Gabriel Resources Ltd.: Second Quarter Report

TORONTO, ONTARIO--(Marketwired - Aug 2, 2013) - Gabriel Resources Ltd. (TSX:GBU) ("Gabriel" or the "Company") announces the publication of its Second Quarter Financial Statements and Management's Discussion and Analysis Report for the period ended June 30, 2013.

Recent Events

• On July 11, 2013 the Prime Minister of Romania, Victor Ponta, announced a National Plan for Strategic Investment and Job Creation (the "Plan"). In the Plan Mr. Ponta set out key targets for 2013 including investment commitments into Romania of EUR10 billion and the creation of over 50,000 jobs in five strategic investment fields. The Rosia Montana Project ("Project") is one of seven projects within the mineral resources field that have been identified for focus by the Romanian Government ("Government") in order to achieve those targets.

• Mr. Ponta has subsequently been quoted as stating that any Government decision to proceed with the Project would be subject to a Romanian Parliament vote, and that a new law relating to the Project will be drafted for debate in the Parliament in September 2013.

• As part of its review process of the Project's Environment Impact Assessment ("EIA") and its pending decision on the issuance of the Environmental Permit ("EP"), the Ministry of Environment and Climate Change ("MoE") announced on July 11, 2013 that it was initiating (with immediate effect) a public consultation on the conditions and measures which need to be included in the EP to be issued for the Project. In this respect a consultation document has been posted on the MoE website soliciting comments by July 30, 2013.

• The Company announced on July 12, 2013 that it is in negotiation with the Government on an increase in the Romanian State's equity interest in the Project to a maximum of 25 percent and an increase in royalties to a fixed rate of 6 percent of revenues, along with other long-term commitments on environment, cultural heritage and a defined route to successful permitting to underpin the Project's status as a world-class, long-term and sustainable investment. The Company will update the market on these negotiations when appropriate.

Q2 Summary

• Since the USL Government secured its long-term position at the end of 2012, the Company's dialogue with the relevant ministries and departments has steadily increased. This improved momentum has been demonstrated through three formal meetings of the Technical Assessment Committee ("TAC") during Q2 2013, and since the end of the quarter a further TAC meeting has been held. The Company awaits clarification on the conclusion of the TAC process and how the results of the public consultation will be incorporated in the EP decision process. The Company is unable to provide guidance on the related timeframes to a final decision from the TAC, MoE or the Government. Ultimately, the EP must be approved by a Cabinet decision of the Government prior to its issuance.

• On April 22, 2013 Alba County Council issued a new urbanism certificate (UC-47) for the Project, which is valid for 24 months, subject to extension for a further maximum of 12 months.

• Monthly average net cash usage was $3.2 million for the first six months of 2013, with Q2 2013 closing cash and cash equivalents of $62.8 million.

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

"We are pleased with the inclusion of the Project within Romania's National Plan for Strategic Investment and Job Creation. The construction of a mine at Rosia Montana, applying high global standards and built for a sustainable future for the local community, will be a benchmark for Romania to attract long term socially responsible foreign investors. This will allow Romania to demonstrate real progress towards the Government's key targets.

We are encouraged by the recent momentum within the Technical Analysis Committee review process and look forward to the positive completion of the parliamentary debate on the Project in the near future, together with finalisation of the environmental permitting process."

Further information and commentary on the operations and results in the second quarter of 2013, together with events anticipated in the short term, is given below. The Company has filed its Unaudited Condensed Interim Consolidated Financial Statements and Management's Discussion & Analysis on SEDAR at www.sedar.com and each is available for review on the Company's website at www.gabrielresources.com.

About Gabriel

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

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

Further Information

Financial Performance

• The net loss for the second quarter of 2013 was $1.7 million.

Liquidity and Capital Resources

• Cash and cash equivalents at June 30, 2013 amounted to $62.8 million.

• During Q2 2013, the Company issued 3.4 million common shares upon the exercise of stock options for aggregate gross proceeds of approximately $5.3 million.

• Excluding expenditure related to 2012 referendum activities, the monthly average net cash usage for the first six months of 2013 was $3.2 million.

• On the basis of the recent engagement with the TAC, inclusion of the Project in the Plan, anticipated parliamentary debate in respect of the Project and potential progress in permitting, the Company expects an increase in activity levels associated with its permitting and communications activities which will result in increased expenditure in H2 2013.

