Gabriel Resources Ltd.: 2017 Second Quarter Report
London, England - Gabriel Resources Ltd. (“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, 2017. Summary
- The Company’s core focus is the progression of its arbitration case against Romania before the World Bank’s International Centre for Settlement of Investment Disputes (“ICSID”) in accordance with the provisions of the Canada-Romania and UK-Romania bilateral investment treaties for the promotion and protection of foreign investment (together the “Treaties”) to which Romania is a party (“ICSID Arbitration”).
- On June 30, 2017 Gabriel filed its memorial on the merits and quantum of its claims (“Memorial”) which seeks compensation for all of the losses it has incurred as a result of Romania’s breaches of the Treaties in an amount equivalent to $5.7 billion[1].
- Gabriel’s Romanian subsidiary, RoÈ™ia Montană Gold Corporation S.A. (“RMGC”), remains subject to investigations by the Romanian National Agency for Fiscal Administration (“ANAF”) which Gabriel considers are abusive in scope and duration and were initiated by the Romanian authorities solely in retaliation for the filing of the ICSID Arbitration.
- One such ANAF investigation relates to a re-run of a previously quashed value added tax (“VAT”) assessment relating to amounts claimed by RMGC in the period 2011 to 2016. On July 5, 2017 RMGC was served with a decision by ANAF assessing a VAT liability in the principal amount of approximately of RON 27m ($8.6m)[2], which does not include any penalties or fines (“VAT Assessment”). RMGC intends to challenge this decision as fundamentally flawed, unlawful and abusive.
- As at June 30, 2017, the Company held $46.3 million of cash and cash equivalents.
- The net loss for the second quarter of 2017 was $13.7 million (Q1 2017:$9.3 million).
Jonathan Henry, Gabriel’s President and Chief Executive Officer, stated:
“The Memorial details the strong factual and legal arguments supporting Gabriel’s claims against the Romanian State and the significant quantum of damages sustained as a consequence of Romania’s unlawful acts. Romania continues to demonstrate its bad faith against Gabriel and RMGC through ongoing discriminatory, abusive and retaliatory activities such as the VAT Assessment, which is without merit.”
Further information and commentary on the operations and results of the Company in the second quarter of 2017 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.
For information on this press release, please contact:
| Jonathan Henry President & Chief Executive Officer Mobile: +44 7798 801783 jh@gabrielresources.com | Max Vaughan Chief Financial Officer Mobile: +44 7823 885503 max.vaughan@gabrielresources.com | Richard Brown Chief Commercial Officer Mobile: +44 7748 760276 richard.brown@gabrielresources.com |
Further Information
Status of the ICSID Arbitration
- The ICSID Arbitration seeks compensation for all of the losses and damages suffered by the Company and its wholly-owned subsidiary, Gabriel Resources (Jersey) Ltd. (together “Claimants”), resulting from the Romanian State’s wrongful conduct and its breaches of the Treaties’ protections against expropriation, unfair and inequitable treatment and discrimination in respect the Projects[3] and related licenses. As a consequence of Romania’s acts and inactions, the Project has been stymied, depriving the Claimants of the use, benefit and entire value of their property rights which have effectively been taken without compensation in contravention of the applicable legal and administrative processes and requirements.
- The Claimants submitted their Memorial on June 30, 2017. The Memorial filing is scheduled to be followed by the following key submissions:
- Romania to file its response to the Memorial (“Counter-Memorial”) by February 15, 2018.
- The Claimants to file their reply to the Counter-Memorial (“Reply”) by September 5, 2018.
- Romania to file its response to the Reply (“Rejoinder”) by February 19, 2019.
- A hearing on the merits of the claims before the tribunal appointed to hear and determine the ICSID Arbitration (“Tribunal”) is currently scheduled to occur in Washington D.C. from September 9 to 20, 2019.
- Certain procedural orders and decisions of the Tribunal, together with certain of the principal submissions filed by the parties during the ICSID Arbitration, have and will continue to be published on the ICSID website at the following location: https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/15/31. The Memorial is subject to the confidentiality provisions of Procedural Order No.3 which can be found on the ICSID website. Gabriel anticipates that the Memorial will be published on the ICSID website in due course in accordance with those provisions and the determination of the Tribunal as appropriate.
