended by the former MESD in September 2007 based on a court challenge by Alburnus Maior, an NGO opposing the Project. The previous MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007. In February 2009, the Company won a court ruling against the past decision of the MESD compelling the MESD to issue our dam safety permits. This decision is appealable by the MESD and the Company awaits the position of the MESD on this issue.

Surface Rights

- As a result of the suspension of the EIA review process in September 2007, the home purchase program was suspended indefinitely in February 2008.

- As of December 2008, 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.

Resettlement Sites

- Construction of the Alba Iulia resettlement site began in summer 2007. Infrastructure was completed during the third quarter 2008 and all of the 123 homes are expected to be completed and transferred to their new owners during the first two quarters of 2009.

- The Company is also working with local officials to obtain permits for the construction of Piatra Alba and hopes to begin construction during the fall of 2009.

Archaeology

- The Supreme Court annulled ADC 4 in December 2008. This decision is final, is not appealable and brings to a close a series of court challenges.

- The Company recently received the Court's written reasons for this decision. As the Company prepares its new application for ADC 4, it will incorporate all deficiencies identified by the Court. At this time, the Company does not believe this process will affect the overall permitting schedule.

Tax Audits

- The Company has received two tax assessments in 2008, totaling $14.6 million. These assessments arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.

- While the Company has fully provided for the assessment in its financial statements and paid all of the tax related to the assessments, based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation and is contesting the State's position through the courts.

Rosia Montana Project Timeline

- Once the permitting process restarts 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

-- Complete the control estimate and complete the financing.

- This estimated time line could be extended due to the global financial crisis, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel.

- Once construction of the mine begins it is expected to take approximately 24 months to complete. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.

Proven and Probable Mineral Reserves

The Company maintains an 80 percent economic interest in the Rosia Montana project which at year end 2008, has aggregate proven and probable reserves as follows, calculated using a gold price of $735 per ounce:



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Grade (g/t) In Situ (Ounces)
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Reserve Category Tonnes Gold Silver Gold Silver
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Proven 112,455,000 1.63 9.0 5,893,000 32,540,000
Probable 102,476,000 1.27 4.6 4,184,000 15,156,000
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Total 214,931,000 1.46 6.9 10,077,000 47,696,000
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John Marek, P.Eng., is the qualified person responsible for calculating the reserve estimate set forth in the table above.

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 Fourth Quarter, Year End 2008 Conference Call and Webcast on Thursday, March 5, 2009 10:30 am EST. North American callers dial 1-866-713-8565 International callers dial 1-617-597-5324 - Participant Passcode: 30344683.

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 years ended December 31, 2008 and 2007. The MD&A should be read in conjunction with the audited consolidated financial statements and notes thereto ("Statements") of Gabriel Resources Ltd. ("Gabriel" or the "Company") as at and for the years ended December 31, 2008 and 2007. 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 March 3, 2009, and the Company's public filings, including its most recent Annual Information Form, can be reviewed on the SEDAR website (www.sedar.com).

Overview

Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is engaged in the exploration and development of mineral properties in Romania and is presently 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 the Project and, as a result, to be a catalyst for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, 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 and Romanian non-governmental organizations ("NGOs"), certain Romanian organizations and some members of the Hungarian Government. These opposition forces continue to lobby Romanian politicians against our Project. The NGOs tactic of commencing court challenges against all key permits and approvals granted to the Company remains one of the primary factors in the delay of the permitting of the Rosia Montana Project.

Since the fall of 2007 the Project's environmental impact assessment (the "EIA") has been suspended as a result of a decision taken by the former Minister of Environment. Since that time Management has taken all steps within its power to restart the permitting process. National elections were held in Romania in November of 2008 and a new coalition government was formed shortly thereafter. Management is hopeful that under the new government the Project, and its EIA, will receive an open and transparent review.

Key Issues

Political Situation

Romania held national elections on November 30th, 2008. A new coalition government was formed on December 22nd, 2008 comprising the Democrat-Liberal Party ("PDL") and the Social Democrat Party ("PSD"). The process of appointing state secretaries and other senior government officials was completed in early February 2009. The new government spent its first month focused on an anti-crisis program to mitigate the impact of the financial and economic crisis and completing the 2009 budget for the country.

The new coalition government is comprised of the two largest parties in the country. Together the two parties received over 70 percent of the electoral seats in the new Parliament. This is a change from the government, which governed from April 2007 until November 2008 and was comprised of the Liberal party and ethnic Hungarian UDMR (the "UDMR") party. Those parties represented approximately 23 percent of the Parliament, under the then sitting Prime Minister. Under the previous government, the UDMR held the Ministry of Environment and Sustainable Development ("MESD"). Today these two parties form the government opposition and therefore do not hold any ministerial positions.

The change in government may well affect several of our opposition's efforts to delay the Project. As reported previously, under the previous government, three "private member bills" were introduced for consideration by the Romanian Parliament. Each bill was intended to block the Project, either by banning the use of cyanide in mining operations, or by creating a protected status for the area designated for mining. One of these bills was voted down and the other two remain in the Parliamentary Committee process. The sponsors of the bills are no longer members of Parliament. With a new Parliament in place, it is not possible to determine whether or if any of these bills will be tabled for consideration and a vote taken in the Chamber of Deputies.

Environmental/Permitting

Management is hopeful that the Technical Analysis Committee ("TAC") process will restart in the near term. The TAC process had been suspended by the former MESD in September 2007 based on a court challenge by Alburnus Maior, an NGO opposing the Project.

The previous MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007. In February 2009, the Company won a court ruling against the past decision of the MESD compelling the MESD to issue our dam safety permits. This decision is appealable by the MESD and the Company awaits the position of the MESD on this issue.

While the EIA is by far the most important Project approval, there are a number of other permits and approvals required to advance the Project, such as dam safety permits, the zonal urbanistic plans for the industrial and protected areas, the forestry and land use change permits as well as other permits and approvals that follow EIA approval, to obtain the construction permits. The processes for each of these permits and approvals proceed in parallel with the EIA review process. In the absence of any other extraordinary events, legal or otherwise, we expect these permitting processes to take at least six months from the restart of the EIA review process.

Litigation

A number of foreign-funded and Romanian 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 in conjunction with Alburnus Maior), 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 brought forward by NGOs in Romania may continue to cause potential setbacks to the Project.

Alburnus Maior's legal action seeking an order compelling the National Agency for Mineral Resources (NAMR) to annul the Rosia Montana exploitation concession license was rejected by the courts in February 2009.

Independent Report on Social-Economic Development

An independent report titled the "Rosia Montana Commune Strategic Social-Economic Development Plan for 2008-2013" (the "Report") was adopted by the Rosia Montana Local Council during the third quarter. Drafted over the course of the first half of 2008 with the participation of local leaders and community consultation, the Report was commissioned by the Rosia Montana Local Council. The Report was funded and conducted by the National Agency for Development of Mining Zones/Alba Regional Office.

Noting that "those supporting the project represent the majority and hope that the project implementation will generate a better life, jobs and a good standard of living," the Report articulates a local development strategy for the Rosia Montana commune. The Report is the product of collaboration between community leaders, community members and other partners along with the National Agency for Development of Mining Zones. As the Report's author indicates, the key is connecting the strategy to community needs: "Plans must be drafted from the bottom-up, to include real needs, objectively identified."

The Report concludes that the Project is an integral part of socio-economic development in the region, and seeks to ensure that local community benefits are widely felt and that the Project contributes to sustainable and diversified economic development.

Surface Rights

As a result of the suspension of the EIA review process in September 2007, the home purchase program was suspended indefinitely in February 2008. As of December 2008, the Company owns or has options on 77 percent of the homes in the industrial zone, protected area and the buffer zone.

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

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.

Resettlement Sites

Construction of the Alba Iulia resettlement site, known as La Recea, began in summer 2007. Infrastructure was completed during the third quarter 2008 and all of the 123 homes are expected to be completed and transferred to their new owners during the first two quarters of 2009. Two residents who elected to relocate from the Piatra Alba resettlement site to La Recea in Alba Iulia will have their homes completed during the third quarter of 2009. The Company is also working with local officials to obtain permits for the construction of Piatra Alba and hopes to begin construction during the fall of 2009.

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 archaeological 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 ("ADC 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 ADC 4 was ordered by the Brasov Court of Appeal. Gabriel appealed this second annulment to the Supreme Court. The Supreme Court annulled ADC 4 in December 2008. This decision is final, is not appealable and brings to a close a series of court challenges. The Company recently received the Court's written reasons for this decision. As the Company prepares its new application for ADC 4, it will incorporate all deficiencies identified by the Court. At this time, the Company does not believe this process will affect the overall permitting schedule.

By way of background, the fieldwork that was conducted, and the technical documentation that was prepared, for ADC 4 was undertaken by a team of more than 80 internationally well-known archaeological specialists coming from more than 23 organizations from three countries, working between 2001 and 2004. The Romanian National Archaeology Commission, a body of 21 accomplished Romanian archaeologist and historians, reviewed the documentation and recommended the issuance of the discharge certificate to the Minister of Culture. To date the Company has spent approximately US$ 11 million on a rescue archaeology program.

The cancellation of ADC 4 does not suspend, terminate or delay any permitting processes that are currently running in parallel. Nor does the cancellation of ADC 4 affect, cancel or terminate any rights the Company currently holds, or has previously acquired, with respect to the Rosia Montana Project.

The opposition has also challenged the issuance of archaeological discharge Certificate No. 5 ("ADC 5") on grounds similar to their challenge of ADC 4, and this matter is currently before the Romanian courts. ADC 5 is a compilation of the four previously issued discharge certificates and was obtained for administrative convenience only. The Company has been informed by its Romanian legal counsel that the annulment of ADC 5 does not automatically result in the annulment of the underlying discharge certificates.

Updated Capital and Operating Costs

The cost to complete the Project is estimated at US$876 million (excluding working capital) based on a revised cost estimate in March 2009 based on fourth quarter 2008 pricing. This is an increase of US$238 million (excluding sunk costs of approximately US$147 million, which includes approximately US$90 million for surface rights, US$13 million for engineering and project management and US$44 million for long-lead-time mill equipment) over the 2006 estimate of US$638 million. The increase in costs reflects scope changes brought about through the permitting process and additional engineering, higher earth works, EPCM costs, contingencies and currency impacts. Owners costs, which includes surface rights acquisition, construction of a new resettlement village, overheads and taxes, increased by US$98 million, primarily from scope changes to address community concerns, higher real estate prices (in part due to currency fluctuations) and construction costs, higher taxes and a larger owners engineering team that will monitor Project construction.

Management has completed significant engineering and Project design resulting in a level of confidence beyond a typical feasibility study. Overall, while commodity prices declined during the second half of 2008, prices for most of the goods and services required for Project construction remained surprisingly firm. Some of those prices have begun to weaken during the first quarter of 2009. Management is hopeful that the control estimate (that will be completed by the EPCM contractor, once the EIA is approved, for purposes of project financing) will result in a lower capital cost for the Project.



Capital Cost to Completion Summary
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stated in millions of US dollars 2006 2009 Chg % Chg
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Mining $ 45 $ 89 $ 44 99%
Process 134 115 (18) (14%)
Tailings Management Facility 68 99 31 45%
Infrastructure / Utilities 102 137 35 34%
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Subtotal - Directs $ 349 $ 441 $ 92 26%
EPCM and other Indirects 118 158 41 34%
Contingency - industrial 46 53 7 16%
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Subtotal - Indirects $ 163 $ 211 $ 48 29%
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Total Direct and Indirect costs $ 513 $ 652 $ 140 27%
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Community Development 61 88 26 43%
Owner's Costs 55 116 61 112%
Contingency - Owners 9 20 11 117%
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Subtotal - Owners $ 125 $ 223 $ 98 78%
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Total Initial Capital $ 638 $ 876 $ 238 37%
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Capital Cost to Completion Summary
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stated in millions of US dollars 2006 2009 Chg % Chg
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Base project costs $ 513 $ 595 $ 83 16%
Scope changes - 21 21
Reclass. mobile fleet - 36 36
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Total direct and indirect costs $ 513 $ 652 $ 140 27%
Total Owner's Costs 125 223 98 78%
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Total Initial Capital $ 638 $ 876 $ 238 37%
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Gold Production

The Project is estimated to produce 626,000 ounces of gold annually during its first five years of operation and an average of 511,000 ounces per year over its 16 year mine life. Over the Project's life, total production is estimated at 7.9 million ounces of gold. Below is a summary of gold production by year.

Please note: To view the "Gold Production (net)" graph, please visit the following link: http://media3.marketwire.com/docs/gbuq4fig1.jpg.

Operating Costs

The estimated total cash cost(i) to produce gold over the first five years is estimated at US$272 per ounce and is expected to average US$335 per ounce over the life of the Project. This is an increase over the 2006 estimate which estimated the total cash cost to produce gold over the first five years at US$181 per ounce and US$237 over the life of the Project. The higher costs reflect higher processing costs due to higher energy, cyanide and consumables costs. Higher fuel, blasting and tire costs increased mining costs, while administrative costs increased due to higher expected patrimony and community costs as well as higher taxes. Royalties also increased from US$ 11 per ounce to US$ 31 per ounce due to a doubling of the royalty rate from 2 to 4 percent and higher gold prices.

(i)Total cash cost is a non-GAAP financial measure. Total cash costs represent all costs absorbed into inventory, plus royalties and production taxes, less by-product revenues and exclude amortization and accretion.