Capital Cost

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

Political Environment

• On December 9, 2012, scheduled parliamentary elections brought an overwhelming victory for the 'USL' alliance of the Social Democrat, National Liberal and Conservative parties, led by Social Democrat leader Victor Ponta. The USL gained two thirds of the parliamentary seats - a position enabling it to fully control both 'houses' (the Senate and the Chamber of Deputies) and for parliament to adopt important laws without the need for cross-party consensus. Subsequently Mr. Ponta, as Prime Minister, put in place a revised cabinet structure, including a new Department for Infrastructure Projects of National Interest and Foreign Investments (the "Department for Infrastructure") to which overall responsibility for the Romanian State's ownership interests in the Project is slated to be transferred.

• The first half of 2013 has seen the USL add definition to its program for its 4-year governmental term, which recently manifested itself in an announcement by Mr. Ponta on July 11, 2013 of the Plan. In the Plan Mr. Ponta set out key targets for 2013 including investment commitments into Romania of EUR10 billion and the creation of over 50,000 jobs in five strategic investment fields - energy, infrastructure, agriculture, industry and mineral resources. Seven projects within the mineral resources field have been identified for focus by the Government in order to achieve those targets, of which one is the Project.

• Furthermore, Mr. Ponta has also recently been quoted as stating that any Government decision to proceed with the Project would be subject to a Romanian Parliament vote, and that a new law relating to the Project will be drafted for debate in the Parliament in September 2013.

• The Company's previously stated view is that the first half of 2013 would be an important barometer to determine where projects, such as Rosia Montana, which are significant to the economic progression of Romania, sit in the list of priorities for the Government. The Company therefore views the recent Plan announcement as highly encouraging. Moreover, the Plan has followed closely after three recent meetings of the TAC, charged with the detailed assessment of the environmental impact and compliance of the Project, and a further subsequent meeting has been held.

• In announcing the Plan, Mr. Ponta noted that the benefits of the Project to Romania were up to '78% of what the Project generates'. This figure represents estimates for (i) direct and indirect operational expenditure with contractors and suppliers across Romania, (ii) taxes and duties payable to the fiscal authorities (including corporate, payroll, and withholding taxes) and distribution of profits to the Romanian State. These estimates are based on certain long-term technical, financial, economic and other assumptions, including those for commodity prices (such as US$1,200 per ounce gold) and foreign exchange rates, together with an increase in the Romanian State's equity interest in the Project and royalties therefrom.

Project Ownership and Royalty Rates

• Since the USL Government secured its long-term position at the end of 2012, the Company's dialogue with the relevant ministries and departments has steadily increased. The Prime Minister has maintained a view that progress on the permitting status of the Project needs to be aligned with an increase in the State's participation in the Project, through both ownership interest and royalty. The Company announced on July 12, 2013 that it is currently in negotiations with the Government on an increase in the Romanian State's equity interest in the Project to a maximum of 25 percent and royalties at a fixed rate of 6 percent of revenues, along with other long-term commitments on environment, cultural heritage and a defined route to successful permitting to underpin the Project's status as a world-class, long-term and sustainable investment. The Company will update the market on these negotiations when appropriate.

Environmental/Permitting

• The MoE, as part of its review process of the Project's EIA and its pending decision on the issuance of the EP, announced on July 11, 2013 that it was initiating (with immediate effect) a public consultation on the conditions and measures which need to be included in the EP to be issued for the Project. In this respect a consultation document has been posted on the MoE website soliciting comments by July 30, 2013.

• The permitting progress of the Project relies heavily on Government approval of the environmental permit ("EP") and the issuance, in accordance with due process and Romanian law, of various permits and approvals at local, county and federal levels of Government. Statements, reported in the Romanian media in 2013, from both the Prime Minister and Minister for Environment on the status of permitting of the Project, have specifically focused on compliance with European Directives as key to its progression. The Company is confident that it can, and will, comply with its environmental obligations and looks forward to concluding its discussions with the TAC and relevant Ministries on this topic and to a successful process through Parliament of the Project specific legislation noted by Mr. Ponta.

• Re-engagement with the MoE and Government occurred in Q1 2013, followed by three TAC meetings in Q2 2013 on May 10, May 31 and June 14, and a further TAC meeting was held on July 26. Although following these meetings, there has been no formal TAC announcement or recommendation, the Company views this as a positive procedural development and awaits clarification on the conclusion of the TAC process and how the results of the public consultation will be incorporated in the EP issuance process. The Company is unable to provide guidance on the related timeframes to a final decision from the TAC, MoE or the Government. Ultimately, the EP must be approved by a Cabinet decision of the Government prior to its issuance.