RMGC Investigations
- On July 5, 2017, RMGC received the VAT Assessment from ANAF demanding the repayment of VAT deductions claimed by RMGC in the period July 2011 to January 2016 in the amount of RON 27m (approximately $8.6m), which does not include any penalties or fines likely to be levied. The VAT Assessment is due for payment on August 5, 2017 although RMGC has until August 21, 2017 to make an administrative appeal to ANAF, which it fully intends to pursue. The Company believes the ANAF findings are fundamentally flawed and an abusive retaliation to the ICSID Arbitration. The Company also believes that the procedure followed by ANAF to arrive at the VAT Assessment was improper and unlawful and that the VAT Assessment conflicts with Romanian fiscal laws as well as the mandatory applicable principles of EU law. The Company intends to use all legal avenues to challenge the VAT Assessment and to fully protect its rights and assets.
- In parallel with the VAT Assessment, and for almost two years to date, a separate directorate of ANAF has continued to pursue an ad hoc investigation of a broad range of operational activities and transactions of RMGC and a number of its suppliers, consultants and advisors over an extensive period spanning 1997 to 2016 (the “ANAF Investigation”). Gabriel still awaits formal indication of the grounds for the ANAF Investigation and believes that the breadth and depth of ANAF’s demands are intentionally abusive, and that it has been initiated in an attempt to intimidate and harm RMGC and the Claimants in view of the dispute with the Romanian State and the Claimants’ filing of the ICSID Arbitration, evidencing further the discriminatory acts and bad faith conduct of the Romanian authorities.
Liquidity and Capital Resources
Liquidity
- The Company’s average monthly cash usage during Q2 2017 was $3.0 million, including costs in respect of the ICSID Arbitration (Q1 2017 monthly average: $1.7 million, Q4 2016 monthly average: $2.1 million). At the end of Q2 2017, accruals for costs in respect of the ICSID Arbitration amounted to $7.1 million (Q1 2017: $4.6 million, Q4 2016: $1.9 million). For the remainder of 2017 the Company expects the cost for the ICSID Arbitration to reduce.
Capital Resources
- Cash and cash equivalents at June 30, 2017 amounted to $46.3 million.
Financial Performance
- The net loss for the second quarter of 2017 was $13.7 million, an increase from a loss of $9.3 million in the prior quarter and a loss of $8.9 million in the corresponding period in 2016, primarily due to incremental legal and other advisory costs pursuant to the ICSID Arbitration. In addition, in Q2 2016 there was a charge for debt extinguishment of $4.4 million, a non-cash expense arising following the restructuring of convertible notes issued in 2014 with no corresponding charge in the six-month period to June 2017. Accreted finance charges of $3.4 million on the convertible notes in issue are reflected in the loss for the quarter ended June 30, 2017 (Q2 2016: $1.3 million).
Project Development (including Permitting and Litigation)
- In the context of the above disclosures concerning the development of the Project and the ICSID Arbitration now being the core focus of Gabriel, and the group of companies of which it is parent (“Group”), readers are advised to refer to the Annual Information Form of the Company for the year ended December 31, 2016 (“AIF”) published on March 29, 2017, a copy of which is filed on SEDAR at www.sedar.com, for information relating to the status of the Project, RMGC’s exploitation license in Romania, the Group’s exploration and development activities in Romania, the Project approval and permitting process, and reported gold and silver resources and reserves. Except as disclosed in the Company’s public filings thereafter, there has been no material change in the information therein from the date of publication of the AIF to the date of this press release.
About Gabriel
Gabriel is a Toronto Stock Exchange listed Canadian resource company. The Company’s principal focus has been the exploration and development of the RoÈ™ia Montană gold and silver project in Romania. The Project, one of the largest undeveloped gold deposits in Europe, is situated in the South Apuseni Mountains of Transylvania, Romania, an historic and prolific mining district that since pre-Roman times has been mined intermittently for over 2,000 years. The exploitation license (“License”) for the Project is held by RoÈ™ia Montană Gold Corporation S.A., a Romanian company in which Gabriel owns an 80.69% equity interest, with the 19.31% balance held by Minvest RoÈ™ia Montană S.A., a Romanian state-owned mining company. It is anticipated that the Project would bring over US$24 billion (at US$1,200/oz gold) to Romania as potential direct and indirect contribution to GDP and generate thousands of employment opportunities.