All dollar amounts are stated in US dollars 2006 2009 Variance
---------- ------------ ---------

Adjusted for Working Capital:
Long-term gold price per ounce $ 500 $ 750 50.0%
NPV - after tax @ 0% (millions)(i) $ 1,020 $ 1,662 63.0%
NPV - after tax @ 5% (millions)(i) $ 500 $ 997 99.5%
Internal rate of return (after tax) 17.6% 20.4% 15.4%

Production
Ore Production (tonnes) 214,905 214,931 0.0%
Total Material Moved 501,486 501,700 0.0%
Strip Ratio 1.20 1.20 0.0%
Gold Production (gross oz.) 7,943,083 7,929,733 -0.2%
Silver Production (gross oz.) 28,891,080 28,886,484 0.0%

Mine and Process Costs
Mining Cost per tonne of material moved $ 1.03 $ 1.23 19.5%
Per tonne of Ore
Mining Cost $ 2.41 $ 2.88 19.5%
Processing Cost 6.09 8.23 35.1%
General Administrative and other 0.96 1.46 52.0%
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Total $ 9.46 $ 12.57 32.9%
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2006 2009 Variance
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Cash Costs per Ounce of Gold
Mining Cost $ 65 $ 78 19.8%
Processing Cost 165 223 35.3%
General Administrative and other 26 40 51.8%
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Total Unit Operating Costs $ 256 $ 341 33.1%
Silver Credit (31) (38) 23.7%
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Cash Costs per ounce $ 225 $ 303 34.3%
Royalties and other taxes 11 32 186.2%
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Total Cash Costs(ii) $ 237 $ 335 41.6%
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(i) NPV represents net present value
(ii) Total Cash Costs is a non-GAAP financial measure, which does not
include amortization and accretion.



The life-of-mine operating costs are summarized below.



Operating Cost Summary
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stated in US dollars $000's $/t milled $/oz Gold
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Mining Cost $ 618,080 $ 2.88 $ 78
Processing Cost 1,768,077 8.23 223
General Administrative and other 315,348 1.46 40
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subtotal $ 2,701,504 $ 12.57 $ 341
Silver by-product credit (301,033) (38)
Royalties and other taxes 256,995 32
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Total $ 2,657,466 $ 335
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A summary of key operating statistics and costs for the first five and 10 years operating, as well as life of mine are summarized below.



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All dollar amounts are Average Total
stated in US dollars 1st 5 Yrs 1st 10 Yrs Life -of-Mine
-------------------------------------------

Tonnes Milled t 12,861 13,625 214,931
Tonnes Waste t 18,426 19,287 256,899
Strip Ratio 1.43 1.42 1.20
Grade Au gpt 1.90 1.61 1.46
Grade Ag gpt 10.50 8.12 6.88
Recovery Au % 0.80 0.80 0.79
Recovery Ag % 0.62 0.61 0.61

Gold Production (Gross) oz. 626,000 562,000 7,930,000
Silver Production (Gross) oz. 2,685,000 2,172,000 28,886,000

Gold @ $ 750 per ounce
----------------------
Internal rate of return
- after tax 20.4%
NPV - after tax @ 0%
(millions of US dollars)(i) $ 1,662
NPV - after tax @ 5%
(millions of US dollars)(i) $ 997
Payback (capital to
completion) 3.5 Years
Mine Life 15.5 Years

US dollar Operating cost
per tonne of Ore
------------------------
Mining Cost $ 3.39 $ 3.22 $ 2.88
Processing Cost 8.83 8.27 8.23
General Administrative
and other 1.57 1.46 1.46
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Total Operating Costs $ 13.79 $ 12.95 $ 12.57
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US dollar Operating cost
per ounce of Gold
------------------------
Mining Cost $ 70 $ 78 $ 78
Processing Cost 181 200 223
General Administrative
and other 32 36 40
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Total Cash Operating Costs $ 283 $ 314 $ 341
Silver Credit $ (44) (40) (38)
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Cash Costs per ounce $ 239 $ 273 $ 303
Royalties and other taxes 33 33 32
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Total Cash Costs(ii) $ 272 $ 306 $ 335
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(i) NPV represents net present value
(ii) Total Cash Costs is a non-GAAP financial measure, which does not
include amortization and accretion.


The Company filed National Instrument 43-101 Technical Information Update for the Project in March 2009 providing a full technical update of the Rosia Montana Project. The qualified persons who certified the 43-101 Technical Information Update which is the basis for the updated cost estimates are: B. L. Gossage, MAusIMM; J.M. Marek P.E.; P.G. Corser, P.E.; S. Smith, MAusIMM; C.R. Lattanzi, P.Eng.. The document can be viewed at www.sedar.ca.

Project Sensitivity

Along with other industry participants, Gabriel is subject to commodity and foreign exchange fluctuations that may materially affect cash flows from the Project.

Our Project analysis is denominated in US dollars and a significant portion of the costs to construct and operate the Project are denominated in currencies other than the US dollar, therefore if the US dollar were to strengthen or weaken relative to those currencies, the value of the Project would change. The table below represents the potential impact of foreign exchange rate changes on our capital to completion.



Capital Cost to Completion,
impact of a +/- 5% change in currency relative to the US Dollar
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EURO US$ 13.5 million
RON US$ 14.5 million
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Typical for any mining company are key operating variables that affect financial performance. These variables include: recovered gold grades, mining costs, processing costs and capital costs.

The net asset value of the Project is most sensitive to variations in gold prices and recovered gold grades and less sensitive to variations in capital expenditures or operating costs (mining and processing).



Impact of a +/- 5% change in variable on the
undiscounted project cash flow
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Variables
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Gold Grade US$ 250 million
Process Costs US$ 75 million
Capital Costs US$ 30 million
Mining Costs US$ 26 million
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Impact of a +/- US$50 change in gold price on the
undiscounted project cash flow
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Gold Price +/- US$50 US$ 320 million
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Fluctuations in the long-term gold price will have a significant impact on the net asset value of the Project. The table below shows the impact of different gold prices on the internal rate of return, net asset value and Project payback.



---------------------------------
Long-term per ounce gold price
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US dollars $ 600 $ 750 $ 900
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Internal rate of return 10.9% 20.4% 28.0%
NAV @ 0% (millions) $ 688 $ 1,662 $ 2,621
Payback (years) 5.2 3.5 2.7


Cash operating costs for the Project are most sensitive to variations in the Euro, Ron, power and cyanide costs and less sensitive to all other operating costs.



Impact of a +/- 5% change in cost / variable
on the cash costs per ounce
----------------------------------------------------------------------------

Process Power US$ 3.18
Cyanide US$ 3.01
EURO US$ 8.42
RON US$ 5.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------


A significant portion of the capital and operating costs are anticipated to be denominated in either the Romanian RON or EURO. We estimate that 64% of capital costs to completion and 81% of operating costs are denominated in the local currencies of either the Romanian RON or EURO. These include: earthwork construction, concrete, cyanide, sodium metabisulfate, power costs, grinding media, wages and salaries.

Please note: to view the "Foreign Currency Fluctuation" figure, please visit the following link: http://media3.marketwire.com/docs/gbuq4fig2.jpg.

Expected Financing Plan

Project finance planning was restarted during third quarter of 2008 in preparation for financing the Project in 2009. The global financial crisis has negatively impacted most of the international banking system, restricting credit and increasing the cost of credit. As a result, the conventional bank debt market and the high-yield bond market are both currently restricted. The updated financing plan assumes that neither the conventional bank debt market nor the bond market will be available in time to meet the Company's financing needs. Management has been advised by its financial advisors that while financing the Project will be challenging due to the financial crisis, financing from government agencies and non traditional lenders should be available even in the current environment because of the economic and other benefits resulting from the Project.

- The estimated capital cost to complete the development of the Rosia Montana Project - including interest, financing and corporate costs is approximately US$1 billion an increase of US$250 million over the previous financing plan announced in 2006 of US$750 million.

- The Company anticipates financing these costs with approximately 25 percent equity - US$250 million, an increase of US$100 million over the previous financing plan announced in 2006 of US$150 million.

- The Company anticipates financing the balance of approximately 75 percent debt - US$750 million, including senior debt, subordinate debt, by-product off-take agreements, vendor loans and possibly EU grants. This is an increase of US$150 million over the 2006 financing plan.

- The estimated capital cost to complete does not include a provision for (i) a cost overrun facility, (ii) a financial guarantee (reclamation deposit), or (iii) hedging program if required by the banks and agencies. These additional items could add US$150 million to the financing plan.

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 of 2007, until TAC meetings were suspended in September 2007.

Once the permitting process restarts 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

- Complete the control estimate and complete the financing.

This estimated time line could be extended due to the global financial crisis, as the Company may pursue certain activities sequentially that had previously been planned to run in parallel. For example, the Company may not restart the acquisition of surface rights until after receipt of the EIA, whereas previously the plan was to consider restarting this activity once the permitting process restarted.

Once construction of the mine begins it is expected to take approximately 24 months to complete. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGOs in a timely manner.

Outlook

Our key objectives include:

1. Ensuring that the Project benefits those in the community and the surrounding area to the maximum possible extent;

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

3. Obtaining a new archaeological discharge certificate number 4;

4. Beginning construction of the new resettlement village at Piatra Alba;

5. Completing the acquisition of all surface rights (private and institutional);

6. Completing the control estimate for the cost to complete the Project;

7. Raising the required debt and equity to build the Project; and

8. Beginning Project construction; while at the same time

9. Continuing to strengthening dialogue and communications with all stakeholders.

Key Industry Trends

Gold Price

The gold market has been on an upward trend since 2001, reaching a record level in February 2009 of $1,003 per ounce, while the average gold price over the last three years is approximately $750 per ounce.

In light of the global financial and economic crisis, governments worldwide have enacted substantial monetary stimulus programs, we view gold as a store-of-value against inflation and therefore have the expectation of continued favourable market demand.

Please note: To view the figure "Gold US $ per ounce," please visit the following link: http://media3.marketwire.com/docs/gbuq4fig3.jpg.



Annual Summary

Year ended Year ended Year ended
in thousands of Canadian dollars, December 31, December 31, December 31,
except per share amounts 2008 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total expenses $ 13,767 $ 15,089 $ 13,368
Other income (expenses) 19,472 (4,279) 2,755
Loss 4,095 23,043 12,613
Loss per share (basic and diluted) 0.02 0.09 0.07
----------------------------------------------------------------------------

Total assets 530,135 507,955 338,056
----------------------------------------------------------------------------

Long-term liabilities 3,065 2,688 1,387
----------------------------------------------------------------------------
Investment in exploration and
development including working
capital changes 48,994 77,317 53,058
----------------------------------------------------------------------------

Cash flows from financing activities $ 1,097 $ 170,448 $ 98,145
----------------------------------------------------------------------------
----------------------------------------------------------------------------


- Total expenses in 2008 were lower (by $1.3 million) than 2007 primarily due to lower corporate, general and administrative expenses ($2.4 million) and lower severance costs ($0.8 million), partially offset by higher stock based compensation costs ($0.5 million) and higher project financing costs ($1.2 million).

- Total expenses in 2007 were higher (by $1.7 million) than 2006 primarily due to a provision for severance and termination costs ($1.4 million) and higher corporate, general and administrative costs ($2.1 million) partially offset by lower project financing costs ($1.1 million).

- Other income (expenses) included interest income and foreign exchange gains and losses. The strengthening of both the US dollar and the Euro against the Canadian dollar resulted in higher net foreign exchange gains in 2008 (by $27.2 million) than 2007. The gains were partially offset by lower interest income ($3.4 million) due to lower cash balances and lower interest rates.

- With higher average cash balances in 2007 compared to 2006, interest income increased to $7 million (2006 - $2.7 million) but were more than offset by foreign exchange losses of $11.4 million (2006 - NIL) in 2007.

- The lower loss for 2008 compared to 2007 is primarily due to a swing of $27.2 million in foreign currency movements. The increase in foreign exchange gains was partially offset by an increase of $6.1 million in income tax expense.

- The higher loss in 2007 compare to 2006 is primarily a result of $11.4 million (2006 - Nil) foreign exchange losses as a result of translation losses on US dollar and Euro cash deposits held to pay for planned expenditures.

- The Company will continue to incur losses until Rosia Montana begins commercial production.

- The loss per share decreased by 71 percent over the three years while the Statement of Loss decreased by 68 percent. The lower loss per share is due to the increase in the number of shares outstanding due to the equity financing in 2007 and the exercise of warrants and stock options over the period.

Total Assets

- The increase in total assets from the year ended 2006 to 2008 relates to the 2007 equity issue and the exercise of stock options and warrants over the period, which raised a total of $171.5 million, to finance the advancement of the Company's two key projects, Rosia Montana and Bucium.

- Total assets will increase once the EIA is approved and the Company begins raising the necessary funds to develop Rosia Montana.

Other Liabilities

- Long-term liabilities on the Company's balance sheet are comprised of Deferred Stock Units (DSUs) ($1.8 million) due to Directors and officers of the Company, a fidelity bonus ($1.3 million) that represents a retention bonus for Romanian employees and the long-term portion of accrued severance and termination costs ($Nil for 2008). The DSUs are revalued at each balance sheet date; the increase in 2008 compared to 2007 reflects a net increase of 552 thousand units for the year which is partially offset by a recovery of DSU costs due to the lower share price at the end of 2008 compared to 2007.

Investment in Exploration and Development

- The lower expenditure in 2008 compared to 2007 is due to lower levels of activity in most areas as a result of the suspension of the permitting process. The decrease is partially offset by higher external communications and legal costs and foreign exchange losses incurred by the Romanian subsidiary.