• The Company has instigated a number of environmental initiatives in recent years to show how the implementation of the Project can assist with cleaning up legacy local environmental degradation from historical, unregulated mining activities. One such initiative is an acid rock drainage pilot test work program to clean mine water contaminated with high levels of heavy metals and total dissolved solids above EU and Romanian water standards. These tests have been conducted on water courses in Rosia Montana that are currently adversely affected by existing acid mine drainage from historic mining activities. The results have successfully shown that a full scale plant will clean up water discharges from the Project, along with much of the existing baseline contamination in the area, to levels fully compliant with all regulations in place (and even to potable water standards).

• Furthermore, since late 2012, the Company has been working with the Government to use the pilot plant for additional testing of eight former state-run mine sites and has demonstrated that a full scale water treatment plant would be successful in cleaning up the contaminants to the required EU and Romanian standards at all sites tested. This is one example of how the Project, and the commitments made in the EIA, will produce long-term environmental benefits at local, regional and national levels.

• The Company's amended industrial zonal urbanism plan ("Industrial Area PUZ") is at an advanced stage, although a recent modification to the law governing urbanism plans increased the total number of endorsements required for its approval to 23. Currently there are 18 valid endorsements; the Company has submitted the necessary documentation for three further endorsements and is progressing with the submission of documents for the remaining two. After obtaining all the necessary endorsements, the final approval for the Industrial Area PUZ will be given by the local councils of Rosia Montana, Abrud and Bucium.

• In addition, 10 out of the total of 13 endorsements necessary for the final approval of the zonal urbanism plan for the Rosia Montana historical protected area ("Historical Area PUZ") had been obtained at the end of Q2 2013, with the remainder being a work in progress.

• In February 2013, Parliament approved certain amendments, originally proposed in 2011, to the legislation concerning the approval of zonal urbanism plans. These legislative amendments include the introduction of a new approval timeline for certain PUZs and also set out a new basis for the construction of industrial facilities based on a General Urbanism Plan ("PUG") containing appropriate urbanism provisions. The original bill that was approved by Parliament has been through a subsequent examination and redrafting process. In July 2013, the amended bill came into force. The provisions of the law include clarification of the approval process for urbanism plans, applicable to the Industrial Area PUZ.

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

• During 2012, RMGC obtained an extension to the validity of its urbanism certificate (UC-87) through April 2013. An urbanism certificate is an informational document issued by a local or county council and sets out the legal, technical and economic status of a particular parcel of land. On April 22, 2013, Alba County Council issued a new urbanism certificate (UC-47) for the Project, which is valid for 24 months, subject to extension for a further maximum of 12 months.

Archaeology and Preservation of Cultural Heritage

• The Company has continued maintenance work on 160 houses located in the historical center of the village of Rosia Montana ("Protected Area"), with the aim of preventing their deterioration. While these village houses are not designated as historic, the restoration will contribute to maintaining the character of the village.

• The Company is advancing a project to complete restoration of more than 110 houses located within the Protected Area, which will bring these back into functional use. To date, the design work and permitting has been completed, with the final stage for obtaining construction authorization yet to be initiated.

• RMGC, in partnership with the local council of Rosia Montana, initiated the restoration of two iconic buildings in the Protected Area which will be used for tourism initiatives. Subject to internal fit out, the primary restoration of the former town hall was completed during 2012. Work on the old school house advanced to the stage of the building being secure and weather tight. Further restoration work has been put on hold until such time as the Government moves ahead with Project permitting.

• RMGC is continuing further archaeological work focusing on opening up previously unexplored old underground mining galleries that lie under the Protected Area, such as Catalina Monulesti, which is in the process of being successfully restored and has been opened to the public. The Company has already hosted over one thousand visitors to the gallery, representing various stakeholder groups. Though access to other Roman galleries remains difficult, the Company has made substantial progress with installing sufficient infrastructure to allow the public to share in Romania's rich cultural heritage. The archaeological results identify spectacular Roman mining galleries and related wooden artifacts, all outside of the Project footprint. This is all part of the long term initiatives in the Protected Area funded solely by the Company. Without such programs, there would be no comparable preservation of the area's mining heritage.

Corporate and Social Responsibility (CSR)

• Gabriel takes pride in its commitment to achieving the highest levels of sustainability; from workplace safety to community and environmental responsibility. The Company invests significant resources into its CSR programs, which in Romania is a multi-dimensional commitment managed by RMGC covering employee training and safety, local communities, living traditions, direct and indirect social impacts, educational programs, environmental protection, community sponsorship and heritage aspects.

