Gabriel Resources Ltd.
TSX : GBU

Gabriel Resources Ltd.

March 06, 2008 16:33 ET

Gabriel Resources Ltd: Fourth Quarter Report

TORONTO, ONTARIO--(Marketwire - March 6, 2008) - Gabriel Resources Ltd. (TSX:GBU) -

Highlights

"2007 has been a frustrating year, we started off making tremendous progress until September when the permitting process was suspended," said Alan R. Hill, President and CEO. "I can assure you that we have a strategy in place and we are as committed as ever to developing the Rosia Montana Project and ensuring that the long term benefits it will bring to Romania and all stakeholders are realized."

Financial performance

- Fourth quarter net loss was $7.8 million, or $0.03 per share. Year-to-date net loss was $23.0 million, or $0.09 per share.

- The fourth quarter loss includes a one-time $1.4 million provision for severance costs associated with staff reductions in Romania in response to the suspension of the Environmental Impact Assessment ("EIA") review.

- A total of $23.6 million was spent on our development projects during the quarter, while $95.7 million was spent during 2007.

- Foreign exchange losses on US dollar cash balances held to finance planned future US dollar development activities, which accounted for a majority of the net loss for the year, were Nil in the quarter, while year-to-date foreign exchange losses were $11.4 million.

- Subsequent to December 31, 2007, the Company was assessed $4.8 million in income taxes and related penalties and interest as a result of tax audits undertaken during 2007. The entire assessment has been provided for in the 2007 financial results. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities have misapplied the legislation and the Company plans to vigorously contest the State's position in court.

Liquidity and capital resources

- Cash and cash equivalents and short-term investments at December 31, 2007 totaled $147.4 million.

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

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

Rosia Montana Project Development

Overview

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

- Nine months ago, Romania's current minority government opposed a draft parliamentary "private members bill" to institute a ban on cyanide use in mining, arguing the merits of mining conducted to high EU standards. Eight weeks later, the government reversed its position - changing its view to support the bill to ban cyanide in the mining industry, without explanation. On Wednesday March 5, 2008, the industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, postponed voting on the issue. Once the industry commission votes and files its report, the proposed bill can be introduced into Parliament.

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

- The Company is focused on doing everything within its power to restart the permitting process - and to that end has filed a law suit against the Ministry of the Environment to restart the EIA process.

- In light of the suspension of the EIA process, management conducted a thorough review of all activities associated with the development of the Project, with a goal of reducing expenditures to ensure the Company remains financially strong, while maintaining all existing licenses and permits in good standing and working to restart the permitting process. As a result, in December 2007, the Company announced plans to retrench staff, to suspend engineering as well as procurement of long-lead-time equipment and surface rights acquisition, along with most other activities.

Romania's Political Uncertainty

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

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

- A censure motion to bring down the government was filed in late September 2007 by the Social Democrat Party ("PSD'). For the motion to succeed, it required 50 percent of the Parliament and Senate plus one vote, or a total of 232 votes. The motion failed by 12 votes, as 20 members of the PSD party abstained or voted against their own party's censure motion.

- While management is making every effort - legal and political - to restart the EIA review process, it is becoming increasingly likely that a change in government will be required to restart the permitting process. The prospect for political change is real, as 2008 brings both local and national elections. With a change in government the Company expects that the abuse of process we have seen will be replaced by a fair and open review process.

Environmental/Permitting

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

- During September 2007, the Company filed an Administrative Complaint against the MESD regarding its decision to suspend the TAC review process. The MESD responded to the Administrative Complaint on October 19, 2007. The fourteen page response failed completely to address the grounds of complaint. As a result, the Company filed a lawsuit against the MESD in November 2007, with the first hearing taking place on February 20, 2008.

- Significant progress had been made in 2007 until the MESD's decision. The TAC held meetings on June 26, July 10, July 19 and August 9. The topic of those meetings included a general overview of the project, the technologies used, and our plans for dealing with waste material and potential project impacts. Those topics are covered under the first four chapters of our EIA and represent the bulk of the EIA. The TAC meetings had been very constructive with a thorough technical analysis of the project.

- MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee in the spring have now received their necessary permits, our permits alone await final signature by the MESD. The Company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. Unless the permits are granted, the Company expects to file a lawsuit in March 2008 against the MESD.

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

Surface Rights

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

- Construction of the Alba Iulia resettlement site began in July 2007. Infrastructure is expected to be completed in the second quarter of 2008, while construction of new homes began in October 2007. It is expected to take approximately 18 months to complete the approximately 130 homes at the Alba Iulia resettlement site. Construction at Alba Iulia site will continue despite the MESD's decision to halt the EIA process.

- During the third quarter of 2007, the access road to the Piatra Alba resettlement site was completed and handed over to the local administration and tenders for construction for phase one of the new village were received. Final construction permits are expected to be issued during the first half of 2008.

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

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

Archaeology

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

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

Expected Financing Plan

- The Company has placed the updated cost estimate, referred to as the control estimate, on hold until EIA approval. While the estimate is not complete, costs are trending higher. Once the EIA is approved, we will update the control estimate and revise our Financing Plan. As a result, the updated Financing Plan will look very different from the original Financing Plan announced in the spring of 2006.

Rosia Montana Project Timeline

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

- complete the EIA approval process;

- complete the purchase of the outstanding properties;

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

- update the control estimate and complete the financing plan.

- Construction of the mine would then take approximately 24 months. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGO's in a timely manner.

About Gabriel

Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project. For more information please visit the Company's website at www.gabrielresources.com.

The Company will be hosting its Year End 2007 Conference Call and Webcast Thursday, March 6, 2008 at 5:00pm EST. North American callers dial 1-888-713-4218; International callers dial 617-213-4870. Participant code: 57042798.

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, 2007 and 2006. 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, 2007 and 2006. 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 5, 2008, 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 ("Project").

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

As discussed in previous annual and quarterly reports, the Project has long faced opposition from a group of foreign-funded non-governmental organizations (NGO's), certain Romanian organizations and some members of the Hungarian Government. During 2007, however, the nature and magnitude of the opposition changed. A change in Romania's Government, resulting in the appointment of a Minister of Environment and Sustainable Development ("MESD") who is a member of Romania's ethnic-Hungarian political union, positioned anti-project political forces to delay our project. In September 2007, the Minister of Environment, who had often publicly expressed his opposition to the Project even as he pledged to support the legal review process, announced it was impossible to continue the environmental impact assessment (EIA) review process for the Rosia Montana project and he suspended the Technical Assessment Committee ("TAC") meetings to review the EIA, asserting a linkage between a minor procedural certificate and the EIA review process that, we believe, lacks any basis in law.

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

In light of the suspension of the EIA process, management conducted a thorough review of all activities associated with the development of the Project, with a goal of reducing expenditures to ensure the Company remains financially strong, while maintaining all existing licenses and permits in good standing and working to restart the permitting process. As a result, in December 2007, the Company announced plans to retrench staff, to suspend engineering as well as procurement of long-lead-time equipment and surface rights acquisition, along with most other activities which had been stopped with the Minister of Environment's suspension of the EIA process.

Key Issues

Romania's Political Uncertainty

Romania became a full member of the European Union on January 1, 2007. Since accession, however, the country's ruling coalition has disintegrated, with the departure of two of the parties partnered in government, the first in January and the second in April 2007. Open disputes between the presidential and parliamentary branches of government now dominate the political agenda, causing gridlock and delay.

A new minority government, comprised of the Liberal and UDMR parties, representing approximately 23 percent of the Parliament, was formed in April 2007 under the sitting Prime Minister. While the opposition Social Democrat Party ("PSD") party gave the minority coalition tacit support to form a government, it has elected not to cooperate in day to day governing. The UDMR party - which relies on Hungarian ethnic minorities in Romania for electoral support and espouses a platform for autonomy for the Transylvania region in which the Rosia Montana Project is located - holds four ministries, including the Ministry of the Environment and Sustainable Development. The current minority government has seen several resignations, as ministers were charged with corruption, while other officials from the governing party have open files with Romania's anti-fraud investigators. Efforts on the part of the minority government to blunt or evade efforts to prosecute cases of high-level corruption were criticized by the European Commission in its January 2008 Post Accession Monitoring Report on Romania.

Adding to Romania's political uncertainties, President Traian Basescu was impeached in April 2007 by Parliament, and a referendum took place on May 19, 2007 to determine his fate. The President received approximately 75% support for his reinstatement and was reinstated. A censure motion to bring down the government was filed in late September 2007 by the PSD party. For the motion to succeed, it required 50 percent of the Parliament and Senate plus one vote, or a total of 232 votes. The motion failed by 12 votes, as 20 members of the PSD party abstained or voted against their own party's censure motion.

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

The Minister of Environment's arbitrary suspension of the EIA review process worked in concert with other aspects of the opposition to our project. Certain members of the Romanian Government are being pressured by groups opposed to the development of the project to slow or stop the Rosia Montana Project. In addition to initiating the court challenge of our urbanism certificate, the opposition has orchestrated the tabling of a "private members bill" in the Romanian Parliament to ban the use of cyanide in mining operations in Romania. Initially scheduled for Parliamentary consideration in September 2007, the proposed bill is now scheduled to be introduced in the spring 2008 session of Parliament. This is the second time in recent years that a private members bill has been brought forward to ban cyanide. The previous bill was not supported by the Romanian Government and was rejected. The currently proposed bill was initially opposed by the minority Government when introduced in April 2007, which argued the merits of mining conducted to high EU standards. The Government then changed its position without explanation to support the private members bill in June 2007.