- Expenditures rose significantly in 2007 from 2006 with the anticipated approval of the EIA. During 2007, long-lead-time equipment orders were placed, the property purchase program, which restarted in the fourth quarter of 2006, continued through 2007, and detailed engineering began in preparation of an updated cost control estimate. With the suspension of the EIA permitting process in September 2007, the Company suspended the property purchase program, engineering for the control estimate as well as most other non-essential activities.

Cash Flow from Financing Activities

- The Company's primary source of liquidity has been the equity markets. The Company raised $269.7 million over the past three years through two financings, as well as the exercise of warrants and the exercise of stock options by employees.

- We updated the estimated cost to completion for construction of the Project in first quarter 2009 to US$876 million (excluding working capital) compared to US$638 million in 2006, an increase of US$238 million (excluding sunk costs of approximately US$90 million for surface rights, $13 million for engineering and project management and US$44 million for long-lead-time mill equipment). To complete the development of the Project, the Company will need additional external financing of approximately US$1 billion comprised of an expected debt (approximately 75%) and equity (approximately 25%) 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 towards development.

Results of Operations

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



in thousands of Canadian dollars,
except per share amounts 2008 Q4 2008 Q3 2008 Q2 2008 Q1
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Statement of Loss (Income)
Loss (Income) $ (3,958) $ 2,782 $ 16,241 $ (10,970)
Loss (Income) per share - basic
and diluted (0.02) 0.01 0.06 (0.04)
----------------------------------------------------------------------------

Balance Sheet
Working capital 29,172 50,324 80,513 110,021
Total assets 530,135 508,010 513,965 521,269
----------------------------------------------------------------------------

Statement of Cash Flows
Investments in development and
exploration including working
capital changes 8,171 19,237 4,375 17,211
Cash flow provided by financing
activities - 82 1,015 -
----------------------------------------------------------------------------


in thousands of Canadian dollars 2007 Q4 2007 Q3 2007 Q2 2007 Q1
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Statement of Loss (Income)
Loss $ 7,821 $ 6,785 $ 5,966 $ 2,471
Loss per share 0.03 0.03 0.02 0.01
----------------------------------------------------------------------------

Balance Sheet
Working capital 118,299 147,157 199,073 213,440
Total assets 507,955 513,490 503,381 491,356
----------------------------------------------------------------------------

Statement of Cash Flows
Investments in development
and exploration including
working capital changes 24,708 15,448 24,107 13,054
Cash flow (used in) provided
by financing activities - (31) 18,389 152,091
----------------------------------------------------------------------------



Statement of Loss (Income)

3 months ended 12 months ended
in thousands of Canadian dollars, December 31, December 31,
except per share amounts 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total operating expenses for the period $ 5,151 $ 5,769 $ 13,767 $ 15,089
Loss (Income) for the period (3,958) 7,821 4,095 23,043
Loss (Income) per share - basic and
diluted (0.02) 0.03 0.02 0.09


Total operating expenses for the three-and-twelve-month periods ending December 31, 2008 decreased from the corresponding 2007 periods primarily due to lower corporate, general and administrative expenses, which declined by $2.4 million in 2008.

For the fourth quarter 2008, foreign exchange gains on foreign currency cash balances generated net income. For the year 2008, a $15.8 million foreign exchange gain reduced the loss for the year significantly. The 2007 loss reflects a foreign currency loss of $11.4 million. Overall, the Company reported a lower loss for 2008 compared to 2007 due to a swing of $27.2 million in foreign currency movements partially offset by an additional $6.1 million in income tax expense, as lower operating expenses were offset by lower interest income in 2008. The foreign exchange gains resulted from a weakening of the Canadian dollar.

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

Expenses

Corporate, General and Administrative



3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Finance $ 234 $ 499 $ 1,249 $ 1,340
External communications 122 376 736 1,857
Information technology 116 174 497 952
Legal 144 391 910 1,031
Payroll 985 1,091 3,143 3,352
Other 384 322 1,454 1,831
----------------------------------------------------------------------------

Corporate, general and administrative
expense $ 1,985 $ 2,853 $ 7,989 $ 10,363
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Corporate, general and administrative costs - those costs incurred by the corporate office in Toronto - decreased across all departments for the three-and-twelve-month periods ending December 31, 2008. External communications and information technology costs, which account for two-thirds of the decrease, were lower due to lower activity levels with the suspension of the permitting process. Corporate, general and administrative costs are anticipated to rise once the Rosia Montana Project is permitted and the Company increases its' staffing for construction and operations.



Stock Based Compensation

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

DSUs - expensed (recovered) $ 440 $ 485 $ 564 $ (6)
Stock option compensation - expensed 516 709 2,056 2,075
----------------------------------------------------------------------------

Stock based compensation - expensed $ 956 $ 1,194 $ 2,620 $ 2,069
----------------------------------------------------------------------------
----------------------------------------------------------------------------

DSUs - capitalized (capital
reduction) $ 51 61 $ 55 13
Stock option compensation
- capitalized 3,889 462 4,754 1,440
----------------------------------------------------------------------------

Stock based compensation
- capitalized $ 3,940 $ 523 $ 4,809 $ 1,453
----------------------------------------------------------------------------
----------------------------------------------------------------------------

DSU Compensation
Number of DSUs granted 537,368 348,303 579,687 369,968
Average value ascribed to each
DSU granted $ 1.19 $ 1.51 $ 1.26 $ 1.62


For both the fourth quarter and year ending December 31, 2008, the Company recorded DSU costs. DSU costs for the quarter and year reflect the issuance of 537 thousand units during the fourth quarter and a net increase of 552 thousand units for the year, which was partially offset by a recovery of DSU costs due to the lower share price at year end compared to the Company's share price at the beginning of the period. The Company's share price finished 2008 at $1.52 per share.

Initially valued at the market price of the stock at date of issue, DSUs are revalued each period based on the closing share price at the period end, with the difference between the total value of the DSUs at period end compared to the value at the end of the previous period. If the share price declines, the lower value of the DSUs is credited against costs during the period. If the value is higher, the difference is charged to the Statement of Loss, increasing costs for the period. Overall, for the three-month period ended December 31, 2008, our share price decreased by $0.53 compared to September 30, 2008 and decreased by $0.45 compared to December 31, 2007, while for the same period in 2007, our share price decreased by $0.55 from September 30, 2007 and decreased by $3.09 compared to December 31, 2006.



3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Stock option compensation
Number of stock options granted 5,305,000 4,350,000 11,240,000 5,965,000
Average value ascribed to each
option granted $ 0.60 $ 0.64 $ 0.79 $ 0.96
Options granted to corporate
employees, consultants,
officers, and directors 30,000 3,385,000 2,130,000 4,525,000
Options granted to development
project employees and
consultants 5,275,000 965,000 9,110,000 1,440,000


The estimated fair value of stock options is typically amortized over the period in which the options vest which is normally three years. 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. For those options which vest on a single date, either on issuance or on meeting milestones (the "measurement date"), the entire fair value of the vesting options is recognized immediately on the measurement date.

During the year, the Company granted 3 million options with a fair value of $2.6 million ($0.87 per share option) that vested and were charged to Mineral Properties during the fourth quarter of 2008.

During the fourth quarter 2008, the Company granted 5 million options, one-third of which vested upon issuance with the remainder vesting upon completion of certain milestones or under certain conditions of termination. The estimated fair value of the unvested options will be recognized and capitalized at the measurement date as the milestones are achieved and the value can be reasonably measured. For the year ended December 31, 2008, the amount capitalized was $1.0 million ($0.60 per share option). The lower value ascribed to the 5 million option grant as compared to the 3 million option grant is due to the higher strike price of the options under the 5 million option grant at $2 per share compared to a share price at the time of issuance of $1.18 per share.



Project Financing Costs

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Project Financing Costs $ 2,136 $ 213 $ 2,186 $ 973


Overall, project financing activities increased in 2008 compared to 2007 level due to a charge of US$1.5 million being the fair value of vested stock purchase warrants related to the termination of mandate letters with two international financial institutions. Project financing activities were placed on hold in the fall of 2007 after the suspension of the permitting process but resumed in September 2008 in anticipation of the restart of permitting activities and the requirement to complete the financing in 2009.

During the fourth quarter of 2006, the Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project. The two institutions were to provide a committed underwriting in an amount up to US$350 million. As a result of the suspension of the EIA review process, the mandate letters terminated during 2008 and 1.125 million warrants vested while 1.5 million warrants were cancelled. Each warrant has a four year term and has an exercise price of $4.88. The Company continues to work with the international financial institutions to secure a new agreement whereby the institutions would arrange but not underwrite a bank facility.

Project financing activities include advisory services for the various facilities under our financing plan.

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 related to the retrenchment of 170 employees in Romania. During 2008, concurrent with the modification of payment terms of its remaining obligation, the Company revised its estimated cost and accrued a further $0.7 million in respect of its total obligation and has classified its entire outstanding obligation as a current liability.

As at December 31, 2008 the Company paid $1.3 million in termination benefits and anticipates paying the remaining balance during the second quarter 2009.



Interest Income

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest Income $ 525 $ 1,604 $ 3,647 $ 7,088


Lower interest income in 2008 is a result of lower average cash balances and lower interest rates compared to 2007. During 2008, the Company's cash balances declined due to ongoing resettlement site development costs, installment payments made under our long-lead-time equipment orders and corporate and Romanian overhead costs. Over the course of 2008, the global financial crisis led to a dramatic decline in interest rates for government securities in each currency the Company holds. Interest income is expected to decline in 2009 due to lower cash balances and significantly lower interest rates.

As of December 31, 2008, the average yield to maturity on the Company's cash and cash equivalent's was 0.8% versus 3.9% as of December 31, 2007.

With the current global financial crisis, the Company is focused on capital preservation and therefore, is foregoing higher yields on its investments and is investing predominantly in government guaranteed instruments. Approximately 87 percent of the Company's cash balances are invested in government guaranteed instruments with the balance invested in term deposits with major Canadian banks.



Foreign Exchange

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Foreign exchange gain (loss )
- realized $ 5,564 $ (6,795) $ 10,732 $ (7,824)
Foreign exchange gain (loss )
- unrealized 3,029 6,814 5,093 (3,543)
----------------------------------------------------------------------------
Total foreign exchange gain (loss) $ 8,593 $ 19 $ 15,825 $ (11,367)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During 2007, we converted the majority of our Canadian dollar cash balances to foreign currencies to match anticipated foreign denominated expenditures. In the three-and-twelve-month periods ended December 31, 2008, both the US dollar and the Euro strengthened against the Canadian dollar, resulting in foreign exchange gains in both periods.

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

During the third quarter of 2007, tax authorities in Romania initiated various tax audits to assess the appropriateness of 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 $0.7 million 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.

In April 2008, the Company was advised by the Romanian tax authorities that they were re-opening fiscal years 2003 and 2004 which had been previously audited.

In June 2008, the Company received a tax assessment for $9.8 million related to the third tax audit, for the years 2003 and 2004, initiated and completed during the second quarter of 2008. This assessment also arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.

In December 2008, the government acknowledged that the grounds upon which it re-opened the 2003-2004 years were unfounded but it has taken the position that it may have other grounds for re-opening those years and therefore it has not refunded the money paid to it by the Company in respect of the June 2008 assessment.

Based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation and we are contesting the State's position through the courts.

Romanian tax authorities regularly perform quarterly audits of the Company's value-added-tax ("VAT") claims before releasing our refund. The tax authorities began their audit of our first half year claim in September but have not yet completed the audit, so as a result, the Romanian tax authorities have not reimbursed the Company for any of its 2008 VAT claims. As at December 31, 2008, the Company was owed $4.2 million in VAT by the Romanian state.

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 below is a summary of expenditures at Rosia Montana for the three-and-twelve months ended December 31, 2008 and 2007.




3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Finance and administration $ 8,806 $ 4,614 $ 18,614 $ 14,816
External communications 3,349 440 7,967 3,814
Legal 1,538 959 4,446 2,186
Permitting 1,016 1,497 2,887 7,618
Community development 2,919 9,196 22,310 46,908
Project management and engineering 4,569 7,533 10,536 20,850
Exploration - Rosia Montana 262 161 675 702
Exploration - Bucium 1 82 83 985
Exploration - Baisoara 49 45 205 141
Capitalized depreciation net of
disposals (122) (154) (504) (605)
Capitalized stock based compensation (3,940) (524) (4,809) (1,453)
Reclassification to mineral
properties (783) (5,600) (808) -
Increase in resettlement liabilities (3,599) (888) (13,068) (12,747)
----------------------------------------------------------------------------
Total exploration and development
expenditures $ 14,065 $ 17,361 $ 48,534 $ 83,215
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the three-and-twelve months ended December 31, 2008, finance and administration costs increased compared to the corresponding 2007 periods due to foreign exchange losses on trade payables and resettlement obligations. At December 31, 2008, the Company's Romanian subsidiary had outstanding US dollar denominated payables for long-lead equipment and its resettlement liabilities which are denominated in Euros. With the weakening of the Canadian dollar compared to both the US dollar and the Euro during 2008, the Company recorded foreign exchange losses from its Romanian operations in both the three-and-twelve month periods which is recorded in finance and administration.

External communications costs increased for the three-and-twelve months ended December 31, 2008 due to increased communications costs related to stakeholder engagement, advisory and consulting costs related to ongoing advocacy activities. Legal costs increased in 2008 due to the decision by management to add a second law firm on all legal cases. Management believes that the addition of a second firm and second opinion is helpful to ensuring that the best legal strategies are followed.