• One of RMGC's core commitments is to develop local employment, local supply and a strategy for local economy diversification during the life of the Project and beyond, evidenced through:
  • Local employment - RMGC currently employs approximately 500 people directly and numerous others indirectly, with some 85 percent hired from the local community. The Company is investing in training and skills assessments for the construction phase of the Project; and
  • Local supply - more than 600 local firms are suppliers / contractors to RMGC.

Litigation

• Over the years, certain foreign and domestically-funded non-governmental organizations ("NGOs") have initiated a multitude of legal challenges against licenses, permits, authorizations and approvals obtained for the exploration and development of the Project.

• The publicly stated objective of the NGOs in initiating and maintaining these legal challenges is to use the Romanian court system not only to delay as much as possible, but to ultimately stop the development of the Project. Often an action will be taken by the NGOs on a particular issue in several different regional court jurisdictions, and such legal objection may be raised in separate cases seeking a suspension or cancellation of a particular license, permit or approval, as is the situation with upcoming hearings for third quarter of 2013 summarized below:
  • Two NGOs have initiated proceedings before the Bucharest Tribunal seeking the cancellation and suspension of the ADC for Carnic, the first hearing of which is scheduled for September 9, 2013.
  • An action filed by three NGOs requesting the suspension of the ADC for the Carnic open-pit is scheduled to be heard by the Cluj Tribunal on September 13, 2013.
  • The next hearing of a claim brought by the same three NGOs in the Cluj Tribunal seeking the cancellation of the ADC for the Carnic open-pit is scheduled to be heard on September 30, 2013.
  • A claim initiated by two NGOs seeking the cancellation of the Strategic Environmental Assessment endorsement ("SEA") to the Industrial Area PUZ, which was issued by the Regional Agency for Environmental Protection of Sibiu in March 2011, is scheduled to be heard by the Cluj Tribunal on September 6, 2013.
  • A claim initiated by the same two NGOs seeking the suspension of the SEA is also scheduled to be heard in the same court on September 20, 2013.

• Due to the inherent uncertainties of the judicial process, the Company is unable to predict the ultimate outcome or impact, if any, with respect to matters challenged in the Romanian courts. In all circumstances, the Company and/or RMGC will vigorously maintain its legal rights and will continue to work with local, county and federal authorities to ensure the Project receives a fair and timely evaluation in accordance with Romanian and EU laws. However, there can be no assurance that the Company and/or RMGC will prevail in these matters. If any claims are not resolved in the Company's or RMGC's favor, then such a negative ruling may have a material adverse effect on the timing and/or outcome of the permitting process for the Project and the Company's financial condition. The implications of a negative court ruling will only be known once such a decision is issued and the position of the Government is assessed.

Outlook

• The Company's key objectives in the short term include to:
  • Finalise the TAC process;
  • Obtain approval of the EP and all other required permits that will allow construction activities to commence;
  • Continue appropriate stewardship of cash resources, whilst maintaining efforts to promote the awareness of the Project benefits, both economic and otherwise, and of the widespread support for the permitting of the Project; and
  • Maximize shareholder value, while optimizing benefits of the Project to those in the community and the surrounding area.

Forward-looking Statements

This press release contains forward-looking information as defined in applicable securities laws relating to the Company and/or the Project (referred to herein as "forward-looking statements") that are based on management's current expectations, estimates and projections. Specifically, this press release contains forward-looking statements regarding the returns to Romania from the Project and in respect of future permitting processes. All statements other than statements of historical facts included herein, including without limitation, those incorporated by reference, those which may refer to the Company's financial position, business strategy, plans, objectives of management for future operations (including development plans and objectives relating to the Company's business) the economic impact, job creation, costs estimates, patrimony plans, future ability of the Company to finance the Project, Project delivery and estimates regarding the timing of completion of various aspects of the Project's development or of future performance are forward-looking statements.

The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "projects", "may", "will", "schedule", "potential", "proposed" and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that are inherently subject to significant business, economic, legislative, political and competitive uncertainties and contingencies.

Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors which are difficult, or may be beyond Gabriel's ability, to predict or control and that may cause the actual outcomes, level of activity, financial results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include, without limitation, 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; geopolitical uncertainty, uncertain legal enforcement; changes in, and the effects of, the government policies affecting the Company's operations; uncertainties related to timelines for awaited approvals; changes in general economic conditions, and the financial markets; operating or technical difficulties in connection with exploration, development or mining; environmental risks; the risks of diminishing quantities or grades of reserves; and the Company's requirements for substantial additional funding.

Accordingly, readers should not place undue reliance on forward-looking statements. Gabriel undertakes no obligation to update publicly or otherwise revise any forward-looking statements contained herein whether as a result of new information or future events or otherwise, except as may be required by law.