Before the bill can be introduced into Parliament, three commissions must review it. The legal commission indicated the proposed bill poses no constitutional concerns in August 2007. The environmental commission rejected the proposed bill in September 2007. On Wednesday March 5, 2008, the industry commission, the third and final commission responsible for reviewing the proposed cyanide ban in mining, postponed voting on the issue. Once the industry commission votes and files its report, the proposed bill can be introduced into Parliament. The commissions reviewing the draft ban are comprised of members of Parliament in proportion to each parties overall representation in Parliament.

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

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

Environmental/Permitting

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

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

The Company's position, supported by legal counsel, is that an urbanism certificate is not required for the TAC review process. On September 21, 2007, the Company filed an Administrative Complaint against the MESD regarding its decision to suspend the TAC review process. The MESD had 30 days to respond to the Administrative Complaint, after which the Company has the right to commence litigation. While the MESD responded to the Administrative Complaint on October 19, 2007, the MESD's fourteen page response failed completely to address the grounds of the complaint. As a result, the Company filed a lawsuit against the MESD in November 2007, with the first hearing taking place on February 20, 2008. The lawsuit is ongoing, and the Company expects the court to rule during 2008.

The MESD's actions to contravene the law stopped the EIA review process. Significant progress had been made in 2007 until the MESD's decision.

During the second quarter of 2007, the Company responded to the official list of 5,610 questions and 93 statements received from the Romanian Government judged to require a response, which was in response to the public consultation process following the filing of the EIA in May 2006.

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

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

The MESD's suspension of the TAC review process was just the most prominent of its efforts to stall our project. MESD has also withheld final signature on our dam safety permits, which were approved in the spring of 2007 along with a number of other dam safety permits for unrelated projects by a committee of experts. While all other dams approved by the committee in the spring have now received their necessary permits, our permits alone await final signature by the MESD. The Company filed an Administrative Complaint with the MESD regarding the withholding of the dam safety permits, a required precursor to litigation, in February 2008. Unless the permits are granted, the Company expects to file a lawsuit in March 2008 against the MESD.

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

Litigation

A number of foreign-funded NGO's, including the Hungarian-registered Alburnus Maior, the Soros Foundation Romania (formerly Open Society Institute/Romania), the Independent Centre for the Development of Environmental Resources (a "new" NGO formed in 2007 by the members of Alburnus Maior), Terra Mileniul III Foundation and the Center for Legal Resources (working on behalf of Alburnus Maior, with Soros network funding) have initiated a multitude of legal challenges against virtually every local, regional and national Romanian regulatory authority that has the administrative authority to grant permits, authorizations and approvals for any aspect of the exploration and development of the Rosia Montana project. While few of the actions have been successful and most have been frivolous, they include both civil actions and criminal complaints against both the regulatory authorities and individuals within such regulatory authorities; in general, they claim that such regulatory authorities are acting in violation of Romanian laws and ask for cancellation of the 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 and prevent, as much as possible, potential legal challenges, the misapplication of the rule of law in Romania increases the litigation uncertainty and potential setbacks to our project. Since summer 2007, the Company has lost a number of court cases, causing greater concern for the rule of law in Romania, as well as concern for potential setbacks to the Project. Alburnus Maior has commenced legal action in the Alba Court of Appeal seeking an order compelling the NAMR to annul the Rosia Montana exploitation concession license, on the basis of a minor administrative fine imposed on Minvest in 2004. This action is the latest in a series of legal actions initiated by Alburnus Maior seeking the annulment of the Rosia Montana license.

Surface Rights

During 2007, the Company continued purchasing homes in the project area, which is comprised of the industrial zone, the Protected Area and the buffer zone. The focus of management's attention is to acquire the homes in the industrial zone, particularly those homes required for construction that are not already owned by the Company.

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

The pace of property acquisitions accelerated during second quarter 2007 after the Company and the community reached a solution to a surge in the construction of illegal wood structures, referred to as "cabins," for which sellers expected additional compensation as well as concern over the proposed cyanide ban. Over the remainder of the year, the pace of acquisitions ebbed and flowed.

Construction of the Alba Iulia resettlement site began in July 2007. Infrastructure is expected to be completed during the second quarter 2008, while construction of new homes began in October 2007. It is expected to take approximately 18 months to complete the approximately 130 homes at the Alba Iulia resettlement site. Construction of Alba Iulia site will continue despite the MESD's decision to halt the EIA process. During the third quarter, the access road to the Piatra Alba resettlement site was completed and handed over to the local administration, and tenders for construction for phase one of the new village were received. Final construction permits are expected to be issued during the first half of 2008. Commencement of construction of the resettlement site at Piatra Alba is suspended until EIA approval.

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

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

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

Archaeology

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

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

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

Financing

Cash, cash equivalents and short-term investments at December 31, 2007 totaled $147.4 million. During 2007, we spent $112.4 million for project development activities compared to $61.6 million in 2006. The higher expenditure rate in 2007 reflects the commencement of the acquisition of properties, which began in the fourth quarter of 2006 and extended throughout 2007, as well as ordering of long-lead-time equipment, engineering and commencement of construction of a new resettlement site, in addition to other permitting activities. The higher levels of expenditures in 2007 were in response to and in anticipation of continued professional conduct of the permitting process by the Romanian Government.

The expenditure rate is expected to decline in 2008, to approximately $66 million as the Company placed most activities on hold until the EIA permit is approved. This is the minimum level of expenditures required to maintain the value of our investment. The control estimate scheduled for completion during the fourth quarter has been placed on hold until the EIA permit is approved. No further long-lead-time equipment orders will be placed and installment payments under equipment previously ordered will be deferred to the extent possible under the terms of the agreements. Construction of the Alba Iulia resettlement site will continue while the home purchase program and the development of the Piatra Alba resettlement have been suspended. Once the Company receives the construction permit, the nature and rate of expenditure changes significantly as site construction begins.

Project financing discussions with traditional lenders have advanced as far as they can at this time. No further discussions can be held until the EIA permit has been approved. A key condition to accessing the debt facilities will be acquiring 100 percent of the surface rights in the industrial zone.

Expected Financing Plan

Based on a definitive feasibility study completed in early 2006, the cost to construct the project was estimated at US$638 million. The Company has placed the updated cost estimate, referred to as the control estimate, on hold until EIA approval. While the estimate is not complete, costs are trending higher. Once the EIA is approved, we will update the control estimate and revise our Financing Plan. As a result, the updated Financing Plan will look very different from the original Financing Plan announced in the spring of 2006. While the feasibility study cost estimate to build and operate the project contained contingencies, continued strengthening of currencies against the United States dollar and escalating costs exceed the estimated project contingencies. The control estimate updates the feasibility study based on additional engineering undertaken since the definitive feasibility study was prepared, which provides a higher degree of accuracy including firm vendor bids for equipment, materials and labour, as well as incorporating the Company's actual experience to date in the placing of the long-lead-time equipment orders.

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

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

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

Project Timeline

- The EIA was submitted in second quarter 2006.

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

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

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

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

- complete the EIA approval process;

- complete the purchase of the outstanding properties;

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

- update the control estimate and complete the financing plan.

Construction of the mine would then take approximately 24 months. Ultimately, the Romanian Government determines the timing of issuance of the EIA approval and all other permits and approvals required for the Rosia Montana Project, subject to the Romanian courts dealing with litigation from NGO's in a timely manner.

2008 Outlook

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

1. Continuously improving communications with all stakeholders;

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

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

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

5. Obtaining the project construction permit; and

6. Obtaining funding to begin project construction.

However, with the suspension of the EIA permitting process our key objectives for 2008 now include:

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

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

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

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

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

6. Strengthening dialogue and communications with all stakeholders.

Key Industry Trends

In 2007, gold prices increased substantially ranging from US$607 to US$841 per ounce with an average price of US$697 per ounce and closed the year at US$834, while during early 2008 gold reached a new record high of $990 per ounce on March 5th. The price of gold followed an upward trend in 2007, reaching a 10-year high of US$841 per ounce in December 2007, primarily due to strong physical and investment demand. Demand for gold remains strong, both for jewelry and as an investment in response to global economic and political uncertainty. Over the past few years there has been a resurgence of gold as an investment vehicle, with more readily accessible gold investment opportunities (such as gold exchange traded funds - "ETFs"). There has been wide speculation that central banks in Asia and Russia have initiated diversifying their reserves away from the US dollar and into other currencies and gold, which would provide further fundamental strength to gold prices. Market analysts believe the current global economic situation has positioned gold as a safe harbour amid the market sell off and its price is being driven higher by speculative demand. Therefore, the economic conditions for higher gold prices appear to remain favorable in the long-term.

To view gold prices, please visit the following link: http://media3.marketwire.com/docs/goldprice.jpg.
(where's the chart???)
Weakening of the US dollar combined with record demand for raw materials, consumables and skilled labour in mining have lead to significant operating and capital cost pressures throughout the mining industry in 2007. Mining companies are reporting much higher operating costs to produce gold and higher costs to build new projects.

Overall, however despite rising costs, the gold industry is seeing margin expansion and reporting record profits due to the much higher increase in gold and other metal prices.

Annual Summary



Year ended Year ended Year ended
December December December
31, 31, 31,
in thousands of Canadian dollars 2007 2006 2005
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total Expenses $ 15,089 $ 13,368 $ 9,273
Other income (expenses) $ (4,279) $ 2,755 $ 792
Loss $ 23,043 $ 12,613 $ 8,481
Loss per share - basic and
diluted $ 0.09 $ 0.07 $ 0.05
---------------------------------------------------------------------------
Total assets $ 507,955 $ 338,056 $ 238,343
---------------------------------------------------------------------------
Long-term liabilities $ 2,688 $ 1,387 $ 449
---------------------------------------------------------------------------
Investment in exploration and
development including working
capital changes $ 77,317 $ 53,058 $ 15,992
---------------------------------------------------------------------------
Cash flows from financing
activities $ 170,448 $ 98,145 $ 59,416
---------------------------------------------------------------------------
---------------------------------------------------------------------------


- Total expenses in 2007 are 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 ($1.0 million) partially offset by lower project financing costs ($1.1 million).