Apart from finance, external communications and legal costs, all other costs decreased in the three-and-twelve-month periods of 2008 compared to the corresponding periods in 2007 due to lower levels of activity as a result of the suspension of the permitting process.

The base budget for 2009 includes only the expenditures and commitments to maintain the value of our investment in mineral properties and capital assets and to move the project through EIA approval. Our 2009 budgeted expenditures for mineral properties and capital assets totals $60 million, consisting of $31 million for the final installment payments for long-lead equipment, transportation and storage costs, $10 million to complete La Recea resettlement site and begin construction of the Piatra Alba resettlement site and $2 million for engineering costs. Overhead costs for Romania (which includes the cost to maintain the Company's mining license) are estimated at a further $17 million.

No additional work is planned on the Bucium property until the exploration license is converted to an exploitation license and the Rosia Montana EIA is approved. The government has indicated that a decision on the conversion of the Bucium exploration to exploitation license will not be made until a decision on the Rosia Montana project is made.



Purchase of Capital Assets

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2008 2007 2008 2007
----------------------------------------------------------------------------
Resettlement site development costs $ 1,655 $ 895 $ 8,194 $ 2,353
Investment in long-lead-time equipment 7,358 3,732 18,798 13,328
Other 130 47 248 790
----------------------------------------------------------------------------

Total investment in capital assets $ 9,143 $ 4,674 $ 27,240 $ 16,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Depreciation - expensed $ 74 $ 77 $ 304 $ 236
Depreciation - capitalized to mineral
properties $ 122 $ 154 $ 504 $ 605


Although hampered during the first quarter of 2008 by poor weather, construction activities on the La Recea resettlement site in Alba Iulia accelerated during the remainder of 2008. Infrastructure was completed during the third quarter 2008 and the Company is in the process of donating the infrastructure to the Alba County Council.

While installment payments for long-lead-time mill equipment were delayed during the year, we continue to make the installment payments on the orders which are proceeding, subject to satisfying our quality assurance criteria. The Company expects to make $27.7 million in long-lead-time equipment payments during 2009 at which point we would have made all payments for the long-lead equipment and own the mill equipment outright. The plan is to then transport and store the equipment at a central location, which should cost an additional $3.6 million.

Cash Flow Statement

Liquidity and Capital Resources

Our only sources of liquidity until we receive our environmental permits for Rosia Montana are our cash balance, bridge financing, exercise of stock options outstanding, and the equity markets. We updated the estimated cost to completion for construction of the Project in first quarter 2009 to US$876 million (excluding working capital) compared to US$638 million in 2006 an increase of US$238 million (excluding sunk costs of approximately US$90 million for surface rights, $13 million for engineering and project management and US$44 million for long-lead-time mill equipment). Our updated cost estimate also reflects higher operating costs but these are more than offset by expected higher gold prices which result in improved cash margins and therefore Project returns and faster payback.

To complete the development of the Project, the Company will need additional external financing of approximately US$1 billion comprised of an estimated debt (approximately 75%) and equity (approximately 25%) 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.

Having restarted Project financing planning during the third quarter 2008, management has finalized a financing plan that assumes neither the conventional bank debt market nor the bond market will be available in time to meet the Company's financing needs. Management has been advised by its financial advisors that while financing the Project will be challenging due to the financial crisis, financing from government agencies and non traditional lenders should be available even in the current environment because of the economic and other benefits resulting from the Project.

As at December 31, 2008, we had cash and cash equivalents of $72.2 million compared to $147.2 million at December 31, 2007. Substantially all of these amounts are invested in government guaranteed investments. As the Company's investment policy prohibits investments in asset-backed-securities, we have 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 "typical" three month period. The current global financial crisis has resulted in dramatic interest rate, commodity and currency volatility. The Company does not view these market conditions as "typical" and therefore the affect of interest rate changes and currency valuation changes on net income may be more dramatic than deemed "reasonably possible". Nonetheless, the Company has taken steps to reduce its risks as discussed above.

- Cash and cash equivalents include deposits which are at floating interest rates. Sensitivity of cash and cash equivalents to a plus or minus 1% change in earned interest rates would affect net income by $0.2 million.

- 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 $0.5 million.

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

The base budget for 2009 on the Rosia Montana Project totals $60 million with corporate overheads expected to total a further $10 million in 2009. In total the Company expects to spend approximately $70 million to run the corporate office and complete EIA permitting activities. The Company started 2009 with $72.2 million in cash and cash equivalents and therefore irrespective of how the Project progresses the Company will require additional capital in 2009. Once the EIA is approved, the activity level will increase, including the acquisition of remaining surface rights, completion of a control estimate, payment of land use taxes and other payments required to obtain construction permits. These additional activities are expected to cost approximately US$150 million. These activities can only commence once additional financing is raised.

A special shareholder meeting has been called for March 2009 to amend the Company's Shareholder Rights Plan to provide greater flexibility and certainty that future equity offerings are successful during this period of global financial and economic crisis.

Working Capital

As at December 31, 2008, we had working capital of $29.2 million versus $118.3 million as at December 31, 2007. The decrease in working capital in 2008 relates to the loss for the period, investment in capital assets and mineral properties.

Net Change in Non-Cash Working Capital

The net change in operating non-cash working capital increased for the three-months ended December 31, 2008 due to an increase in accrued expenditures during the period. For the year ended December 31, 2008 the net change in operating non-cash working capital is comparable to that of the prior year.

The net change in investing non-cash working capital increased for the three-months ended December 31, 2008 due to an increase in trade payables and accrued liabilities related to project development. For the year ended December 31, 2008, the net change in investing non-cash working capital decreased compared to 2007 due to an increase in RMGC's accounts receivable from the Romanian state related to value-added-taxes.

The net change in financing non-cash working capital in the three-and-twelve months ended December 31, 2008 is comparable to the same periods in 2007.

Related Party Transactions

The Company paid $Nil (2007 - $Nil) during the fourth quarter to a director of the Company for consultation services provided to the Company. For the year ended December 31, 2008 the Company paid $4 thousand (2007 - $39 thousand).

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 had two choices. They could either choose to take the sale proceeds and move to a new location of their choosing or they could exchange their properties for a new property to be built by the Company at one of the two new resettlement sites. At December 31, 2008, the Company had accrued resettlement liabilities totaling $30.2 million, which represents the cost of building the new homes for the local residents and delay penalties.

Under the original contracts, the Company was required to deliver homes by August 1, 2008, which was not met. As a result, the Company either signed extension agreements or will deliver the new homes within the penalty period for the 125 residents who chose the Le Recea resettlement site option in Alba Iulia. Most of the homes (123 homes) will be handed over during the first and the second quarter 2009. Two residents who elected late last year to relocate from the Piatra Alba resettlement site to La Recea will have their homes completed during the third quarter 2009. The remaining 24 residents who chose the Piatra Alba resettlement site have all signed 36 month extension contracts. As a result of the delay in delivering homes, the Company is accruing a penalty of 6% (for La Recea) and up to 20% (for Piatra Alba) of the agreed upon unpaid property value per year of delay as required by the agreement including all amendments.

As at December 31, 2008, the Company has accrued $1.2 million (2007 - $0.5 million) representing its total estimated delay penalty. During the year, the Company paid $0.7 million of delay penalties (2007 - $Nil).

Contractual Obligations

The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. 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, and a total of $387 thousand has been spent through December 31, 2008. In 2008, due to the delay in the Rosia Montana permitting process, the Company reduced the exploration expenditure for Baisoara to a level required to maintain the license and permit in good standing.

The Company and its subsidiaries have a number of agreements with arm's-length third parties who provide a wide range of goods and services which totaled $6.6 million at December 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 December 31, 2008 outstanding commitments under such agreements totaled $27.7 million (December 31, 2007 - $42.4 million). No further long-lead-time equipment orders are expected to be placed until the EIA is approved; however, the reported commitment expressed in Canadian dollars will fluctuate as 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:



2013 and
Total 2009 2010 2011 2012 thereafter
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Baisoara
exploration
license $ 3,515 $ 147 $ 778 $ 1,596 $ 994 $ -
Resettlement 30,208 30,208 - - - -
Goods and services 6,627 6,062 144 10 10 401
Long lead time
equipment 27,740 27,710 30 - - -
Rosia Montana
exploitation
license 2,838 258 258 258 258 1,806
Surface concession
rights 1,023 24 24 24 24 927
Lease agreements 1,500 652 553 295 - -
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Total commitments $ 73,451 $ 65,061 $ 1,787 $ 2,183 $ 1,286 $ 3,134
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The following is a summary of the long-lead-time equipment orders and the payment status:



December 31, December 31,
2008 2007
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Total purchase agreements:
Grinding area systems $ 41,237 $ 46,140
Crusher facilities 3,923 6,976
Other process equipment - 2,646
Foreign exchange movement 9,681 -
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54,841 55,762

Amount paid as at December 31, 2008:
Grinding area systems (20,436) (11,043)
Crusher facilities (1,896) (2,018)
Other process equipment - (267)
Foreign exchange movement (4,769) -
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Outstanding payment obligation $ 27,740 $ 42,434
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During the second quarter 2008, the Company elected not to exercise its manufacturing order option on $7.4 million of orders, pending the restart of the permitting process. During the fourth quarter 2008, the Company amended the remaining orders, which reduced the total commitment for long-lead-time equipment by an additional $3.2 million. We have excluded these items from the December 31, 2008 commitments table. During detailed engineering, these items were deemed non critical and therefore the placement of the order could be delayed, preserving cash for the Company without impacting the timeline to complete construction once permits are received.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related to the recoverability of mineral properties and benefits of future income tax assets, estimated useful lives of capital assets, stock compensation valuation assumptions and determinations as to whether costs are expensed or deferred. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly. A summary of the critical accounting estimates is listed below:

Going Concern

The underlying value of the Company's Mineral properties and Capital assets is dependent upon the ability to obtain all necessary permits, the existence and economic recovery of such reserves in the future and the ability of the Company to raise long-term financing to complete the development of the properties. Management has been advised by its financial advisors that while financing the Project will be challenging due to the financial crisis, financing from government agencies and non traditional lenders should be available even in the current environment because of the economic and other benefits resulting from the Project.

In addition, the Project may be subject to sovereign risk, including political and economic stability, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. These may adversely affect the investment and may result in the impairment or loss of all or part of the Company's investment.

Management's 2009 planned expenditures total approximately $70 million to run the corporate office and complete EIA permitting activities. The Company started 2009 with $72.2 million in cash and cash equivalents, but management expects that additional financing will be available and may be sourced in time to allow the Company to continue its planned development activities in the normal course. The Company does not have sufficient cash to fund the development of the Project and therefore will require additional capital which if not raised in 2009 would result in the curtailment of activities and result in Project development delays and or a review of strategic alternatives. While the Company has been successful in the past in raising equity, there can be no assurance it will be able to raise sufficient debt and equity to fund the capital costs to develop the Project.

Mineral properties

We have determined that the area covered by the Rosia Montana exploitation license contains economically recoverable reserves. The ultimate recoverability of the $396.2 million carrying value at December 31, 2008 plus related capital assets is dependent upon our ability to obtain the necessary permits and financing to complete the development and commence profitable production -- or alternatively, upon our ability to dispose of our interest on an advantageous basis.

A scoping study was completed to determine the economic potential of the Bucium license area. Once again, the recoverability of the $10.5 million carrying value at December 31, 2008 plus related capital assets of this exploration property is dependent upon the ultimate discovery of economically recoverable reserves, our ability to obtain necessary permits, financing to complete the development and future profitable production -- or alternatively, upon our ability to dispose of our interest in the license on an advantageous basis.

Changes in future conditions, for example a ban on cyanide in the mining industry or if a bill passes to make Rosia Montana an archeological site of national importance, could require material write-downs of the Rosia Montana project and/or the Bucium carrying value.

As part of management's annual review process, management reviews all aspects of project advancement issues along with potential indicators of asset impairment when preparing financial statements. When impairment indicators are identified, it is management's policy to perform an impairment test in accordance with CICA Section 3063 - Impairment of Long-Lived Assets. In preparing the Companies year end 2008 financial statements, management considered the suspension of the EIA approval process by the Romanian government (which was announced on September 13, 2007) and concluded that the delay was temporary; the EIA approval process would be restarted; and the development of the Rosia Montana project ("Project") would continue.

Management considered the annulment of Archaeological Discharge Certificate #4 by the Romanian Supreme Court (which was announced on December 8, 2008) and concluded that the Company was well positioned to reapply for discharge of the affected area and therefore the delay would not impact the Project schedule; a new archaeological discharge certificate could be obtained concurrent with the EIA approval process; and that the development of the Project would continue including the affected area, namely the Cirnic pit.

The Company has successfully dealt with challenges in the past and as a result management did not consider these items along with other risks outlined elsewhere in this MD&A significant events that would require the Company to test the Project for impairment at that time. As a result no impairment charge was recorded for year ended December 31, 2008. Higher gold prices more than offset higher capital and operating costs announced in March 2009 increasing the internal rate of return, net asset value and payback of the Project. Management is hopeful that the new government elected in the fall of 2008 will ensure an open and transparent review of the Project.

The Company's legal and valid mineral title to the Project has not been compromised by the recent delays. Management is of the view that its current strategy to remove the impediments causing the delay in the development of the Project will be successful and that the newly elected government of Romania would evaluate the Project on its merits.

Stock-based compensation

Stock-based compensation relating to stock options are estimated based on fair value at the grant or milestone achievement date, and charged to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet over the vesting period.

Stock-based compensation relating to deferred share units is calculated based on the quoted market value of the common share, and charged to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet. The compensation cost and liability is adjusted each reporting period for change in the underlying share price.