Since the grant of the License in June 1999, the Company has focused substantially all of its management and financial resources on the exploration, feasibility and subsequent development of the Project. Despite the Company’s fulfilment of its legal obligations and its development of the Project as a high-quality, sustainable and environmentally-responsible mining project, using best available techniques, Romania has blocked and prevented implementation of the Project without due process and without compensation.Accordingly, the Company’s current core focus is the ICSID Arbitration. For more information please visit the Company’s website at www.gabrielresources.com.
Forward-looking Statements
This press release contains “forward-looking information” (also referred to as “forward-looking statements”) within the meaning of applicable Canadian securities legislation. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans and allowing investors and others to get a better understanding of the Company’s operating environment. All statements, other than statements of historical fact, are forward-looking statements.
In this press release, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies that may cause the Company’s actual financial results, performance, or achievements to be materially different from those expressed or implied herein. Some of the material factors or assumptions used to develop forward-looking statements include, without limitation, the uncertainties associated with: the ICSID Arbitration, actions by the Romanian Government, conditions or events impacting the Company’s ability to fund its operations or service its debt, exploration, development and operation of mining properties and the overall impact of misjudgments made in good faith in the course of preparing forward-looking information.
Forward-looking statements involve risks, uncertainties, assumptions, and other factors including those set out below, that may never materialize, prove incorrect or materialize other than as currently contemplated which could cause the Company’s results to differ materially from those expressed or implied by such forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as “expects”, “is expected”, “anticipates”, “believes”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential”, “possible” or variations thereof or stating that certain actions, events, conditions or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of fact and may be forward-looking statements.
Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation:
- the duration, required disclosure, costs, process and outcome of the ICSID Arbitration against Romania;
- changes in the liquidity and capital resources of Gabriel, and the Group;
- access to funding to support the Group’s continued ICSID Arbitration and/or operating activities in the future;
- equity dilution resulting from the conversion or exercise of existing securities in part or in whole to Common Shares;
- the ability of the Company to maintain a continued listing on the Toronto Stock Exchange or any regulated public market for trading securities;
- the impact on business strategy and its implementation in Romania of: unforeseen historic acts of corruption, uncertain fiscal investigations; uncertain legal enforcement both for and against the Group and political and social instability;
- regulatory, political and economic risks associated with operating in a foreign jurisdiction including changes in laws, governments and legal regimes and interpretation of existing and future fiscal and other legislation ;
- volatility of currency exchange rates, metal prices and metal production;
- the availability and continued participation in operational or other matters pertaining to the Group of certain key employees and consultants; and
- risks normally incident to the exploration, development and operation of mining properties.
This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements.
Investors are cautioned not to put undue reliance on forward-looking statements, and investors should not infer that there has been no change in the Company’s affairs since the date of this press release that would warrant any modification of any forward-looking statement made in this document, other documents periodically filed with or furnished to the relevant securities regulators or documents presented on the Company’s website. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice. The Company disclaims any intent or obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, subject to the Company’s disclosure obligations under applicable Canadian securities regulations. Investors are urged to read the Company’s filings with Canadian securities regulatory agencies including Gabriel’s Annual Information Form for the year ended December 31, 2016, which can be viewed online at www.sedar.com.
[1] The claim, based on a damages assessment performed by an independent expert, seeks compensation in the amount of US$4.4 billion, the Canadian dollar equivalent uses the closing foreign exchange rate on June 27.
[2] Assumes the July 5, 2017 Bank of Romania exchange rate of RON 3.13 to the $.
[3] For the purposes of this release the RoÈ™ia Montană gold and silver project (the “RoÈ™ia Montană Project”) and the prospective gold, silver and porphyry copper deposits in the neighbouring Bucium concession area are referred to collectively as the “Projects”.
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