- Total expenses in 2006 were higher (by $4.1 million) than 2005 primarily due to project financing costs ($2.1 million) and higher corporate general and administration costs ($4 million) offset by lower stock option compensation costs ($1 million) and severance costs ($0.8 million).

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

- Other income increased in 2006 over 2005 due to higher cash balances held throughout the year due the exercise of warrants in the fourth quarter of 2005 and an equity issue in the third quarter of 2006.

- 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 capital additions.

- The higher loss in 2006 compared to 2005 reflects higher corporate, general and administrative expenses, project financing costs and a provision for income taxes partially offset by lower costs related to stock option compensation, severance costs and higher interest income due to higher cash balances during the year.

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

- The loss per share increased by 80 percent over the three years while the Loss nearly tripled. The lower loss per share is due to the increase in the number of shares outstanding due to two equity financings and the exercise of warrants and stock options over the period.

Total Assets

- The increase in total assets from the year ended 2005 to 2007 relates to two equity issues and the exercise of stock options and warrants, which raised a total of $268.5 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) ($1.2 million) due to Directors and officers of the Company, a fidelity bonus ($0.85 million), that represents a retention bonus for Romanian employees and the long-term portion of accrued severance and termination costs ($0.65 million). The DSUs are revalued at each balance sheet date; the decrease in 2007 compared to 2006 reflects the year-over-year decrease in our share price offset with the issuance of additional DSU's and the settlement of DSUs.

Investment in Exploration and Development

- The increase in expenditures from 2005 through 2007, relates to increased permitting and development activities including the restart of the property purchase program in 2006. The increase in 2006 compared to 2005 expenditures reflects the restart of the property acquisition program, higher permitting and communications costs.

- Expenditures rose significantly in 2007 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 $268.5 million over the past two years through two financings, as well as the exercise of warrants and the exercise of stock options by employees.

- Once the EIA process is resumed, the Company will need to finalize its control estimate and will need to assess its financing alternatives to develop the Rosia Montana project.

Results of Operations

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



Cdn $ thousands 2007 Q4 2007 Q3 2007 Q2 2007 Q1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss
Loss $ 7,821 $ 6,785 $ 5,966 $ 2,471
Loss per share 0.03 0.03 0.02 0.01
----------------------------------------------------------------------------
Balance Sheet
Working capital 118,461 147,329 199,257 213,623
Total assets 507,955 513,490 503,381 491,356
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in exploration and
development including working
capital changes 24,708 15,448 24,107 13,318
Cash flow (used in) provided by
financing activities - (31) 18,389 152,091
----------------------------------------------------------------------------

Cdn $ thousands 2006 Q4 2006 Q3 2006 Q2 2006 Q1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Loss
Loss $ 5,103 $ 2,156 $ 3,587 $ 1,767
Loss per share 0.03 0.01 0.02 0.01
----------------------------------------------------------------------------
Balance Sheet
Working capital 79,904 120,360 34,803 44,272
Total assets 338,056 330,489 235,685 238,026
----------------------------------------------------------------------------
Statement of Cash Flows
Investments in exploration and
development including working
capital changes 31,490 6,663 8,460 6,445
Cash flow from financing activities 1,953 94,641 1,190 361
----------------------------------------------------------------------------

Over the eight quarters of 2006 and 2007 corporate, general and
administration costs increased marginally as new employees were hired,
higher legal and communications costs but the quarterly variation is largely
due to quarterly variation in stock based compensation, foreign exchange
losses and income taxes.



Statement of Loss
Loss for the Period

3 months ended 12 months ended
in thousands of Canadian dollars, December 31, December 31,
except per share amounts 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Total operating expenses for the
period $ 5,769 $ 4,209 $ 15,089 $ 13,368
Loss for the period 7,821 5,103 23,043 12,613
Loss per share 0.03 0.03 0.09 0.07

Total operating expenses for the fourth quarter and for the twelve-month
period of 2007 reflect a higher level of activity in almost all departments
compared to the corresponding 2006 periods, while the higher loss for the
three-and-twelve-month periods of 2007 compared to the same periods of 2006
relates to foreign exchange losses on foreign currency cash balances held to
finance planned foreign currency long-lead-time equipment expenditures and a
provision for Romanian income taxes partially offset by higher interest
income.

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

Expenses

Corporate, General and Administrative

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Payroll 1,091 1,013 3,352 2,671
Legal 291 88 1,031 573
External communications 376 394 1,857 1,682
Information technology $ 147 $ 337 $ 952 $ 854
Other 948 566 3,171 2,529
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Corporate, general and
administrative expense $ 2,853 $ 2,398 $ 10,363 $ 8,309
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Corporate, general and administrative costs reflect those costs incurred by
the corporate office in Toronto and increased for the three-and-twelve-month
periods ending December 31, 2007 due to higher levels of activity in almost
all departments in anticipation of or from seeking EIA approval. Except for
higher external communication expenses, corporate, general and
administrative costs are anticipated to remain at current levels for the
foreseeable future, while external communication expenses are anticipated to
rise in 2008.



Stock Based Compensation

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
---------------------------------------------------------------------------
DSUs - expensed $ 485 $ 587 $ (6) $ 1,001
Stock option compensation - expensed 708 349 2,075 1,801
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Stock based compensation - expensed 1,193 936 2,069 2,802
---------------------------------------------------------------------------
---------------------------------------------------------------------------

DSUs - capitalized $ 61 $ 32 $ 13 $ 96
------------------
Stock option compensation -
capitalized 463 224 1,440 380
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Stock based compensation - capitalized 524 256 1,453 476
---------------------------------------------------------------------------
---------------------------------------------------------------------------

DSU compensation
Number of DSUs granted 348,303 110,010 369,968 204,568
Average value ascribed to
each DSU granted $ 1.51 $ 5.06 $ 1.62 $ 4.07


For the twelve-month-period ended December 31, 2007, the decrease in DSU costs relates to the decrease in our share price during the period, while the expense in the fourth-quarter 2007 substantially relates to DSUs issued in that quarter. The CEO elected to take his full bonus in the form of DSUs while the remaining officers of the company received half of their year end bonuses in the form of DSUs. Initially valued at the market price of the stock at the date of issue, the DSUs are revalued each period based on the closing share price at the period end, with the difference between the total value of the DSUs at period end compared to the value at the end of the previous period. If the value is higher, as it was at the end of the fourth quarter of 2006, the difference is charged to the Statement of Loss, increasing costs for the period. If the share price declines, the lower value of the DSUs is credited against costs during the period. Overall, for the twelve-month period ended December 31, 2007, our share price decreased by $3.09 compared to last year when our share price increased from the close of the previous year end by $2.22.



3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian
dollars 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Stock option compensation
-------------------------
Number of stock options
granted 4,350,000 1,325,000 5,965,000 2,450,000
Average value ascribed to
each option granted $ 0.64 $ 2.07 $ 0.96 $ 1.68
Options granted to
corporate employees,
consultants, officers,
and directors 3,385,000 800,000 4,525,000 1,700,000
Options granted to
development project
employees 965,000 525,000 1,440,000 750,000


The average value ascribed to each stock option granted in 2007 is lower than the value ascribed to 2006 grants due to a lower average share price at the time of the grant. The number of stock options granted in 2007 compared to 2006 increased in order to provide a greater incentive for employee continuity while the EIA process is delayed. The board of directors of the Company believe that the loss of key employees would adversely affect the restart of the project once the EIA is approved. As an incentive to keep key employees, the board granted 4.35 million stock options during the fourth quarter of 2007. Those options granted, to executive officers, in the fourth quarter do not begin to vest until December 2008 and then vest over the following two years.

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



Project Financing Costs
3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
--------------------------------------------------------------------
--------------------------------------------------------------------
Project financing costs $ 213 $ 489 $ 973 $ 2,119


For the three-months ended December 31, 2007 project financing costs declined from the year earlier quarter as a result of financing activities being put on hold. In addition to project financing advisory services, the 2006 fourth quarter included costs to complete the Risk Assessment Report ("RAR") for the banks. For the 2007 twelve-month period, project financing costs declined compared to 2006 due to a 2006 accrual for the termination fee of an agreement entered into during 2000 for advisory services and the costs to complete the RAR in 2006.

Project financing activities include advisory services and completion of term sheet negotiations for the various facilities under our financing plan. Project finance discussions with the banks will remain on hold until receipt of EIA approval.

Severance and Termination Costs

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

1. $0.4 million in respect of severance and termination costs in accordance with the Collective Bargaining Agreement with RMGC, and

2. $1.0 million in respect of special termination benefits.

As at December 31, 2007 the Company had not paid out any amounts in respect of termination benefits. Of the $1 million of special termination benefits, $0.35 million is classified as a current liability while all costs in respect of the Collective Bargaining Agreement are classified as current liabilities.



Interest Income
3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
--------------------------------------------------------------------
--------------------------------------------------------------------
Interest income $ 1,604 $ 1,077 $ 7,088 $ 2,722


The higher interest income in 2007 relates to the higher cash balance resulting from two equity issues, one during the third quarter of 2006 and the second during the first quarter of 2007. Interest income should decrease in 2008, as our cash balance declines due to resettlement site development, installment payments under our long-lead-time equipment orders and corporate and Romanian overhead costs as well as lower interest rates on cash balances.

The Company maintains an investment policy that prohibits investments in asset-backed-commercial-paper, accordingly the Company has not been exposed to the credit risk of the asset-backed-commercial-paper market. Approximately 94% of cash balances are invested in government guaranteed instruments with the balance invested in Term Deposits.