Income taxes

Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current period. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized to the extent the recoverability of future income tax assets are not considered more likely than not to be realized.

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.

Tax authorities in Romania regularly initiate various tax audits to assess the appropriateness 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 of 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 $0.7 million 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.

In April 2008, the Company was advised by the Romanian tax authorities that they were re-opening fiscal years 2003 and 2004 which had been previously audited.

In June 2008, the Company received a tax assessment for $9.8 million related to the third tax audit, for the years 2003 and 2004, initiated and completed during the second quarter of 2008. This assessment also arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.

In December 2008, the government acknowledged that the grounds upon which it re-opened the 2003-2004 years were unfounded but it has taken the position that it may have other grounds for re-opening those years and therefore it has not refunded the money paid to it by the Company in respect of the June 2008 assessment.

Based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation and we are vigorously contesting the State's position through the courts.

Romanian tax authorities regularly perform quarterly audits of the Company's value-added-tax ("VAT") claims before releasing our refund. The tax authorities began their audit of our first half year claim in September but have not yet completed the audit, so as a result, the Romanian tax authorities have not reimbursed the Company for any of its 2008 VAT claims. As at December 31, 2008, the Company was owed $4.2 million in VAT by the Romanian state.

Risk Factors

Risks Related to Gabriel's Operations

Political & Economic Risks of Doing Business in Romania

As all of Gabriel's property interests are located in Romania it is subject to certain risks, including possible political or economic instability which may result in the impairment or loss of mineral concessions or other mineral rights. Mineral exploration and mining activities may be affected in varying degrees by political stability and government regulations relating to the mining industry, which could include cancellation or renegotiation of mineral concessions and other contracts, changes in Romanian domestic laws or regulations, changes in tax laws, royalty and tax increases, restrictions on production, price controls, expropriation of property, fluctuations in foreign currency, foreign exchange controls, import and export regulations, restrictions on the export of gold, restrictions on the ability to repatriate earnings and pay dividends offshore, restrictions on the ability to hold foreign currencies in offshore bank accounts, environmental legislation, employment practices and mine safety. There can be no assurance that such restrictions and controls will not be imposed in the future and such restrictions, controls or fluctuations may materially affect Gabriel's financial position as well as Gabriel's ability to develop its mineral properties. In the event of a dispute regarding any of these matters, Gabriel may be subject to the jurisdiction of courts outside of Canada which could have adverse implications for the outcome. Any changes in laws, rules or regulations, policies or shifts in political attitudes regarding foreign direct investment in the Romanian mining industry are beyond Gabriel's control and may adversely affect its business.

Romania currently has a coalition government made up of members of two political parties. Due to the inherent instability of coalition governments, there is a significant risk that the current government may fall, resulting in the need to call new general elections. Such circumstances are beyond Gabriel's control and may have a negative effect on the development of the Rosia Montana Project and result in delays in the permitting process, or result in additional costs and expenses on its part.

Project Approval Risks

General

Gabriel must obtain a large number of permits, approvals and authorizations from the local, county and federal levels of the Romanian Government in order to proceed with the development, construction and operation of the Rosia Montana Project.

No modern mine has ever been permitted, constructed or operated in Romania. The existing EU and Romanian laws relating to the permitting of a large-scale industrial project like Rosia Montana are being applied for the first time in Romania in this case. As the first company to attempt to permit a modern mine in Romania, there are significant risks that the governmental review and approval process with respect to permitting could be delayed due to circumstances beyond Gabriel's control.

Environmental Impact Assessment

The environmental approval is one of the more important approvals Gabriel must obtain. In addition to complying with all Romanian laws and regulations, the EIA for the Rosia Montana Project must comply with all EU guidelines and directives. There are significant risks that the governmental review and approval process could be delayed due to circumstances beyond Gabriel's control and any such delays could negatively impact Gabriel's development plans, prevent the development of the Rosia Montana Project, or result in additional expenses on its part.

On September 12, 2007 the Ministry of Environment unilaterally suspended the TAC review of the EIA. On November 16, 2007 Gabriel initiated legal action against the Ministry of Environment, the previous Minister of Environment and the previous Secretary of State, in the Bucharest Court of Appeal seeking an order of the court compelling the Ministry of Environment to reinstitute the TAC review of the EIA. There are significant risks that the resolution of this legal action could be delayed due to circumstances beyond Gabriel's control, or that the Bucharest Court of Appeal will not grant the order requested by Gabriel, and any such delays or negative court decisions could negatively impact Gabriel's development plans, prevent the development of the Rosia Montana Project, or result in additional expenses on its part.

Archaeological Discharge

The validity of all of the archaeological discharge certificates previously issued to RMGC are the subject of a series of legal actions initiated by Alburnus Maior and supported by other NGOs. The court challenges have been commenced against the Ministry of Culture and Religious Affairs, the governmental authority issuing the discharge certificates, and not against RMGC. In December of 2008 one of the archaeological discharge certificates issued to RMGC was annulled by the Romanian Courts. Any successful Court challenges could negatively impact Gabriel's development plans, require additional work and re-application for discharge certificates, result in additional delays and expenses on our part, or prevent the development of the Rosia Montana Project.

Land Use Regulations

Gabriel is required to obtain an environmental endorsement of the updated land use regulations incorporating the changes made to the design of the Rosia Montana Project since 2002 prior to presentation to the local council of Rosia Montana. There are significant risks that the updating of the land use regulations could be delayed due to circumstances beyond Gabriel's control and any such delays could negatively impact Gabriel's development plans or result in additional expenses on its part, or prevent the development of the Rosia Montana Project. In addition, the local council of Rosia Montana must approve new land use regulations for the portion of the village of Rosia Montana designated as a protected area. There can be no assurance that such land use regulations will be passed in the appropriate form or in a timely fashion and any such delays could negatively impact Gabriel's development plans, result in additional expenses on its part, or prevent the development of the Rosia Montana Project.

Risk Associated With Acquisition of Surface Rights and Resettlement and Relocation

Gabriel must acquire all necessary surface rights over the footprint of the new mine in order to apply for its construction permits and to obtain financing for construction of the new mine at Rosia Montana. This process involves the acquisition of properties owned by residents in the Rosia Montana and Corna valleys, the construction of a resettlement site in Alba Iulia and Piatra Alba to house those residents of Rosia Montana wishing to relocate there, as well as the acquisition and replacement of all public buildings, social facilities and other structures in the new village of Piatra Alba. There can be no assurance that Gabriel will acquire all necessary surface rights, or acquire such rights at prices currently contemplated. There are significant risks that the acquisition of all necessary surface rights could be delayed due to circumstances beyond Gabriel's control and any such delays could negatively impact Gabriel's development plans, result in additional expenses on its part, or prevent the development of the Rosia Montana Project.

Project Development Risks

There are significant risks that the commencement of construction of the new mine could be delayed due to circumstances beyond Gabriel's control. Such risks include delays in acquiring all necessary surface rights, delays in completing the acquisition, permitting and construction of the new Piatra Alba and Alba Iulia resettlement sites, delays in obtaining all zoning, environmental, construction and other required permits, approvals and authorizations required to construct and operate the new mine, delays in finalizing detailed engineering and a definitive construction contract, construction cost overruns, availability of all necessary process plant and mining equipment, availability of all necessary engineering services, technical trades and operating personnel, as well as unforeseen difficulties encountered during the construction and commissioning process. In addition, continued opposition to the Rosia Montana Project by NGOs, academics, and other special interest groups, could contribute to such delays.

Project Financing Risks

While Gabriel has sufficient financial resources to fund its current permitting activities, it does not have the financial resources to construct the mine at Rosia Montana. Gabriel will require significant additional financing from external sources to meet its capital requirements. The Company started 2009 with $72.2 million in cash and cash equivalents and therefore irrespective of how the Project progresses the Company will require additional capital in 2009. Although Gabriel has been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that it will obtain adequate financing in the future or that the terms of such financing will be favourable to it. A period of continued uncertainty in the world credit markets could make the debt component of the financing more expensive than anticipated or, in certain cases, unavailable. It is not uncommon for financial institutions to require some form of cost overrun facility and a price guarantee (hedging) program in association with the provision of project debt finance. The amount and cost of the price guarantee is a function of gold prices at the time the hedging program is executed. If gold prices were to fall between the date of this Management Discussion and Analysis and the execution of the hedging program, it could have a significant impact on the cost of the hedging program. Failure to obtain such additional financing could result in delay or indefinite postponement of further development of Gabriel's projects with the possible loss of such properties.

In the past few years, gold prices have risen from the low of US$300-per-ounce level to over US$1000 per ounce, resulting in higher share prices for gold equities. There can be no assurance gold prices will remain high, especially during the time Gabriel will need to raise debt and equity financing for construction of the Rosia Montana Project.

Risk Associated With Mineral Tenure Rights

Gabriel currently holds an exploitation concession license with respect to the Rosia Montana Project. Gabriel has applied to the NAMR to upgrade the exploration concession license to an exploitation concession license on the Bucium project and holds an exploration concession license for the Baisoara project. Gabriel has obtained mineral title opinions with respect to its licenses and, based upon such title opinions, Gabriel believes that it has good title to all mineral rights covering the mineral resources and reserves at the Rosia Montana Project. Such mineral title opinions should not, however, be construed as a guarantee of title to such mineral rights. Gabriel also believes that all licenses are in good standing and it is not in default of any provisions of such licenses. There can be no assurance that the licenses will not be terminated or cancelled due to an alleged breach of the terms and conditions of the license on the part of Gabriel.

Alburnus Maior has over the past several years commenced a number of legal actions seeking orders compelling the NAMR to annul the Rosia Montana License. There can be no assurance that there will not be further legal challenges to any of the exploitation or exploration concession licenses currently held by Gabriel or that such challenges will not be successful.

Any challenges to any of Gabriel's exploration or exploitation licenses, or the conversion of any such license, or any delay in obtaining the licenses could negatively impact Gabriel's development and exploration plans, result in additional expenses on its part, or prevent the development of the Rosia Montana Project.

Baia Mare Tailings Spill

The incidents in 2000 at the Baia Mare and Baia Borsa tailings management facilities in Romania, in neither of which Gabriel had any interest or involvement, have dramatically increased public awareness of the environmental and safety hazards of the mining industry. In response to these incidents, both the United Nations and the EU convened missions or task forces to investigate these incidents and to formulate conclusions and recommendations. The EU recommendations included developing a new EU directive relating specifically to the mining industry, the EU Mine Waste Directive, which came into force and effect in April 2006, as well as the preparation of an inventory of similar sites in Europe which pose the threat of similar incidents. The International Commission for the Protection of the Danube River (the "ICPDR") has assembled an inventory of high risk tailings facilities in countries surrounding the Danube River, including Hungary, Romania, Slovenia and Ukraine. The Salistei tailings dam, which was operated by Minvest at Rosia Montana until operations ceased in May 2006, although outside the boundaries of the Project, is included in the ICPDR's inventory.

An incident at any one of the facilities included in the ICPDR's inventory, or that occurs elsewhere in Europe, is beyond Gabriel's control and may adversely affect political attitudes in Romania regarding the mining industry. In particular, a shift in such attitudes away from support for the mining industry may adversely affect Gabriel's ability to, or may prevent Gabriel from, developing a new mine at Rosia Montana.

Risks Associated With the Closure of the State Run Mining Operations

In May 2006, Minvest permanently ceased all mining operations at Rosia Montana and then prepared and delivered a mine closure plan to the Romanian authorities for approval. Although Gabriel understands that such mine closure plan has been approved by the relevant authorities, there can be no assurance that Minvest will obtain the requisite funding in a timely fashion to undertake the activities contemplated by such closure plan and that undertaking such activities will not interfere with the development of the Rosia Montana Project.

Likewise, until Minvest's mine closure plan has been approved and fully implemented, there can be no assurance that such activities will not attract liability to Gabriel, as the titleholder of the Rosia Montana exploitation concession license, under the laws, rules and regulations applicable to mining activities in Romania. Likewise, there can be no assurance that the assumption by Minvest of all liabilities associated with its mining operations and the indemnification of Gabriel from such liabilities will be enforceable against Minvest.

Risks Associated With Legal Challenges

Gabriel faces a number of legal challenges initiated by NGOs with respect to the development of the Rosia Montana Project. The publicly stated objective of these legal challenges is to suspend, annul, terminate, or prevent the issuance of, each of the licenses, permits, approvals and authorizations required by Gabriel to develop the Rosia Montana Project. There are significant risks that the success of these legal challenges could result in the suspension, annulment, termination, or prevent the issuance of, such licenses, permits and approvals which could negatively impact Gabriel's development plans, result in additional expenses on its part, or prevent the development of the Rosia Montana Project.

Risks Associated With Proposed Adverse Legislative Initiatives

Since 1995, a number of private members' bills regarding have been introduced in the Romanian Parliament with the intent of preventing the development of the Rosia Montana Project. These private members bills have proposed banning the use of cyanide in mining operations, declaring certain archaeological sites as areas of national interest and declaring Rosia Montana as a protected area. The proposal to ban cyanide in mining operations was introduced in 2005 and again in 2007. At present, this initiative, together with the proposal to declare certain archaeological sites as areas of national interest, are in the parliamentary committee stage. The initiative declaring Rosia Montana as a protected area was voted down in the Romanian Parliament in 2008. There are significant risks that these initiatives will be passed by the Romanian Parliament and become law. Such passage would negatively impact Gabriel's development plans, result in additional delays and expenses on its part, and possibly prevent the development of the Rosia Montana Project.