Foreign Exchange



3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange gain (loss) - realized $ (6,795) $ 29 $ (7,824) $ 33
Foreign exchange gain (loss) -
unrealized 6,814 - (3,543) -
----------------------------------------------------------------------------
Total foreign exchange gain (loss) $ 19 $ 29 $ (11,367) $ 33
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

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

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

Taxes

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

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

During the third quarter of 2007, tax authorities in Romania initiated various tax audits to assess the appropriateness the Company's tax filing positions since January 1, 2005. As a consequence of the tax audits being undertaken, during the third quarter 2007, the Company accrued $700 thousand of withholding tax liabilities arising from payments made to non-Romanian resident suppliers of services. The entire accrual was charged to mineral properties in the period.

Subsequent to year end 2007, the Company received a tax assessment for $4.8 million related to a second Romanian tax audit completed during the first quarter of 2008. The Company, having accrued in 2006 its then estimated tax liability, accrued an additional $3.7 million in respect of the assessment which arose from the disallowance of the application of state tax incentives related to unrealized foreign exchange gains on inter-company debt. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities have misapplied the legislation and the Company plans to vigorously contest the States position in court. It is expected to take approximately 18 months to resolve the court case.

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.

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




3 months ended 12 months ended
in thousands of Canadian December 31, December 31,
dollars 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance and administration $ 6,013 $ 6,015 $ 20,820 $ 16,198
Permitting 1,497 2,422 7,616 7,793
Community development 9,196 27,609 46,906 30,441
Project management and
engineering 7,533 1,576 20,850 3,592
Exploration - Rosia
Montana 161 166 702 898
Exploration - Bucium 82 127 985 1,053
Exploration - Baisoara 45 41 141 41
Capitalized depreciation
net of disposals (154) (156) (605) (560)
Capitalized stock based
compensation (524) (256) (1,453) (476)
----------------------------------------------------------------------------
Total exploration and
development expenditures $ 23,849 $ 37,544 $ 95,962 $ 58,980
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

The increase in community development costs in 2007 relates to purchasing homes and associated properties in 2007 compared to the three percent option payments carried out throughout most of 2006. Community development costs decreased in the fourth-quarter 2007 compared to the 2006 period due to the restart of the home buying program in the fourth-quarter of 2006 which resulted in a large backlog of activity in that period.

The 2007 community development results include an accrual for the additional cost of those residents electing the resettlement option. The accrual reflects the anticipated additional cost associated with providing replacement homes. Since the 2006 feasibility study estimate was completed, design changes, including an average increase of 23% in home sizes, and the strengthening of the Romanian RON, which has appreciated by approximately 16% against the US dollar, have led to the additional accrual.

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

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

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



Capital Assets

3 months ended 12 months ended
December 31, December 31,
in thousands of Canadian dollars 2007 2006 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total investment in capital
assets $ 47 $ 71 $ 16,471 $ 1,684

Investment in long-lead-time
equipment 3,732 - 13,328 -
Depreciation - expensed 77 55 292 138
Depreciation - capitalized
to mineral properties 154 156 605 560


Capital asset additions in 2007 consist primarily of long-lead-time equipment orders and commencement of site construction of the two resettlement sites. Capital additions in 2006 consisted mainly of information technology equipment.

The major expenditures for 2008 consist of installment payments under long-lead-time equipment orders and construction of the Alba Iulia resettlement site.

Cash Flow Statement

Liquidity and Capital Resources

Our only sources of liquidity until we receive our environmental permits for Rosia Montana - at which point we will be in a position to move toward completion of debt financing - are our cash balance, bridge financing, exercise of warrants and stock options outstanding, and the equity markets. We updated the cost to construct the project in first quarter 2006 at US$638 million and while we halted the update to our control estimate for project construction during the fourth quarter of 2007 due to the suspension of the EIA process, initial capital costs are trending higher, as a result of the Romanian RON and EU Euro appreciation compared to the US dollar, design improvements from ongoing engineering and higher material and labour costs.

To complete the development of the project, the Company will need additional external financing. The ability to develop Rosia Montana hinges on our ability to raise the necessary financing for construction. If we were unable to raise the required funds, we would seek strategic alternatives to move the project toward development.

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

As at December 31, 2007, we had cash, cash equivalents and short-term investments of $147.3 million compared to $90.3 million at December 31, 2006. Substantially all of the Company's cash, cash equivalents and short-term investments are invested in government guaranteed investments. The Company's investment policy prohibits investments in asset backed securities. The Company has no need to write down any investments due to the "credit crisis".

The Company manages its foreign currency risks through matching its expected foreign denominated expenditures with foreign currency investments. The Company has not entered into any derivatives hedging activities. The Company maintains a small balance of 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.

The Company is forecasting a cash, cash equivalents and short-term investments position at December 31, 2008 of approximately $70 million. This forecast assumes total 2008 spending on the Rosia Montana project of $66 million, which includes: approximately $24.6 million on long-lead-time equipment in order to avoid substantial cost escalation for milling equipment should management choose to postpone scheduled fabrication activities; $22.3 million for community development activities associated with construction of the Alba Iulia resettlement site and property purchases, both expenditure being contemplated in the original US$638 million cost estimate; and other permitting activities and overheads in Romania. Corporate overheads are expected to total $6.2 million net of interest income in 2008. An additional payment of $4.8 million for tax arising from 2008 Romanian tax assessments is expected to be paid in 2008. The Company is challenging the tax assessment but it is expected to take approximately 18 months to resolve.

In the event that the project is indefinitely delayed, and in the absence of a change in strategy, we could, based on our projected cash balance and the ability to monetize assets, have sufficient financial resources to cover the period through 2015. Based on our 2008 budget, we estimate that we will have $70 million in cash at the end of 2008. After adjusting for the long-lead-time equipment orders and completion of the Alba Iulia resettlement site due in 2009, we would have between $50 to $55 million in the bank, enough to cover approximately three years of overhead costs through 2011 as our activity and spending levels decline. Monetizing assets could provide sufficient financial resources to cover an additional four years of costs through 2015.

Working Capital

As at December 31, 2007, we had working capital of $118.5 million versus $79.9 million as at December 31, 2006. The increase in working capital in 2007 relates to an equity offering and exercise of warrants totaling $170.2 million, partially offset by the loss incurred and the investment in capital assets and mineral properties during the year. In 2005, we issued share purchase warrants. Each warrant entitled the holder to acquire one common share at a price of Cdn$2.75 on or before March 31, 2007 and during the first half of 2007 a total of 7.5 million warrants were exercised for total proceeds of $20.5 million.

Net Change in Non-Cash Working Capital

The net change in operating non-cash working capital decreased for 2007 compared to 2006, due to a reduction of trade payables, while for the three-months ended December 31, 2007 the increase in non-cash working capital is comparable to that of the prior year.

The net change in investing non-cash working capital increased for 2007 is primarily as a result of the addition of resettlement liabilities related to those residents of Rosia Montana who sold their homes in exchange for a new home in one of the two development sites the Company is building. For the three-months ended December 31, 2007, the net change in investing non-cash working capital decreased due to less home buying activities in 2007 caused by the suspension of the EIA process.

The increase in financing non-cash working capital in the three and twelve-month periods ended December 31, 2007 is due to the accrual of legal costs related to the equity offerings during the fourth quarter 2006 and the first quarter 2007.

Related Party Transactions

The Company paid $39 thousand (2006 - $27 thousand) during the year to a director of the Company for consultation services provided to the Company, while during the fourth-quarter 2007, the Company paid $8 thousand (2006 - $4 thousand).

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

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

Resettlement Liabilities

During the fourth quarter of 2006, the Company recommenced purchasing homes in the project area. Residents have two choices. They can either choose to take the sales proceeds and move to a new location of their choosing or they can exchange their properties for a new property to be built by the Company at one of the two new resettlement sites. At December 31, 2007, the Company had resettlement liabilities totaling $17.1 million, obligating the Company to deliver a new property under those contracts by September 30, 2007, November 30, 2007, May 30, 2008, and August 1, 2008. The Company has not met or believes it will not meet all obligations and is accruing a penalty of 0.5% of the agreed upon unpaid property value per month of delay, to a maximum of 12 months as required by the agreement. If the Company fails to fulfill its obligation by the end of the 12-month penalty period, the Company shall pay the owners the agreed upon unpaid property value, plus the related penalties, and the owners retain the right to occupy the home for an undetermined period of time. The Company believes it can deliver most of the homes within the penalty period but is working with those residents who chose the resettlement option to obtain an extension of three to six months due to the delay in permitting and the poor weather over the winter season. As at December 31, 2007 the Company has accrued $0.5 million (December 31, 2006 - Nil) in respect of delay penalties.

Contractual Obligations

During third quarter 2006, the Company received the Baisoara exploration license which obligates the Company to spend US$3.2 million over its five-year term, which expires July 2011. As at December 31, 2007, the remaining expenditure commitment was US$3.0 million (December 31, 2006 - US$3.2).

The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services which totaled $9.3 million at December 31, 2007 (December 31, 2006 - $6 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

During the year, the Company entered into purchase agreements for long-lead-time equipment, the cost of which is to be paid over three years beginning 2007. As at December 31, 2007 outstanding commitments under such agreements totaled $42.4 million (December 31, 2006 - Nil). The increase in the year reflects the ordering of machinery including processing equipment totaling $56 million. Contractual obligations are not expected to rise during 2008 as no further long-lead-time equipment orders are expected to be placed until the EIA is approved.

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



2012 and
Total 2008 2009 2010 2011 thereafter
----------------------------------------------------------------------------
Baisoara
exploration
license $ 2,960 $ 254 $ 625 $ 1,282 $ 799 $ -
Resettlement 17,140 17,140 - - - -
----------------------------------------------------------------------------
Goods and
services 9,332 6,860 1,822 260 9 381
Long lead time
equipment 42,434 25,311 17,123 - - -
Rosia Montana
exploitation
license 262 24 24 24 24 166
Surface
concession
rights 837 20 20 20 20 757
Lease agreements 1,956 754 632 401 169 -
----------------------------------------------------------------------------
Total
commitments $ 74,921 $ 50,363 $ 20,246 $ 1,987 $ 1,021 $ 1,304
----------------------------------------------------------------------------
----------------------------------------------------------------------------

During the year, 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:


2007 2006
----------------------------------------------------------------------------

Total purchase agreements:
Grinding area systems $ 46,140 $ -
Crusher facilities 6,976 -
Other processing equipment 2,646 -
----------------------------------------------------------------------------
55,762 -
Amounts paid as at December 31, 2007:
Grinding area systems (11,043) -
Crusher facilities (2,018) -
Other processing equipments (267) -
----------------------------------------------------------------------------
Outstanding payment obligation $ 42,434 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Although contractually committed to their acquisition, the Company has placed $7.4 million of orders on hold pending the restart of the permitting process. Should the Company ultimately cancel the orders, its future obligation under those contracts is not expected to exceed $30 thousand. At December 31, 2007 the outstanding obligation for those orders is $6.9 million (2006 - NIL) and has been allocated to 2009 on the payment schedule.

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

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

Mineral properties

We have determined that the area covered by the Rosia Montana exploitation license contains economically recoverable reserves. The ultimate recoverability of the $328.8 million carrying value at December 31, 2007 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 $10.4 million carrying value at December 31, 2007 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, 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 2007 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. The Company has successfully dealt with challenges in the past and as a result management did not consider this 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, 2007.

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.

Management further believes that it will be able to finance the Project. Management has pursued parallel financing tracks including traditional project financing and high yield public debt. At the time of the suspension of the permitting process the Company was finalizing the project financing term sheet with two European banks, a bi-lateral agency and a private financing company. While initially the preferred option, the high yield financing option is closed due to the global credit crisis. Detailed financing negotiations have been put on hold pending the restart of the permitting process. Once the EIA permit is received, the Company will be in a position to develop and finalize the financing plan to develop the Project based upon financing markets at that time.

Stock-based compensation

Stock-based compensation relating to stock options are estimated based on fair value at the grant 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, domestic tax authorities in Romania initiated various tax reviews to assess the appropriateness the Company's tax filing positions since January 1, 2005. As a consequence of the tax audits being undertaken, during the third quarter 2007, the Company accrued $700 thousand of withholding tax liabilities arising from payments made to non-Romanian resident suppliers of services. The entire accrual was charged to mineral properties in the period.

During the first quarter 2008, the Company received a tax assessment for $4.8 million related to a second Romanian tax audit in 2007. The Company, having accrued in 2006 its then estimated tax liability, accrued an additional $3.7 million in respect of tax assessment arising from the disallowance of the application of state tax incentives to unrealized foreign exchange gains on inter company debt. The Company, based on the advice of its professional tax advisors, believes that the Romanian tax authorities have misapplied the legislation and the Company plans to vigorously contest the States position in court. It is expected to take approximately 18 months to resolve the court case.

Risks and Uncertainties

The Company's business is subject to a number of risks related to both its exploration and development programs for its Rosia Montana, Bucium and Baisoara projects as well as risks related to the mining industry generally.

Political & Economic Risks of Doing Business in Romania

As all of our property interests are located in Romania, we are 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 our financial position as well as our ability to develop our mineral properties. In the event of a dispute regarding any of these matters, we 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 our control and may adversely affect our business.

Romania became a full member of the European Union on January 1, 2007. The country has been governed by a coalition of centre and centre right parties that came together after the national parliamentary elections of 2004 to unseat the social democrats. This coalition held together while the pursuit of full membership in the EU created a sense of common purpose. Since accession, the cohesiveness of the coalition has eroded as the diverse elements jockey for position in the EU parliament and in garnering advantage prior to the next round of national elections. These are currently scheduled for November, 2008 but may well come earlier if the coalition is defeated through a non confidence motion or if early elections are called.

New elections will undoubtedly return different proportions of senators and deputies from the various political parties and while a coalition may have to be formed, it may not be the same as the current coalition. While the prospect of abrupt change in any future Romanian government's approach to the market economy or foreign direct investment is not likely since the core of these policies are part of the articles of Romania's accession to the European Union and are therefore subject to oversight by the European Commission, the current preoccupation of the political class with issues related to the sharing of power diverts attention from the business of government.

The incidents in 2000 at the Baia Mare and Baia Borsa tailings management facilities in Romania, in neither of which the Company 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 European Union (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, which came into force and effect in April 2006, as well as the preparation of an inventory of similar sites in Europe that 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 the Ukraine. The Salistei tailings damm which was operated by Minvest at Rosia Montana until operations ceased in May 2006, although outside of our project boundaries, 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 our 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 our ability to develop or may prevent us from developing a new mine at Rosia Montana.

In addition to initiating the court challenge of our urbanism certificate, the opposition has orchestrated the tabling of a "private members bill" in the Romanian Parliament to ban the use of cyanide in Romania. Initially scheduled for Parliamentary consideration in September 2007, the proposed bill is now scheduled to be introduced in the spring 2008 Parliament session. This is the second time in recent years that a private members bill has been brought forward to ban cyanide. The previous bill was not supported by the Romanian Government and was rejected. The bill presently pending was initially opposed by the minority Government when introduced in April 2007, which took a position supportive of the Project and argued the merits of mining conducted to high EU standards. The Government then changed its position without explanation to support the private members bill in June.

Project Approval Risks

Environmental Impact Assessment

We 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. The laws relating to the permitting of a large-scale project like Rosia Montana are being applied for the first time in this case, under the newly-harmonized EU directives. The environmental approval is one of the more important approvals the Company must obtain. In addition to complying with all Romanian laws and regulations, the EIA for the project must comply with all EU guidelines and directives. Due to the potential transboundary effects of the project, a number of countries neighbouring Romania have the opportunity to participate in the public consultation process, pursuant to the provisions of the Espoo Convention.

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 in the Bucharest Court of Appeal seeking an order of the court compelling the Ministry of Environment to reinstitute the TAC review process. 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.

Land Use Regulations

We are 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 our control and any such delays could negatively impact our development plans or result in additional expenses on its part. 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 our development plans, result in additional expenses on its part, or prevent the development of the Rosia Montana project.

Archaeological Discharge

The validity of all of the archaeological discharge certificates previously issued to RMGC is 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. Any successful challenges could negatively impact the Company'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.

Project Development Risks

The suspension of the EIA process by the Minister of Environment in September 2007 demonstrates the significant political risks that this Project faces. Such risks also include delays in acquiring all necessary surface rights, including the acquisition of the properties in the impact area in Rosia Montana, delays in completing the acquisition, permitting and construction of the new Piatra Alba and Alba Iulia town-sites as part of the community development program, 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, as well as unforeseen difficulties encountered during the construction and commissioning process. In addition, continued opposition to the Rosia Montana project by certain Romanian and international NGOs and their allies could contribute to such delays.

Project Financing Risks

While we have sufficient financial resources to fund permitting and initial construction activities based on our current permitting and construction schedule, we do not have the financial resources to construct the mine at Rosia Montana. We will require additional financing from external sources to meet our capital requirements. Although we have been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that we will obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to obtain such additional financing could result in delay or indefinite postponement of further development of our project, with the possible loss of such properties.

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

In the past few years, gold prices have risen from the low US$300-per-ounce level to over US$900 per ounce, resulting in higher share prices for gold equities. There can be no assurance that gold prices and therefore gold equities will remain high, especially during the time we will need to raise debt and equity financing for construction of Rosia Montana.

Once we have EIA approval management will be in a position to finalize the financing plan in light of market conditions at that time. At present, management remains confident that it can obtain conventional project financing for the project, although at a higher cost than previously contemplated.

Risk Associated With Mineral Tenure Rights

We currently hold an exploitation concession license with respect to the Rosia Montana project, have applied to the NAMR to upgrade the exploration concession license to an exploitation concession license on the Bucium project and hold an exploration concession license for the Baisoara project. We have obtained mineral title opinions with respect to its licenses and, based upon such title opinions, we believe 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. We also believe 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 our part.

Risks Associated With the Existing 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 we understand 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 us, as the titleholder of the 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 us from such liabilities will be enforceable against Minvest.

Risk Associated with Acquisition of Surface Rights and Resettlement and Relocation

We must acquire all necessary surface rights over the footprint of the new mine in order to apply for its construction permits for 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 the new village of Piatra Alba and a resettlement site at 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. There can be no assurance that we will acquire all necessary surface rights. There are significant risks that the acquisition of all necessary surface rights could be delayed due to circumstances beyond our control and any such delays could negatively impact our development plans, result in additional expenses on its part, or prevent the development of the Rosia Montana project.

Uninsured Risks

We maintain insurance to protect against certain risks related to our current operations in amounts that we believe are reasonable, depending upon the circumstances surrounding each identified risk. We 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 our securities.

Capital and Operating Costs Assumptions

Capital and operating cost figures are estimates, and no assurance can be given that the anticipated cost profiles will be achieved or that the underlying foreign exchange rates will be realized.

As part of our 2006 updated reserve estimate, we updated the cost to construct the project. During 2007 we began the process of preparing a 'control estimate' that would update the cost to construct the Project but that process was put on hold until the EIA process is approved. While the control estimate has not been completed, costs are trending higher. Assurance as to the ultimate cost profile of the Project cannot be provided and will need to be reviewed once the EIA permit is approved.

Management

We currently have a small executive management group, which is sufficient for the Company's present stage of development. Given that our 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 a significant number of the members of this group could have a material adverse effect on the Company, its business and its ability to develop the project.