Uninsured Risks

Gabriel maintains insurance to protect it against certain risks related to its current operations in amounts that it believes are reasonable depending upon the circumstances surrounding each identified risk. Gabriel may elect, however, not to insure against certain risks due to high premiums or for various other reasons. In the course of exploration, development and production of mineral properties, certain risks, and in particular, unexpected or unusual geological operating conditions including rock bursts, cave-ins, fire, flooding and earthquakes may occur. It is not always possible to fully insure against such risks as a result of high premiums or other reasons. Should such liabilities arise, any future profitability could be reduced or eliminated and result in increasing costs and a decline in the value of Gabriel's securities.

Management

Gabriel currently has a small executive management group, which is sufficient for Gabriel's present stage of development. Given that Gabriel's development to date has depended and in the future will continue to depend, in large part on the efforts of the current executive management group, the loss of members of this group could have a material adverse effect on Gabriel, its business and its ability to develop the Rosia Montana Project.

Enforcement of Civil Liabilities

As substantially all of the assets of Gabriel and its subsidiaries are located outside of Canada, and certain of its directors and officers are resident outside of Canada, it may be difficult or impossible to enforce judgements granted by a court in Canada against the assets of Gabriel or its subsidiaries or its directors and officers residing outside of Canada.

New Accounting Policies

Effective January 1, 2008, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1400, Assessing Going Concern, CICA Handbook Section 1535, Capital Disclosures, and CICA Handbook Section 3862 and 3863, Financial Instruments - Disclosures and Presentation.

Assessing Going Concern

Section 1400 has been amended to include requirements for management to assess and disclose an entity's ability to continue as a going concern. The standard is effective for interim and annual financial statements for years beginning on/after January 1, 2008.

Capital Disclosures

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 standard is effective for interim and annual financial statements relating to years beginning on/after October 1, 2007.

Financial Instruments - Disclosures and Presentation

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 standards are effective for interim and annual financial statements relating to years beginning on/after October 1, 2007.

New Accounting Pronouncements not yet adopted

Goodwill and Intangible Assets

The Canadian Institute of Chartered Accountants ("CICA") issued accounting standard Section 3064 - Goodwill and Intangible Assets which replaces Section 3062 - Goodwill and Other Intangible Assets, Section 3450 - Research and Development and EIC27 - Revenues and Expenditures during the Pre-operating Period. The new standard provides guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This standard is effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008. The Company believes that this standard will have no significant impact on the financial statements.

IFRS Changeover Plan Disclosure

The Canadian Accounting Standards Board (AcSB) has announced its decision to replace Canadian generally accepted accounting principles ("GAAP") with International Financial Reporting Standards (IFRS) for all Canadian Publicly Accountable Enterprises (PAEs).

The effective changeover date is January 1, 2011, at which time Canadian GAAP will cease to apply for Gabriel Resources Ltd. and will be replaced by IFRS. Following this timeline, the Company will issue its first set of interim financial statements prepared under IFRS in the first quarter of 2011, with one period of comparative information also compiled under IFRS.

Management has developed a project plan for the conversion to IFRS based on our current nature of operations. The conversion plan is comprised of three phases: IFRS diagnostic assessment, implementation and education, and completion of all integration system and process changes. The project is progressing as planned. Management is in the process of finalizing phase one, IFRS diagnostic assessment, which includes preliminary Canadian GAAP and IFRS comparison on key accounting issues applicable to the Company and we have entered the early education phase of our plan.

Due to anticipated changes in International Accounting Standards prior to our transition to IFRS, we are not in a position to determine the impact on our financial results.

CEO/CFO Certification

The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the Company.

Our CEO and CFO certify that, as at December 31, 2008, the Company's DC&P have been designed effectively to provide reasonable assurance that material information relating to the Company is made known to them by others, particularly during the period in which the annual filings are being prepared; and information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. They also certify that the Company's ICFR have been designed effectively to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Canadian GAAP.

The control framework the Company's CEO and CFO used to design the Company's ICFR is COSO.

Based on the evaluation of our DC&P and ICFR, our CEO and CFO have concluded at December 31, 2008, the Company's DC&P and ICFR are operating effectively.

There is no limitation on scope of design as described in paragraph 5.3 of NI 52-109. There has been no change in the Company's ICFR that occurred during 2008 which has materially affected, or is reasonably likely to materially affect the Company's ICFR.

Outstanding Share Data

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



Outstanding
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Preferred shares Nil
Common shares 255,451,084
Common stock options 22,175,945
Common stock warrants 1,125,000
Deferred share units - common shares 1,154,074
----------------------------------------------------------------------------

Fully diluted share capital 279,906,103
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Proven and Probable Mineral Reserves

The Company maintains an 80 percent economic interest in the Rosia Montana project which at year end 2008, has aggregate proven and probable reserves as follows, calculated using a gold price of $735 per ounce:



--------------------------------------------
Grade (g/t) In Situ (Ounces)
----------------------------------------------------------------------------
Reserve Category Tonnes Gold Silver Gold Silver
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Proven 112,455,000 1.63 9.0 5,893,000 32,540,000
Probable 102,476,000 1.27 4.6 4,184,000 15,156,000
----------------------------------------------------------------------------
Total 214,931,000 1.46 6.9 10,077,000 47,696,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------


John Marek, P.Eng., is the qualified person responsible for calculating the reserve estimate set forth in the table above.

Forward-Looking Statements

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

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

Non-GAAP Financial Measures

Total Cash Costs Performance Measures

Total cash costs include all forecasted costs absorbed into inventory, including royalties, by-product credits, and excludes accretion expense and amortization. The presentation of these statistics in this manner allows us to forecast and manage those factors that impact planned production costs. Total cash costs per ounce/tonne are calculated by dividing the aggregate of these costs by gold ounces, sold or ore tonnes processed. Total cash costs and total cash costs per ounce/tonne are calculated on a consistent basis for the periods presented.

In planning our mining operations, we disaggregate cost of sales between amortization and the other components of cost of sales. We use total cash costs per ounce/tonne statistics as a key performance measure internally to evaluate the planned performance of our project. We use these statistics to assess our planned performance, and also to assess the overall effectiveness and efficiency of our planned mining operation.

We also use amortization costs per ounce statistics to plan performance. By disaggregating cost of sales into these two components and separately monitoring them, we are able to better identify and address key performance indicators.

We believe that the presentation of these statistics in this manner in our MD&A, together with commentary explaining trends and changes in these forecasted statistics, enhances the ability of investors to assess our project. These statistics also enable investors to better understand changes in cash production cost estimates, which in turn affect our profitability and ability to generate cash flow.

The principal limitation associated with total cash costs per ounce/tonne statistics is that they do not reflect the total costs to produce gold, which in turn impacts the projected earnings of the Company. We believe that the benefits of providing disaggregated information outweighs the limitation in the method of presentation of total cash costs per ounce/tonne statistics.

Total cash costs per ounce/tonne statistics are intended to provide additional information, do not have any standardized meaning prescribed by GAAP and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The measures are not necessarily indicative of forecasted operating profit or cash flow from operations as determined under GAAP. Other companies may calculate these measures differently.

Management's Responsibility for Financial Reporting

The accompanying consolidated financial statements of the Company have been prepared by management in accordance with accounting principles generally accepted in Canada. Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and, where relevant, the choice of accounting principles. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded, and proper records maintained.

The Audit Committee of the Board of Directors has met with the Company's independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to submitting the consolidated financial statements to the Board for approval.

The Company's independent auditors, PricewaterhouseCoopers LLP, have conducted an audit in accordance with generally accepted auditing standards in Canada, and their report follows.



Alan R. Hill Richard Young
President and CEO Vice President and CFO

March 4th, 2009



Auditors' Report
To the Shareholders of
Gabriel Resources Ltd.


We have audited the consolidated balance sheets of Gabriel Resources Ltd. as at December 31, 2008 and 2007 and the consolidated statements of loss and deficit, comprehensive loss and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.



PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants
Toronto, Canada March 4th, 2009



Consolidated Balance Sheets
As at December 31,
(Expressed in thousands of Canadian dollars)

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

Assets
Current Assets
Cash and cash equivalents $ 72,233 $ 147,244
Accounts receivable 5,221 1,237
Prepaid expenses and supplies 769 990
----------------------------------------------------------------------------

78,223 149,471
Restricted cash (note 4) 153 162
Capital assets (note 5) 44,675 18,961
Mineral properties (note 6) 407,084 339,361
----------------------------------------------------------------------------

$ 530,135 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 18,843 $ 14,032
Resettlement liabilities (note 7) 30,208 17,140
----------------------------------------------------------------------------
49,051 31,172

Other Liabilities (note 8) 3,065 2,688
----------------------------------------------------------------------------

52,116 33,860
----------------------------------------------------------------------------

Shareholders' Equity
Capital stock (note 10) 560,052 558,277
Contributed surplus (note 13) 15,051 8,807
Deficit (97,084) (92,989)
----------------------------------------------------------------------------

478,019 474,095
----------------------------------------------------------------------------

$ 530,135 $ 507,955
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Nature of operations and going concern (note 1)

Minority interest (note 9(b))

Commitments and contingencies (note 18)

Approved by the Board of Directors

Michael Parrett Alan Thomas
Director Director

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



Consolidated Statements of Loss and Deficit
For the years ended December 31,
(Expressed in thousands of Canadian dollars, except per share data)

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

Expenses
Corporate, general and administrative $ 7,989 $ 10,363
Stock based compensation (note 8 & 12) 2,620 2,069
Project financing costs 2,186 973
Severance costs (note 8(c)) 668 1,448
Amortization 304 236
----------------------------------------------------------------------------

13,767 15,089
----------------------------------------------------------------------------

Other expense (income)
Interest (3,647) (7,088)
Foreign exchange loss (gain) (15,825) 11,367
----------------------------------------------------------------------------

Loss (income) before income taxes (5,705) 19,368
Income tax expense (note 14) 9,800 3,675
----------------------------------------------------------------------------

Loss for the year 4,095 23,043
Deficit - beginning of year 92,989 69,946
----------------------------------------------------------------------------

Deficit - end of year $ 97,084 $ 92,989
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Loss per share (basic and diluted) $ 0.02 $ 0.09
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Weighted average number of shares 255,192,829 244,784,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Consolidated Statements of Comprehensive Loss
For the years ended December 31,
(Expressed in thousands of Canadian dollars)

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

Loss for the year $ 4,095 $ 23,043
Other comprehensive loss - -
----------------------------------------------------------------------------

Comprehensive loss $ 4,095 $ 23,043
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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



Consolidated Statements of Cash Flows
For the years ended December 31,
(Expressed in thousands of Canadian dollars)

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

Cash flows from (used in) operating activities
Loss for the year $ (4,095) $ (23,043)
Items not affecting cash
Amortization 304 236
Stock-based compensation 2,620 2,069
Unrealized foreign exchange loss (gain) on cash
and cash equivalents (5,278) 3,543
----------------------------------------------------------------------------

(6,449) (17,195)
DSU cash settlement (52) -
Net changes in non-cash working capital (note 19) 1,525 1,169
----------------------------------------------------------------------------

(4,976) (16,026)
----------------------------------------------------------------------------

Cash flows provided by (used in) investing activities
Decrease in short-term investments and restricted
cash 9 77,555
Development and exploration expenditures (48,534) (83,215)
Purchase of capital assets (27,240) (16,471)
Net changes in non-cash working capital (note 19) (460) 5,898
----------------------------------------------------------------------------

(76,225) (16,233)
----------------------------------------------------------------------------

Cash flows from (used in) financing activities
Proceeds from issuance of capital stock, net of
issue costs - 148,550
Proceeds from the exercise of share purchase warrants - 20,489
Proceeds from the exercise of stock options 1,209 1,213
Net changes in non-cash working capital (note 19) (112) 196
----------------------------------------------------------------------------

1,097 170,448
----------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents (80,104) 138,189
Effect of foreign exchange on cash, cash equivalents,
and non-cash working capital 5,093 (3,543)
Cash and cash equivalents - beginning of year 147,244 12,598
----------------------------------------------------------------------------

Cash and cash equivalents - end of year $ 72,233 $ 147,244
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 19)

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



Notes to Consolidated Financial Statements
For the years ended December 31, 2008 and 2007
(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 and raise long-term financing to complete the development of the properties. In addition, the Project may be subject to sovereign risk, including political and economic instability, changes in existing government regulations, for example, a ban on the use of cyanide in mining, re-designation of the project area as a archeological site of national importance, government regulations relating to mining which may withhold the receipt of required permits or impede the Company's ability to acquire the necessary surface rights, as well as currency fluctuations and local inflation. The suspension of the EIA process by the former Minister of Environment and Sustainable Development in September 2007 demonstrates the significant risks that this Project faces. These risks may adversely affect the investment and may result in the impairment or loss of all or part of the Company's investment.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a 'going concern', which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at December 31, 2008 the Company had no sources of operating cash flows and does not have sufficient cash to fund the development of the Project and therefore will require additional funding which, if not raised, would result in the curtailment of activities and project delays. The Company started 2009 with $72.2 million in cash and cash equivalents and therefore, irrespective of how the Project progresses, the Company will require additional capital in 2009.

Management has finalized a financing plan that assumes neither the conventional debt market nor the bond market will be available in time to meet the Company's financing needs. The current global financial crisis may cause the time line from the restart of the permitting process until receipt of construction permits to be extended as the Company may pursue certain activities sequentially that had previously been planned to run in parallel or alternatively, construction may not begin immediately after receipt of construction permits if financing is not complete.