Shortages of Industry Consultants, Engineering Firms and Technical Experts

The mining industry has been impacted by increased worldwide demand for critical resources including industry consultants, engineering firms and technical experts. These shortages have caused increased costs and delays in work product.

Enforcement of Civil Liabilities

As substantially all of the assets of the Company 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 judgments granted by a court in Canada against the assets of the Company or its subsidiaries or its directors and officers residing outside of Canada.

Dividends

All of our available funds will be invested to finance the growth of our business and, therefore, investors cannot expect to receive a dividend on our common shares in the foreseeable future.

Risks Related to the Gold Mining Industry Generally

The following risks apply to the gold mining industry generally:

Exploration and Mining Risks

The business of exploring for minerals and mining involves a high degree of risk. Few properties that are explored are ultimately developed into producing mines. At present, none of our properties, other than Rosia Montana, have proven and probable reserves. Fires, power outages, labour disruptions, flooding, explosions, cave-ins, land slides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the construction and operation of mines and the conduct of exploration programs. Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralised deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required for development can be obtained on a timely basis. The economics of developing gold and other mineral properties is affected by many factors, including the cost of operations, variations of the grade of ore mined, fluctuations in the price of gold or other minerals produced, fluctuations in exchange rates, costs of development, infrastructure and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. In addition, the grade of mineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Depending on the price of gold or other minerals produced, we may determine that it is impractical to commence or continue commercial production.

Estimates of Mineral Reserves and Resources and Production Risks

The mineral reserves and resources are estimates only, and no assurance can be given that any particular level of recovery of minerals will in fact be realized - or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. In addition, the grade of mineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Production can be affected by such factors as permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations, inaccurate or incorrect geologic, metallurgical or engineering work, and work interruptions, among other things. Short-term factors, such as the need for orderly development of deposits or the processing of new or different grades, may have an adverse effect on mining operations and on the results of operations. There can be no assurance that minerals recovered in small-scale laboratory tests will be duplicated in large-scale tests under on-site conditions or in production-scale operations. Material changes in reserves or resources, grades, stripping ratios or recovery rates may affect the economic viability of projects. The estimated reserves described herein should not be interpreted as assurances of mine life or of the profitability of future operations.

We have engaged expert independent technical consultants to advise us on mineral reserves and resources and basic and detailed engineering, among other things. We believe that those experts are competent and that they have carried out their work in accordance with internationally recognized industry standards. However, if the work conducted by those experts is ultimately found to be incorrect or inadequate in any material respect, we may experience delays and increased costs in developing the Rosia Montana project.

Mineral Prices

The mineral exploration and development industry in general is intensely competitive and there is no assurance that, even if commercial quantities of proven and probable reserves are discovered, a profitable market may exist for the sale of same. Factors beyond our control may affect the marketability of any substances discovered. Mineral prices have fluctuated widely, particularly in recent years. The marketability of minerals is also affected by numerous other factors beyond our control, including government regulations relating to price, royalties, allowable production and importing and exporting of minerals, the effect of which cannot accurately be predicted. Depending on the price of gold or other minerals produced, we may determine that it is impractical to commence or continue commercial production.

The financing plan being contemplated by the Company requires some form of price guarantee (hedging) as the price required to support the total senior and subordinate debt facilities is above the banks long-term gold price assumption. The amount and cost of the price guarantee is a function of gold prices at the time the program is executed. If gold prices were to fall between now and the execution of the hedging program, it could have a significant impact on the quantum of the program and cost of the guarantee.

Environmental and other Regulatory Requirements

Our activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailings disposal areas, which would result in environmental pollution. A breach of such legislation may result in the imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards, and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations.

Our current development activities and commencement of production on our properties require permits from various governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in exploration activities and in the development and operation of mines and related facilities generally experience increased costs, and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. There can be no assurance that all permits which may be required for exploration, construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or on a timely basis, or that such laws and regulations would not have an adverse effect on any mining project that we may undertake. We believe that we are in substantial compliance with all material laws and regulations which currently apply to our activities.

Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.

Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on us and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties, or require abandonment or delays in development of new mining properties.

CEO/CFO Certification

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer have concluded at December 31, 2007 that these controls and procedures are operating effectively. In addition, our Chief Executive Officer and Chief Financial Officer have concluded at December 31, 2007 that management has designed such internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting as required by the Ontario Securities Commission Internal Control certification requirements.

New Accounting Policies

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

New Accounting Pronouncements not yet adopted

Capital Disclosures and Financial Instruments - Disclosures and Presentation

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

Section 1535 specifies the disclosure of (i) an entity's objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.

The 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.

Other New Accounting Pronouncement

CICA 1400 "General Standards of Financial Statement Presentation" has been amended to include requirements for management to assess and disclose an entity's ability to continue as a going concern, effective for interim and annual financial statements for years beginning on/after January 1, 2008. The Company is currently assessing the impact of this new accounting standard on its consolidated financial statements.



Outstanding Share Data
The Company's fully diluted share capital as at
the report date was:
Outstanding
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Preferred shares Nil
Common shares 254,898,485
Common stock options 12,403,004
Common stock warrants 2,625,000
Deferred share units - common shares 579,387
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Fully diluted share capital 270,505,876
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Proven and Probable Mineral Reserves

The Company maintains an 80 percent economic interest in the Rosia Montana project which at year 2007 (no change to 2005 or 2006), has aggregate proven and probably reserves as follows, calculated using a gold price of $400 per ounce:



-------------------------------------------------
Grade Contained
(g/t) Ounces
-----------------------------------------------------------------------
Reserve Category Tonnes Gold Silver Gold Silver
-----------------------------------------------------------------------
Proven 113,768,000 1.62 9.0 5,900,000 32,800,000
Probable 101,137,000 1.28 4.6 4,200,000 14,800,000
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Total 214,905,000 1.46 6.9 10,100,000 47,600,000
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John Marek, P.Eng., is the qualified person responsible for calculating
the reserve estimate set forth in the table above.


The Company's current technical report was last updated in early 2006
using the assumed reserve profile as outline above and includes the
following key assumptions:

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Dollars Per
(Life of Mine in thousands of US Ounces Ounce of
dollars) Life of Mine recovered Gold
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Mining $ 516,970.0 65
Processing $ 1,308,631.0 165
Administrative $ 181,075.0 23
Refining, Treatment & Transport $ 25,864.0 3
By-product credit $ (243,732.0) (31)
Royalty and Environmental tax $ 89,942.0 11
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Total Cash cost $ 1,878,750.0 7,927,197 237
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(i) Total cash costs equals cost of sales excluding accretion and
amortization
(ii) Metallurgical recovery rates are estimated at 79% for gold and 61%
for silver.
(iii) Grade: 0.6g/t gold cut-off grade
(iiii) Average annual production net of recoveries and refining: 492,000
ounces gold, 1,760,000 ounces silver


With cost escalation in the mining industry the Company has considered the impact of increased costs on the economic viability of the Project and how those cost increases might impact reserves and net-asset-value. This assessment was not done in isolation from the ongoing rise in gold and silver prices. Although during the fourth-quarter 2007 the Company suspended the cost update program due to the suspension of the EIA process, the Company did receive preliminary data from its EPCM contractors which has provided the Company with a basis for analysis. Based on its review management believes potential cost increases are more than offset by the anticipated increase in revenue arising from higher mineral prices. Therefore, management does not view the Projects economics to have changed materially.

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 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.

Project Sensitivity

Along with other industry participants, Gabriel will be subjected to commodity price fluctuations that may materially affect projected cash flows from the Project. Capital and operating cost changes may also materially affect projected cash flows from the Project.

Below is a sensitivity analysis of the impact to pretax project undiscounted cash flows of changes in revenues and costs. The pretax cash flow is based on the 43-101 Report at US$500 gold totaling $1,180 million. The areas highlighted in yellow are those revenue and cost sensitivities which would result in negative project cash flows.



Sensitivity Analysis of changes in costs and revenue
Stated in thousands of US dollars

Rolling average gold price
--------------------------------------------------
5 yr 4 yr 3 yr 2 yr 1 yr
--------------------------------------------------
$ 471 $ 504 $ 581 $ 650 $ 697
--------------------------------------------------

% Cost
Increase
(1)
Incremental net revenue

1,180 (244) 46 714 1,318 1,691
----------------------------------------

20% (608) 328 618 1,286 1,890 2,263

30% (911) 25 315 983 1,587 1,960

40% (1,215) (279) 11 679 1,283 1,656

50% (1,519) (583) (293) 375 979 1,352

60% (1,822) (886) (596) 72 676 1,049

80% (2,430) (1,494) (1,204) (536) 68 441

(1) Includes initial capital, sustaining capital and reclamation.


Forward-Looking Statements

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

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

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 5, 2008


Auditors' Report

To the Shareholders of Gabriel Resources Ltd.