There can be no assurances that the Company's activities will be successful or sufficient and as a result there is significant doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, would be necessary.

2. New accounting standards

Effective January 1, 2008, the Company adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1400, Assessing Going Concern, CICA Handbook Section 1535, Capital Disclosures, and CICA Handbook Section 3862 and 3863, Financial Instruments - Disclosures and Presentation.

Assessing Going Concern

Section 1400 has been amended to include requirements for management to assess and disclose an entity's ability to continue as a going concern. The standard is effective for interim and annual financial statements for years beginning on/after January 1, 2008.

Capital Disclosures

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 standard is effective for interim and annual financial statements relating to years beginning on/after October 1, 2007.

Financial Instruments - Disclosures and Presentation

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 standards are effective for interim and annual financial statements relating to years beginning on/after October 1, 2007.

New Accounting Pronouncements not yet adopted

Goodwill and Intangible Assets

The Canadian Institute of Chartered Accountants ("CICA") issued accounting standard Section 3064 - Goodwill and Intangible Assets which replaces Section 3062 - Goodwill and Other Intangible Assets, Section 3450 - Research and Development and EIC27 - Revenues and Expenditures during the Pre-operating Period. The new standard provides guidance on the recognition, measurement, presentation and disclosure of goodwill and intangible assets. This standard is effective for interim and annual financial statements for fiscal years beginning on or after October 1, 2008. The Company believes that this standard will have no significant impact on the financial statements.

International Financial Reporting Standards ("IFRS")

The Canadian Accounting Standards Board (AcSB) has announced its decision to replace Canadian generally accepted accounting principles ("GAAP") with IFRS for all Canadian Publicly Accountable Enterprises (PAEs). The effective changeover date is January 1, 2011, at which time Canadian GAAP will cease to apply for Gabriel Resources Ltd. and will be replaced by IFRS. Following this timeline, the Company will issue its first set of interim financial statements prepared under IFRS in the first quarter of 2011. The Company is currently assessing the impact of transition to IFRS on its consolidated financial statements.

3. Significant accounting policies

Sources of GAAP

These consolidated financial statements have been prepared in accordance with Canadian GAAP, and reflect the following significant accounting policies:

Basis of consolidation

The consolidated financial statements include the accounts of the Company and the following subsidiaries:



Gabriel Resources (Barbados) Ltd. 100%-owned
Gabriel Resources (Jersey) Ltd. 100%-owned
Gabriel Resources (Netherlands) B.V. 100%-owned
Rosia Montana Gold Corporation S.A. ("RMGC") 80%-owned
Rom AUR SRL 100%-owned
Gabriel Finance SA 99.7%-owned


Estimates, risks and uncertainties

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses and other income during the year. Significant estimates and assumptions include those related to the recoverability of mineral properties and benefits of future income tax assets, estimated useful lives of capital assets, stock compensation valuation assumptions and determinations as to whether costs are expensed or deferred. While management believes that these estimates and assumptions are reasonable, actual results could vary significantly.

Capital assets

Capital assets are recorded at cost less accumulated amortization. Amortization of capital assets used for exploration and development is capitalized to mineral properties.

Amortization is recorded using the straight-line method based on a useful life of five years for vehicles and varying rates between two and five years for office equipment. Leasehold improvements are amortized on a straight-line basis over the term of the respective lease.

Mineral properties

Acquisition costs of mineral properties, together with direct exploration and development expenses incurred thereon, are capitalized. Upon reaching commercial production, these capitalized costs will be transferred from exploration properties to producing properties on the consolidated balance sheet and will be amortized using the unit-of-production method over the estimated ore reserves.

Where the Company has identified circumstances indicating that an impairment might exist, the carrying value of mineral properties is subject to a review for impairment. When a property is sold, abandoned or deemed not economic, all related costs are written off. In the case of producing properties, where the carrying amounts exceed the related undiscounted cash flows from future operations, an appropriate reduction is made to the estimated fair value of the property with a corresponding charge to operations.

Impairment of long-lived assets

Long-lived assets to be held and used by the Company are reviewed regularly for possible impairment or whenever triggering events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If management determines that impairment exists, the impairment loss will be determined by comparing the asset's carrying amount to its fair value, which is determined using a discounted cash flow model. Management has performed an impairment analysis and concluded that there has been no impairment of the Company's long-lived assets as at December 31, 2008.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities, expenses and other income arising from foreign currency transactions are translated at the exchange rate in effect at the date of the transaction. Exchange gains or losses arising from the translation are included in the determination of losses in the current year.

Integrated foreign subsidiaries are accounted for under the temporal method. Under this method, monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Expenses and other income are translated at the rate in effect on date of the transaction. Exchange gains or losses related to expenditures on project activities arising from the translation are included in mineral properties which are capitalized.

Loss per share (LPS)

LPS is calculated based on the weighted average number of common shares issued and outstanding during the year. Diluted per share amounts are calculated using the treasury stock method whereby proceeds deemed to be received on the exercise of options and warrants in the per share calculation are assumed to be used to acquire common shares. The effect of potential issuances of shares under options and warrants would be anti-dilutive, and accordingly basic and diluted LPS are the same.

Income taxes

Income taxes are calculated using the asset and liability method of tax accounting. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized to the extent the recoverability of future income tax assets are not considered more likely than not to be realized.

Cash and cash equivalents

Cash and cash equivalents are comprised of cash at banks, on hand and other highly liquid short-term investments, having an original maturity date of three months or less.

Short-term investments

Short-term investments represent investments in guaranteed investment certificates with maturity dates of more than a period of 90 days. Short-term investments are carried at cost which approximates fair value.

Stock-based compensation

Stock-based compensation relating to stock options are estimated based on fair value at the grant and/or measurement date using the Black-Scholes model, and charged to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet over the vesting period.

Stock-based compensation relating to deferred share units is calculated based on the quoted market value of the common share, and charged to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet. The compensation cost and liability is adjusted each reporting period for changes in the underlying share price.

Asset retirement obligation

The fair value of the liability for an asset retirement obligation is recorded when it is incurred and the corresponding increase to the asset is depreciated over the life of the asset. The liability is increased over time to reflect an accretion element considered in the initial measurement of fair value. At December 31, 2008, the Company has not incurred or committed to any asset retirement obligations related to the development of its mineral properties in Romania, as it has not received its license or commenced mine construction activities.



4. Restricted cash

2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restricted cash(1) $ 153 $ 162
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Restricted cash represents environmental guarantees for future clean up
costs.



5. Capital Assets

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

Cost
Office equipment $ 4,069 $ 3,908
Building 1,082 1,082
Vehicles 1,282 1,270
Leasehold improvements 215 206
Construction in progress(1) 41,956 15,681
----------------------------------------------------------------------------

48,604 22,147
----------------------------------------------------------------------------

Less: Accumulated amortization
Office equipment 2,566 1,949
Building 53 43
Vehicles 1,156 1,065
Leasehold improvements 154 129
Construction in progress(1) - -
----------------------------------------------------------------------------

3,929 3,186
----------------------------------------------------------------------------

Net book value
Office equipment 1,503 1,959
Building 1,029 1,039
Vehicles 126 205
Leasehold improvements 61 77
Construction in progress(1) 41,956 15,681
----------------------------------------------------------------------------

$ 44,675 $ 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 $ 9,831 $ 2,353
Long-lead-time equipment 32,125 13,328
----------------------------------------------------------------------------
$ 41,956 $ 15,681
----------------------------------------------------------------------------
----------------------------------------------------------------------------



6. 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
----------------------------------------------------------------------------

Balance - December 31, 2007 328,804 10,375 182 339,361
Development costs(1) 66,760 - - 66,760
Exploration costs (1) 675 83 205 963
----------------------------------------------------------------------------

Balance - December 31, 2008 $ 396,239 $ 10,458 $ 387 $ 407,084
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Mineral property additions of $67.7 million (2007 - $98.0 million)
includes $19.2 million (2007 - $14.8 million) of non-cash items
principally related to resettlement liabilities, stock based
compensation, and amortization, therefore the net cash investment during
the year was $48.5 million (2007 - $83.2 million).


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 and the Company is awaiting response from the authorities on this item. No additional work on Bucium's project economics is planned until the license is converted from an exploration to an exploitation license and until the Rosia Montana EIA is approved.

The Company, through its wholly owned subsidiary Rom Aur SRL ("Rom Aur"), holds an exploration license with respect to the Baisoara property in Western Romania. The license is for an initial term of 5 years and expires in July 2011. The Company is obligated to spend US$3.2 million over the term of the license. In fiscal 2008, due to the delay in the Rosia Montana permitting process, the Company has reduced the exploration expenditure for Baisoara to a level required to maintain the license and permit in good standing.

7. Resettlement liabilities

During the fourth quarter of 2006, the Company recommenced purchasing homes in the Project area. Residents had two choices. They could either choose to take the sale proceeds and move to a new location of their choosing or they could exchange their properties for a new property to be built by the Company at one of the two new resettlement sites. At December 31, 2008, the Company had accrued resettlement liabilities totaling $30.2 million (2007 - $17.1 million), which represents the cost of building the new homes for the local residents and delay penalties.

Under the original contracts, the Company was required to deliver homes by August 1, 2008, which was not met. As a result, the Company either signed extension agreements or will deliver the new homes within the penalty period for the 125 residents who chose the La Recea resettlement site option in Alba Iulia. As a result of the delay in delivery of homes, the Company is accruing a penalty of 6% (for La Recea) and up to 20% (for Piatra Alba) of the agreed upon unpaid property value per year of delay as required by the agreement including all amendments.

As at December 31, 2008, the Company has accrued $1.2 million (2007 - $0.5 million) representing its total estimated delay penalty. During the year, the Company paid $0.7 million of delay penalties (2007 - $Nil).



8. 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 1,188
Granted 580 1.26 728
Settled (28) 1.82 (52)
Change in fair value - - (109)
----------------------------------------------------------------------------

Balance - December 31, 2008 1,155 $ 1.52 $ 1,755
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Fidelity bonus and other benefits (b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance accrued - December 31, 2006 $ 184
Additions 665
----------------------------------------------------------------------------

Balance accrued - December 31, 2007 849
Additions 461
----------------------------------------------------------------------------
Balance accrued - December 31, 2008 $ 1,310
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Long-term portion of Severance and
Termination costs (c)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance accrued - December 31, 2006 $ -
Additions 652
----------------------------------------------------------------------------

Balance accrued - December 31, 2007 652
Foreign exchange movement 54
Reclassification to accounts payable
and accrued liabilities (706)
----------------------------------------------------------------------------

Balance accrued - December 31, 2008 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total Other Liabilities $ 3,065
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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.



Deferred Share Units ("DSUs") 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Expensed (recovered) $ 564 $ (6)
Capitalized (capital reduction) $ 55 $ 13
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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 December 31, 2008, $1.3 million (December 31, 2007 - $0.8 million) 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. During the year, concurrent with the modification of payment terms of its remaining obligation, the Company revised its estimated cost and accrued a further $0.7 million in respect of its total obligation and has classified its entire outstanding obligation as a current liability.

As at December 31, 2008 the Company paid $1.3 million in termination benefits and anticipates paying the remaining balance during the second quarter 2009.



Foreign
December Exchange Reclassi- December
31, 2007 Addition Payment Movement fication 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Current portion $ 796 $ 668 $ (1,270) $ 59 $ 706 $ 959
Long-term portion 652 - - 54 (706) -
----------------------------------------------------------------------------

Total Costs $ 1,448 $ 668 $ (1,270) $ 113 $ - $ 959
----------------------------------------------------------------------------
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9. Related Party Transactions

The Company had related party transactions, with directors 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 $4 thousand (2007 - $39 thousand) during the year 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 of RMGC, 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.



10. Capital Stock

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


Number of
shares
Common shares issued and outstanding (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 12) 614 1,213
Stock-based compensation - exercise of stock
options (note 13) - 620
Stock-based compensation - settlement of DSUs
(note 8(a)) 5 24
Shares issued from the exercise of share purchase
warrants (note 11(a)) 7,451 20,489
Exercise of share purchase warrants - transfer
from common share purchase warrants - 1,937
----------------------------------------------------------------------------

Balance - December 31, 2007 254,898 $ 558,277
Shares issued on the exercise of stock options
(note 12) 551 1,209
Transfer from contributed surplus - exercise of
stock options (note 13) - 566
----------------------------------------------------------------------------

Balance - December 31, 2008 255,449 $ 560,052
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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 $0.9 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 and general corporate purposes.

NCL, a subsidiary of Newmont Mining Corporation, participated to acquire 20% (7.2 million common shares) of the total offering.

11. Share Purchase Warrants

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

(b) During the fourth quarter of 2006, the Company entered into mandate letters with two international financial institutions to arrange project debt financing for the development of the Rosia Montana project. The two institutions were to provide a committed underwriting in an amount up to US$350 million. As a result of the suspension of the EIA review process, the mandate letters terminated during 2008 and 1.125 million warrants vested while 1.5 million warrants were cancelled. Each warrant has a four year term and has an exercise price of $4.88. The Company continues to work with the international financial institutions to secure a new agreement whereby the institutions would arrange but not underwrite a bank facility.

The fair value of the warrants vested, being US$1.5 million, represents their cash settlement value. It is at the holders' discretion as to whether they elect to settle the warrants in cash or shares of the Company. The fair value of the warrants vested has been charged to project financing cost of the period.

As at December 31, 2008, the following share purchase warrants were issued and outstanding:



Exercise
Number of price
warrants (dollars) Expiry date
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Warrants issued 1,125 $ 4.88 November 28, 2010
----------------------------------------------------------------------------

Balance - December 31, 2008 1,125 $ 4.88 November 28, 2010
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12. Stock Options

The Incentive Stock Option Plan (the "Plan") authorizes the Directors to grant options to purchase shares of the Company to directors, officers, employees and consultants. The exercise price of the options equals the five-day weighted average closing price prior to the option allotment. The majority of options granted vest over three years and are exercisable over five years from the date of issuance.

The Plan was amended on May 8, 2007 to allow for the maximum number of common shares issuable under the Plan to equal 10% of the issued and outstanding common shares of the Company at any point in time, and that options once exercised would be re-endorsed into the pool of un-granted options.

As at December 31, 2008, 3.0 million options are available for issuance under the Plan (December 31, 2007 - 12.6 million).

As at December 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 of exercise contractual Number of exercise
Range of exercise options price life options price
prices (dollars) (thousands) (dollars) (Years) (thousands) (dollars)
------------------ --------------------------------- -----------------------
$1.18 - $2.00 15,475 $ 1.69 3.6 7,960 $ 1.64
2.01 - 3.00 4,654 2.52 3.3 2,412 2.52
3.01 - 4.97 2,385 4.49 3.1 1,545 4.52
-------------------------------- ------------------------
-------------------------------- ------------------------
22,514 $ 2.16 3.6 11,917 $ 2.19
-------------------------------- ------------------------
-------------------------------- ------------------------


During the years ended 2008 and 2007, 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 11,240 1.95
Options expired (279) 4.51
Options forfeited / cancelled (822) 2.99
Options exercised (551) 2.19
----------------------------------------------------------------------------

Balance - December 31, 2008 22,514 $ 2.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The estimated fair value of stock options is typically amortized over the period in which the options vest which is normally three years. 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. For those options which vest on a single date, either on issuance or on meeting milestones (the "measurement date"), the entire fair value of the vesting options is recognized immediately on the measurement date.

The fair value of stock options granted to personnel working on development projects is capitalized over the vesting period.

During the year, the Company granted 3 million options with a fair value of $2.6 million ($0.87 per share option) that vested and were charged to Mineral Properties during the fourth quarter of 2008.

During the fourth quarter 2008, the Company granted 5 million options one-third of which vested upon issuance with the remainder vesting upon completion of certain milestones or under certain conditions of termination. The estimated fair value of the unvested options will be recognized and capitalized at the measurement date as the milestones are achieved and the value can be reasonably measured. For the year ended December 31, 2008, the amount capitalized was $1.0 million ($0.60 per share option). The valuation was calculated with the following assumptions: risk-free interest rate of 1.51%, expected annual volatility of 84.58%, and expected life of options of 4 years. The remaining fair value of outstanding unvested options to be capitalized cannot be reasonably measured as of December 31, 2008.

Excluding 8 million options that vest(ed) conditional on the achievement of milestones, the fair value of the remaining 3,240 thousand options granted in 2008 (2007 - 5,965 thousand) has been estimated at the date of grant using a Black-Scholes option pricing model. The current period's valuation was calculated with the following assumptions:



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

Weighted average risk-free interest rate 2.97% 4.00%
Volatility of the expected market price of share 70% 60%
Weighted average expected life of options 2.7 years 2.7 years
Weighted average cost per option $ 1.02 $ 0.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As of December 31, 2008, the remaining fair value of outstanding unvested options to be expensed is $4.8 million, to be capitalized is $1.7 million. For the years ended December 31, 2008 and 2007, fair value of stock options are expensed and capitalized as follows:



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

Expensed $ 2,056 $ 2,075
Capitalized $ 4,754 $ 1,440
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. Contributed Surplus

The following table identifies the changes in contributed surplus for the year:



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 6,810
Exercise of stock options (566)
Expiry of unexercised warrants -
----------------------------------------------------------------------------

Balance - December 31, 2008 $ 15,051
----------------------------------------------------------------------------
----------------------------------------------------------------------------


14. Income Taxes

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.

On April 10, 2008, the Company was advised by the Romanian tax authorities that they were re-opening fiscal years 2003 and 2004 which had been previously audited.

On June 24, 2008, the Company received a tax assessment for $9.8 million related to the third tax audit, for the years 2003 and 2004, initiated and completed during the second quarter of 2008. This assessment also arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt.

Based on the advice of its professional tax advisors, the Company believes that the tax authorities have misapplied the legislation and we are vigorously contesting the State's position through the courts.

The following table reconciles the expected income tax expense (recovery) at the Canadian statutory income tax rate to the amounts recognized in the Consolidated Statements of Loss.



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

Income tax rate 34% 36%
Income tax at statutory rates $ 1,911 $ (6,972)
Adjustment for foreign subsidiaries (for year 2003
and 2004) 9,800 3,675
Stock based compensation 878 745
Other - -
Valuation allowance (2,789) 6,227
----------------------------------------------------------------------------

Provision for income taxes $ 9,800 $ 3,675
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following table reflects future income tax assets at December 31, 2008
and 2007:



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

Loss carry forwards $ 14,902 $ 17,431
Share issue costs 2,018 2,862
Capital assets 319 231
Cumulative eligible capital expenditures 3,550 3,074
Valuation allowance (20,789) (23,598)
----------------------------------------------------------------------------

Future income tax assets recognized $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------



The Company has available tax losses for Canadian income tax purposes which
may be carried forward to reduce taxable income derived in future years. A
summary of these losses is provided below:



Non-capital losses expiring in: 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

2008 - 5,741
2009 6,324 6,324
2010 11,421 11,421
2014 6,309 6,309
2015 6,397 6,397
2026 7,364 7,364
2027 6,717 6,717
2028 6,855 -
----------------------------------------------------------------------------

Total non-capital loss carry forwards 51,387 50,273
----------------------------------------------------------------------------
----------------------------------------------------------------------------


15. 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:



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

Romania $ 451,280 $ 357,558
Canada 479 764
----------------------------------------------------------------------------

Total $ 451,759 $ 358,322
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----------------------------------------------------------------------------


16. Financial Instruments

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

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

Credit risk

The Company's credit risk is primarily attributable to cash and cash equivalents that are held in investment accounts with major Canadian banks. As a consequence of the global financial crisis that began impacting the financial markets in the summer 2007, the Company adopted a strategy to minimize its credit risk by substantially investing in sovereign debt issued by Canadian Agencies, Provinces and the Federal Governments of Canada, the United States and France, with the balance of cash being invested in short-term Term Deposits issued by major Canadian banks.

The Company strives to maintain at least 85-90% of its cash and cash equivalent investments in sovereign debt. With the ongoing global financial crisis it is becoming increasingly difficult to source short-term sovereign debt that meets the Company's credit risk criteria and maturities schedule.

The Company is exposed to the credit risk of Romanian banks that hold and disburse cash on behalf of its Romanian subsidiaries. The Company manages its Romania bank credit risk by centralizing custody, control and management of its surplus cash resources in Canada at the corporate office and only transferring money to its Romanian subsidiary based on immediate cash requirements, thereby mitigating exposure to Romania banks.

The Company's credit risk is also attributable to value-added taxes receivable. Value-added taxes receivable are collectable from the Romanian government.

Liquidity risk

The Company has sufficient funds as at December 31, 2008 to settle current and long-term liabilities.

Market risk

(a) Interest rate risk

The Company has significant cash balances and no interest-bearing debt. As discussed above in the section entitled 'Credit Risk', the Company's policy is to primarily invest excess cash in sovereign guaranteed investments.

With the Company maintaining a short-term investment horizon, typically less than 90 days, for its cash and cash equivalent balances, it is highly susceptible to interest rate volatility as investments mature and are rolled over.

With a short-term investment horizon and the intent to hold all investments until maturity, the Company is only marginally exposed to capital erosion should interest rates rise and cause its fixed yield investments to devalue.

The Company's primary objective, with respect to cash and cash equivalents, is to mitigate credit risk. The Company has elected to forego yield in favour of capital preservation.

(b) Foreign currency risk

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

The global financial crisis has led to dramatic volatility in the foreign currency markets. The Company maintains cash and cash equivalents in the currency of planned expenditures and is therefore highly susceptible to market volatility as foreign cash balances are revalued to the functional currency of the Company. Therefore, the Company may report significant foreign exchange gains or losses as significant market volatility continues.

Sensitivity analysis

The Company has designated its cash and cash equivalents as held-for-trading, which are measured at fair value. As of December 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 "typical" three month period. The current global financial crisis has resulted in dramatic interest rate, commodity and currency volatility. The Company does not view these market conditions as "typical" and therefore the affect of interest rate changes and currency valuation changes on net income may be more dramatic than deemed "reasonably possible". Nonetheless, the Company has taken steps to reduce its risks as discussed above.

- Cash and cash equivalents include deposits which are at floating interest rates. Sensitivity of cash and cash equivalents to a plus or minus 1% change in earned interest rates would affect net income by $0.2 million.

- The Company holds significant balances in foreign currencies, and this gives rise to exposure to foreign exchange risk. Sensitivity of the foreign currency balance as of December 31, 2008 to a plus or minus 1% change in foreign exchange rates would affect net income by $0.5 million.

17. Capital Management

The Company's objective when managing capital is to safeguard its accumulated capital (cash on hand) in order to fund development of its Rosia Montana project. The Company manages its capital structure and makes adjustments to it based on the level of funds on hand and anticipated future expenditures.

Management has prepared a new financing plan that assumes neither the conventional bank debt market nor the bond market will be available in time to meet our financing needs. There are no assurances that this initiative will be successful. To safeguard capital and to mitigate currency risk, the Company strives to maintain at least 85-90% of its cash and cash equivalent investments in sovereign debt that reflect the currency of the planned expenditure.

18. 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.



2013 and
Total 2009 2010 2011 2012 thereafter
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Baisoara exploration
license (note 6) $ 3,515 $ 147 $ 778 $ 1,596 $ 994 $ -
Resettlement (note 7) 30,208 30,208 - - - -
Goods and services(a) 6,627 6,062 144 10 10 401
Long lead time
equipment(b) 27,740 27,710 30 - - -
Rosia Montana
exploitation
license(c) 2,838 258 258 258 258 1,806
Surface concession
rights(d) 1,023 24 24 24 24 927
Lease agreements(e) 1,500 652 553 295 - -
----------------------------------------------------------------------------

Total commitments $ 73,451 $ 65,061 $ 1,787 $ 2,183 $ 1,286 $ 3,134
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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 $6.6 million at December 31, 2008 (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:



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

Total purchase agreements:
Grinding area systems $ 41,237 $ 46,140
Crusher facilities 3,923 6,976
Other process equipment - 2,646
Foreign exchange movement 9,681 -
----------------------------------------------------------------------------

54,841 55,762

Amount paid as at December 31, 2008:
Grinding area systems (20,436) (11,043)
Crusher facilities (1,896) (2,018)
Other process equipment - (267)
Foreign exchange movement (4,769) -
----------------------------------------------------------------------------

Outstanding payment obligation $ 27,740 $ 42,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the second quarter 2008, the Company elected not to exercise its manufacturing order option on $7.4 million of orders, pending the restart of the permitting process. During the fourth quarter 2008, the Company amended the remaining orders, which cumulatively reduced the total commitment for long-lead-time equipment by an additional $3.2 million. Therefore, these items have been excluded from the commitments table.

(c) Under the terms of the Company's exploitation mineral license for the Rosia Montana project, an annual fee is required to be paid to maintain the license in good standing. The current annual fee is approximately $0.2 million. These fees are indexed annually by the Romanian Government and the license has 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 $24 thousand.

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

The Company has an agreement with a consulting firm to provide financial advisory services in relation to defining and implementing the financing plan for development of the Rosia Montana gold project. A success fee of up to US$4 million will be payable on execution of definitive credit agreements and/or financing documents for the senior, mezzanine and cost overrun debt facilities for the Project. No amount has been accrued for these services.



19. Supplemental Cash Flow Information

(a) Net changes in non-cash working capital 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating activities:
Accounts receivable, prepaid expenses and supplies $ 27 $ 1,389
Accounts payable and accrued liabilities (516) (220)
Accrued fair value of Warrants vested for project
financing 1,829 -
Unrealized foreign exchange loss on working capital 185 -
----------------------------------------------------------------------------
$ 1,525 $ 1,169
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Investing activities:
Accounts receivable, prepaid expenses and supplies $ (3,881) $ (547)
Accounts payable and accrued liabilities 3,421 6,445
----------------------------------------------------------------------------

$ (460) $ 5,898
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Financing activities:
Accrued legal costs for public equity issue $ (112) $ 196
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(b) Exploration and development expenditures
Balance sheet change in mineral properties $ (67,723) $ (98,020)
Reclassification of mineral properties from
prepaid expenses 25 -
Reclassification of mineral properties from
work in progress 783 -
Increase in resettlement liabilities 13,068 12,747
Non-cash depreciation and disposal capitalized 504 605
Stock based compensation capitalized 4,809 1,453
----------------------------------------------------------------------------
Exploration and development expenditures per
cash flow statement $ (48,534) $ (83,215)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(c) Cash and cash equivalents is comprised of:
Cash $ 16,652 $ 1,947
Short-term investments (less than 90 days)
- weighted average interest of 0.78%
(2007 - 3.9%) 55,581 145,297
----------------------------------------------------------------------------

$ 72,233 $ 147,244
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company paid $15.2 million of income taxes including interest and
penalties during 2008 (2007 -$Nil).


20. Reclassification of Comparative Figures

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

Contact Information