We have audited the consolidated balance sheets of Gabriel Resources Ltd. as at December 31, 2007 and 2006 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, 2007 and 2006 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 6, 2008



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

2007 2006
---------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 147,244 $ 12,598
Short-term investments (note 4) 162 77,717
Accounts receivable 1,237 2,326
Prepaid expenses and supplies 990 583
---------------------------------------------------------------

149,633 93,224
Capital assets (note 5) 18,961 3,491
Mineral properties (note 6) 339,361 241,341
---------------------------------------------------------------

$ 507,955 $ 338,056
---------------------------------------------------------------
---------------------------------------------------------------

Liabilities
Current Liabilities
Accounts payable and accrued liabilities $ 14,032 $ 8,927
Resettlement liabilities (note 7) 17,140 4,393
---------------------------------------------------------------
31,172 13,320

Other Liabilities (note 8) 2,688 1,388
---------------------------------------------------------------

33,860 14,708
---------------------------------------------------------------

Shareholders' Equity
Capital Stock (note 10) 558,277 385,444
Common Share Purchase Warrants (note 11) - 1,946
Contributed Surplus (note 13) 8,807 5,904
Deficit (92,989) (69,946)
---------------------------------------------------------------

474,095 323,348
---------------------------------------------------------------

$ 507,955 $ 338,056
---------------------------------------------------------------
---------------------------------------------------------------

Nature of operations and going concern (note 1)

Minority interest (note 9(b))

Commitments and contingencies (note 17)

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,
(In thousands of Canadian dollars, except per share data)

2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Expenses
Corporate, general and administrative $ 10,363 $ 8,309
Stock based compensation (note 8 & 12) 2,069 2,802
Project financing costs 973 2,119
Severance costs (note 8c) 1,448 -
Amortization 236 138
---------------------------------------------------------------------------

15,089 13,368
---------------------------------------------------------------------------

Other income (expense)
Interest income 7,088 2,722
Foreign exchange (11,367) 33
---------------------------------------------------------------------------

Loss before income taxes 19,368 10,613
Provision for income taxes (note 14) 3,675 2,000
---------------------------------------------------------------------------

Loss for the year $ 23,043 $ 12,613
Deficit - beginning of year 69,946 57,333
---------------------------------------------------------------------------

Deficit - end of year $ 92,989 $ 69,946
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Loss per share (basic and diluted) $ 0.09 $ 0.07
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Weighted average number of shares 244,784 189,823
---------------------------------------------------------------------------
---------------------------------------------------------------------------


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

2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Loss for the year $ 23,043 $ 12,613
Other comprehensive loss - -
---------------------------------------------------------------------------
Comprehensive loss $ 23,043 $ 12,613
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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



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

2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities

Loss for the year $ (23,043) $ (12,613)
Items not affecting cash
Amortization 292 138
Stock based compensation 2,069 2,803
Unrealized foreign exchange loss on cash and cash
equivalents 3,543 (18)
----------------------------------------------------------------------------

(17,139) (9,690)

Net changes in non-cash working capital (note 18) 1,113 2,128
----------------------------------------------------------------------------

(16,026) (7,562)
----------------------------------------------------------------------------

Cash flows from (used) in investing activities
Decrease (increase) in short-term investments 77,555 (48,561)
Development and exploration expenditures (95,962) (59,940)
Purchase of capital assets (16,471) (1,684)
Net changes in non-cash working capital (note 18) 18,645 6,882
----------------------------------------------------------------------------

(16,233) (103,303)
----------------------------------------------------------------------------

Cash flows from financing activities
Proceeds from issuance of capital stock, net of issue
costs 148,550 93,028
Proceeds from the exercise of share purchase warrants 20,489 38
Proceeds from the exercise of stock options 1,213 5,079
Net changes in non-cash working capital (note 18) 196 -
----------------------------------------------------------------------------

170,448 98,145
----------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents 138,189 (12,720)
Effect of foreign exchange on cash, cash equivalents
and non-cash working capital (3,543) 12
Cash and cash equivalents - beginning of year 12,598 25,306
----------------------------------------------------------------------------

Cash and cash equivalents - end of year $ 147,244 $ 12,598
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information (note 18)

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


Notes to Consolidated Financial Statements

For the years ended December 31, 2007 and 2006

(Tabular amounts in thousands of Canadian dollars, unless otherwise stated)

1. Nature of operations and going concern

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

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

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at December 31, 2007, the Company had no sources of operating cash flows, reported a loss of $23 million and had an accumulated deficit of $93 million. Accordingly, the Company does not have sufficient cash to fund the development of the Project and therefore will require additional funding which, if not raised, would result in the curtailment of activities and result in project delays. Management expects that additional financing will be available and may be sourced in time to allow the Company to continue its planned activities in the normal course. However, there can be no assurances that the Company's activities will be successful and as a result there is substantial doubt regarding the "going concern" assumption. These consolidated financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate. If the "going concern" assumption were not appropriate for these consolidated financial statements, then adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, may be necessary.

The accompanying consolidated financial statements are prepared by management in accordance with Canadian GAAP, and in the opinion of management, include all adjustments considered necessary for fair and consistent presentation of financial statements.

2. New accounting standards

Financial Instruments and Comprehensive Income

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

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

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

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

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

Accounting Changes

In July 2006, the Accounting Standards Board ("AcSB") issued a replacement of The Canadian Institute of Chartered Accountants' Handbook ("CICA Handbook") Section 1506, Accounting Changes. The new standard allows for voluntary changes in accounting policy only when they result in the financial statements providing reliable and more relevant information, requires changes in accounting policy to be applied retrospectively unless doing so is impracticable, requires prior period errors to be corrected retrospectively and calls for enhanced disclosures about the effects of changes in accounting policies, estimates and errors on the financial statements. The impact that the adoption of Section 1506 will have on the Company's results of operations and financial condition will depend on the nature of future accounting changes.

New Accounting Pronouncements not yet adopted

Capital Disclosures and Financial Instruments - Disclosures and Presentation

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

Section 1535 specifies the disclosure of (i) an entity's objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance.

The 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.

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.

The carrying value of mineral properties is subject to periodic 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 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, 2007.

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 period.

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 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 applied to reacquire 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 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.

Cash and cash equivalents

Cash and cash equivalents comprise 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 bankers' acceptances and 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 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.

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, 2007, 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. Short-term investments
2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Money market investments with maturities from the date of
acquisition of
4 - 6 months $ - $ 68,446
7 - 12 months - 8,763
Restricted cash(1) 162 508
---------------------------------------------------------------------------
$ 162 $ 77,717
---------------------------------------------------------------------------


Money market investments held at year end yielded an average interest rate of Nil in 2007 (2006 - 4.3%).

(1) Restricted cash represents collateral of Nil (2006 - $325 thousand) on corporate credit cards and environmental guarantees for future clean up costs of $162 thousand (2006 - $183 thousand).



5. Capital Assets
2007 2006
---------------------------------------------------------------------------
Office equipment $ 3,908 $ 3,508
Buildings 1,082 1,015
Vehicles 1,270 1,269
Leasehold improvements 206 131
Construction in progress(1) 15,681 -
---------------------------------------------------------------------------
22,147 5,923
---------------------------------------------------------------------------

Less: Accumulated amortization
Office equipment 1,949 1,552
Buildings 43 35
Vehicles 1,065 736
Leasehold improvements 129 109
---------------------------------------------------------------------------
3,186 2,432
---------------------------------------------------------------------------

Net book value
Office equipment 1,959 1,956
Buildings 1,039 980
Vehicles 205 533
Leasehold improvements 77 22
Construction in progress(1) 15,681 -
---------------------------------------------------------------------------
$ 18,961 $ 3,491
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Resettlement site development
costs $ 2,353 $ -
Long-lead-time equipment 13,328 -
----------------------------------------------------------------------------
$ 15,681 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

6. Mineral Properties

Rosia Montana Bucium Baisoara Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance - December 31, 2005 $ 172,988 $ 8,337 $ - $ 181,325

Development costs 58,024 - - 58,024
Exploration costs 898 1,053 41 1,992
----------------------------------------------------------------------------

Balance - December 31, 2006 231,910 9,390 41 241,341

Development costs(1) 96,192 - - 96,192
Exploration costs(1) 702 985 141 1,828
----------------------------------------------------------------------------

Balance - December 31, 2007 $ 328,804 $ 10,375 $ 182 $ 339,361
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(1) Mineral property additions of $98,020 (2006 - $60,016) includes $2,059 (2006 - $1,036) of non-cash items related to amortization and stock based compensation and a balance sheet reclassification of NIL (2006 - $960), therefore the net cash investment during the year was $95,962 (2006 - $59,940).

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, the Company filed the necessary documentation to convert the exploration license into an exploitation license. No additional work on Bucium's project economics is planned until the license is converted from an exploration to an exploitation license and until the EIA is approved.

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

7. Resettlement liabilities

The Company entered into resettlement agreements with certain property owners in the project area. Under the agreements, property owners have sold their properties to the Company in exchange for a new property to be constructed by the Company. The Company was obligated to deliver the new properties by September 30, 2007 and November 30, 2007, however these obligations were not met. The Company is obligated to deliver additional properties by May 30, 2008, and August 1, 2008. If the Company fails to deliver properties on time, the Company will incur a penalty of 0.5% of the agreed upon property value per month of delay, to a maximum of 12 months. If the Company fails to fulfill its obligation by the end of the 12-month penalty period, the Company shall pay the owners the agreed upon property value, plus the related penalties, and the owners retain the property possession for an undetermined period of time. The Company is working with those residents who chose the resettlement option to obtain an extension of three to six months due to delays in permitting and the poor weather conditions over the winter. As at December 31, 2007, the Company has accrued $0.5 million (2006 - Nil) in respect of delay penalties, while the balance of the resettlement accrual represents the remaining obligation to those homeowners that chose the resettlement option.

8. Other liabilities



As at December 31, other liabilities included the following:

Price per
DSU's Common Share
Deferred Share Units ("DSU")(a) (000's) (dollars) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding - December 31, 2005 158 $ 2.84 $ 449
Granted 205 4.07 834
Settled (125) 2.75 (344)
Change in fair value - - 265
----------------------------------------------------------------------------
Outstanding - December 31, 2006 238 5.06 1,204
Granted 370 1.62 599
Settled (5) 4.75 (24)
Change in fair value - - (592)
----------------------------------------------------------------------------
Balance - December 31, 2007 603 $ 1.97 $ 1,187
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Fidelity bonus and other benefits(b) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance accrued - December 31, 2005 $ -
Additions 184
----------------------------------------------------------------------------
Balance accrued - December 31, 2006 184
Additions 665
----------------------------------------------------------------------------
Balance accrued - December 31, 2007 $ 849
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Long-term portion of Severance and
Termination costs(c) Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance accrued - December 31, 2006 $ -
Additions 652
----------------------------------------------------------------------------
Balance accrued - December 31, 2007 $ 652
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Other liabilities $ 2,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(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.



2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expensed (recovered) $ (6) $ 1,000
Capitalized $ 13 $ 96
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(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, 2007, $849 thousand (December 31, 2006 - $184 thousand) has been accrued for these benefits.

(c) Severance and Termination Costs

On December 4, 2007, in light of the suspension of the EIA review process, the Company announced and enacted plans to scale back activities. In the fourth-quarter 2007, the Company expensed $1.4 million being its total liability related to the retrenchment of 170 employees, the details of which are:

1. $0.4 million in respect of severance and termination costs in accordance with the Collective Bargaining Agreement, and

2. $1.0 million in respect of special termination benefits.

As at December 31, 2007 the Company had not incurred any costs in respect of termination benefits. Of the $1 million of special termination benefits, $0.35 million is classified as a current liability while all costs in respect of the Collective Bargaining Agreement are classified as current liabilities.

9. Related Party Transactions

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

(a) The Company paid $39 thousand (2006 - $27 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, 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

Common shares issued and outstanding

Number of shares (000's) Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Balance - December 31, 2005 177,074 $ 284,987
Shares issued from a public offering(b) 31,050 97,808
Less: Share issue costs - (4,780)
Shares issued on the exercise of stock options
(note 12) 2,628 5,079
Stock-based compensation - exercise of stock options
(note 13) - 1,963
Stock-based compensation - settlement of DSUs
(note 8(a)) 125 344
Shares issued from the exercise of share purchase
warrants 11(a) 14 43
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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
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Balance - December 31, 2007 254,898 $ 558,277
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(a) In the first quarter of 2007, the Company issued 35.9 million common shares at $4.35 per share to a syndicate of underwriters and Newmont Canada Limited ("NCL"). Aggregate net proceeds of $148.6 million were received, after deducting underwriting fees of $6.9 million plus various professional fees related to the offering of $0.7 million. The net proceeds of the offering are being used to advance the development of the Rosia Montana gold deposit in Romania including completing surface rights acquisition, advancing detailed engineering, purchasing of long lead-time equipment, development of the new resettlement sites, site mobilization costs and general corporate purposes.

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

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

Share purchase warrants were outstanding and exercised as follows:



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

Balance - December 31, 2005 7,500 $ 2.75 March 31, 2007
Warrants exercised (14) 2.75 March 31, 2007
-----------------------------------------------------------------
Balance - December 31, 2006 7,486 2.75 March 31, 2007
Warrants exercised (7,451) 2.75 March 31, 2007
Warrants expiring unexercised (35) 2.75 March 31, 2007
-----------------------------------------------------------------
Balance - December 31, 2007 - - -
-----------------------------------------------------------------
-----------------------------------------------------------------


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

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

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 closing price on the day prior to the option allotment. For options granted during a blackout period, the exercise price of the options equals the closing price on the day after the date the blackout is cleared. The majority of options granted vest over three years and are exercisable over five years from the date of issuance.

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

As at December 31, 2007, 12.6 million options are available for issuance under the Plan (December 31, 2006 - 1.7 million).

As at December 31, 2007, common share stock options held by directors, officers, employees and consultants are as follows:



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

$1.48 - $2.00 7,254 $ 1.56 3.9 2,845 $ 1.55
2.01 - 3.00 2,632 2.50 2.7 1,871 2.48
3.01 - 5.00 3,040 4.49 3.7 1,204 4.58
-----------------------------------------------------------

12,926 $ 2.44 3.6 5,920 $ 2.46

-----------------------------------------------------------
-----------------------------------------------------------

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

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

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

Balance - December 31, 2006 9,583 2.96
Options granted 5,965 2.34
Options expired (941) 5.17
Options forfeited (1,067) 4.46
Options exercised (614) 1.98
----------------------------------------------------------------------------

Balance - December 31, 2007 12,926 $ 2.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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

The fair value of 5,965 thousand options granted in 2007 (2006 - 2,450 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:



2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average risk-free interest rate 4.0% 4.0%
Volatility of the expected market price of share 60% 69%
Weighted average expected life of options 2.7 years 2.6 years
Weighted average cost per option $0.96 $1.68


The estimated fair value of the options is amortized over the vesting period and expensed to the Statement of Loss or capitalized to Mineral Properties on the Balance Sheet. For 2007, the amount expensed was $2,075 thousand (2006 - $1,801 thousand) and the amount capitalized was $1,440 thousand (2006 - $380 thousand).

13. Contributed Surplus

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



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

Balance - December 31, 2005 $ 5,687
Stock-based compensation 2,180
Exercise of stock options (1,963)
----------------------------------------------------------------------------
Balance - December 31, 2006 5,904
Stock-based compensation 3,516
Exercise of stock options (620)
Expiry of unexercised warrants 7
----------------------------------------------------------------------------
Balance - December 31, 2007 $ 8,807
----------------------------------------------------------------------------
----------------------------------------------------------------------------


14. Income Taxes

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

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.



2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income tax rate 36% 36%
Income tax at statutory rates $ (6,972) $ (3,821)
Adjustment for foreign subsidiaries 3,675 2,018
Stock option compensation 745 648
Deferred share units - 360
Other - 46
Valuation allowance 6,227 2,749
----------------------------------------------------------------------------
Provision for income taxes $ 3,675 $ 2,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------



The following table reflects future income tax assets at December
31, 2007 and 2006:

2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Loss carry forwards $ 17,431 $ 14,612
Share issue costs 2,862 1,739
Capital assets 231 156
Cumulative eligible capital expenditures 3,074 3,060
Valuation allowance (23,598) (19,567)
----------------------------------------------------------------------------
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: 2007 2006
---------------------------------------------------------------------------
2008 5,741 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 16,550 -
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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:

2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Romania $ 357,558 $ 243,899
Canada 764 933
---------------------------------------------------------------------------

$ 358,322 $ 244,832
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16. Financial Instruments

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

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

17. Commitments and Contingencies

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



2012 and
Total 2008 2009 2010 2011 thereafter
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---------------------------------------------------------------------------
Baisoara
exploration
license (note 6) $ 2,960 $ 254 $ 625 $ 1,282 $ 799 $ -
Resettlement
(note 7) 17,140 17,140 - - - -
Goods and
services(a) 9,332 6,860 1,822 260 9 381
Long lead time
equipment(b) 42,434 25,311 17,123 - - -
Rosia Montana
exploitation
license(c) 262 24 24 24 24 166
Surface
concession
rights(d) 837 20 20 20 20 757
Lease
agreements(e) 1,956 754 632 401 169 -
---------------------------------------------------------------------------
Total commitments $ 74,921 $ 50,363 $ 20,246 $ 1,987 $ 1,021 $ 1,304
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services which totaled $9.3 million at December 31, 2007 (December 31, 2006 - $6 million). Typically, the service agreements are for a term of not more than one year and permit either party to terminate for convenience on notice periods ranging from 15 to 90 days. Upon termination, the Company has to pay for services rendered and costs incurred to the date of termination.

(b) During the year, 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:



2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Total purchase agreements:
Grinding area systems $ 46,140 $ -
Crusher facilities 6,976 -
Other process equipment 2,646 -
---------------------------------------------------------------------------
55,762 -

Amounts paid as at December 31, 2007:
Grinding area systems (11,043) -
Crusher facilities (2,018) -
Other process equipment (267) -
---------------------------------------------------------------------------

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


Although contractually committed to their acquisition, the Company has placed $7.4 million of orders on hold pending the restart of the permitting process. Should the Company ultimately cancel the orders, its future obligation under those contracts is not expected to exceed $30 thousand. At December 31, 2007 the outstanding obligation for those orders is $6.9 million (2006 - NIL) and has been allocated to 2009 on the payment schedule.

(c) Under the terms of the Company's exploitation mineral license for the Rosia Montana project, an annual fee is required to be paid to maintain the license in good standing. The current annual fee is approximately $24 thousand. These fees are indexed annually by the Romanian Government and the license has 11 years remaining.

(d) RMGC has approximately 43 years remaining on a concession agreement with the Local Council of Rosia Montana Commune by which it is granted exploitation rights in property located on and around the proposed Cirnic pit for an annual payment of $20 thousand.

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

The following is a contingency of the Company.

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



18. Supplemental Cash Flow Information

(a) Net changes in non-cash working capital
2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Operating activities:
Accounts receivable, prepaid expenses and supplies $ 1,333 $ (1,003)
Accounts payable and accrued liabilities (220) 3,125
Unrealized foreign exchange loss in non-cash working
capital - 6
---------------------------------------------------------------------------
1,113 2,128
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Investing activities:
Accounts receivable, prepaid expenses and supplies (547) (895)
Accounts payable and accrued liabilities 6,445 3,384
Resettlement liabilities 12,747 4,393
---------------------------------------------------------------------------
18,645 6,882
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Financing activities:
Accrued share issue cost 196 -
---------------------------------------------------------------------------
$ 196 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(b) Exploration and development expenditures
Balance sheet change in Mineral Properties $ (98,020) $ (60,016)
Non-cash depreciation and disposal capitalized 605 560
Reclassification from Mineral Properties - (960)
Stock based compensation capitalized 1,453 476
---------------------------------------------------------------------------
$ (95,962) $ (59,940)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(c) Cash and cash equivalents is comprised of:
Cash $ 1,947 $ 8,611
Short-term investments (less than 90 days) -
weighted average interest of 3.9% (2006 - 4.3%) 145,297 3,987
---------------------------------------------------------------------------

$ 147,244 $ 12,598
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---------------------------------------------------------------------------


The Company did not incur interest expense during 2007 and 2006.

19. Reclassification of Comparative Figures

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

Contact Information