Gabriel Resources Ltd. - Year End 2006 Report



    TSX Trading Symbol: GBU

    TORONTO, March 6 /CNW/ -

    
    Highlights

    Financial performance

    -   Fourth quarter net loss was $5.1 million, or $0.03 per share. Full
        year loss was $12.6 million, or $0.07 per share.
    -   Fourth quarter expenditures totaled $38.5 million on our two
        development projects and $60.0 million for the full year.

    Liquidity and capital resources

    -   Working capital at December 31, 2006 totaled $79.9 million.
    -   An additional $20.6 million of cash is expected to be added to
        working capital with the expiry of 7.5 million warrants, which are
        currently in the money, at the end of first quarter 2007.
    -   The Company expects to spend US$190 million of the US$638 million
        definitive feasibility study budget estimate in 2007 - based on fall
        2007 construction permit receipt.
    -   Project financing discussions are well underway, with a goal of
        completing final term sheets for both senior and subordinated debt in
        parallel with our EIA approval expected in summer 2007.

    Expected Financing Plan

    -   The estimated capital cost to complete the development of Rosia
        Montana project - including interest, financing and corporate costs
        is approximately US$750 million.
    -   The Company anticipates financing these costs with approximately
        20 percent equity - US$150 million, of which US$80 million was raised
        in the third quarter of 2006 - and 80 percent debt, which could
        include senior and mezzanine or high yield debt.
    -   The estimated capital cost to complete does not include a provision
        for (i) a cost overrun facility, (ii) a financial guarantee
        (reclamation deposit), or (iii) hedging program if required. These
        additional items could add $100 million to the financing plan.

    Rosia Montana Project Development

    Environmental Impact Assessment

    -   On January 31, 2007, the Company received the official list of
        questions gathered during the public consultation process and judged
        by the Romanian Government to require a response.
    -   In total, approximately 5,600 questions and 95 statements were
        included in the official list of questions.
    -   In preparation, the Company, the project design team and the EIA team
        have drafted answers for the anticipated questions from the 16 public
        meetings, the questions provided by the Hungarian Ministry of
        Environment, as well as other third party questions and comments made
        in the media.
    -   These preparatory efforts, together with an in depth expert
        examination of all new issues raised, should allow the Annex to the
        EIA to be submitted with robust responses during spring 2007.
    -   The delay in receipt of the questions, which had been expected before
        the end of 2006, has extended the permitting process into summer
        2007. While we expect EIA approval in summer 2007, the Romanian
        Government ultimately determines the timing of the decision.

    "With the questions in hand, we are well underway to completing the       
 annex this spring," said Alan R. Hill, President and Chief Executive Officer.
"Looking longer term, we made solid strides in 2006 and our aim in 2007 is to
obtain all permits and approvals, as well as financing to begin construction
in the fall."

    Archaeological Discharge Certificate

    -   The Romanian Supreme Court (the "Supreme Court") has decided that the
        series of lower court decisions that resulted in the annulment of the
        archaeological discharge certificate no. 4 were not conducted
        properly, and therefore has overturned the previous annulment. The
        Supreme Court has referred the matter back to a different lower
        court, the Brasov Court of Appeal, to be retried on its merits. The
        retrial began in October 2006.
    -   Notwithstanding the pace of the retrial, we already have the
        necessary discharge certificates for the area required to begin
        construction in fall 2007.

    Acquisition of Surface Rights

    -   On October 9, 2006 the Company recommenced acquiring residential
        properties.
    -   In total $25.3 million was spent during the fourth quarter acquiring
        residential properties.
    -   At December 31, 2006, the Company acquired or has options to acquire
        134 of the 379 remaining homes within the industrial zone needed to
        build and operate the project over its 16 year life. More
        importantly, the Company now has over half of the homes required for
        construction and the first five years of operation.
    -   The pace of acquisitions has decreased during first quarter 2007 as
        the Company and the community find a solution to a surge in the
        construction of illegal wood structures referred to as "cabins", for
        which sellers expect compensation.
    -   The Company is confident that a solution will soon be reached and
        that the pace of acquisitions will pick up to levels consistent with
        those in fall 2006.

    Updated Rosia Montana Project Timeline

    -   The delay in receipt of the questions has extended the permitting
        process into summer 2007.
    -   We are targeting receipt of our construction permit in fall 2007,
        following receipt of EIA approval and other permits and approvals
        required for the construction permit and the necessary surface
        rights.
    -   We estimate that it will take approximately two years to construct
        the mine, putting the first pour of gold target date in fall 2009.
        The first pour date has been extended by one quarter, due to the
        longer than anticipated lead time for critical equipment and the
        delay in receipt of the questions. Lead time for some equipment has
        nearly doubled from the estimated time in the definitive feasibility
        study.

    Romania's Accession to European Union

    -   Romania's accession to the European Union took place as planned on
        January 1, 2007.
    -   With EU Accession, robust economic growth continues but the coalition
        government has become less cohesive during the past several weeks.
    -   No allowance has been made in our schedule for any delay that may
        result from the current political environment.

    New Appointments

    -   On March 1, 2007, Mr. Ronald Simkus, with more than 30 years
        experience in the international mining industry, was appointed to the
        Board of Directors.
    

    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.

    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, 2006 and 2005. The MD&A
is intended to supplement 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, 2006 and 2005. You are
encouraged to review the Statements in conjunction with this document.
    All amounts included in the MD&A are in Canadian dollars, unless
otherwise specified. This report is dated as at March 5, 2007, 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 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.
    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.

    Key Issues

    Environmental/Permitting

    The Environmental Impact Assessment ("EIA") for the Rosia Montana project
was submitted to the Romanian Government in May 2006. A translation of the
study in English was also submitted to meet the requirements for the
international Espoo Convention for communications to adjacent States. While it
is not a legal requirement, the Company elected to have the Non-Technical
Summary of the EIA translated into Hungarian to further assist interested
parties in Hungary to better participate in the public consultation process
due to the concerns of Hungarians toward the Project. The Company participated
in 14 public consultation meetings in Romania, held from July 24, 2006 to
August 25, 2006. Following the meetings in Romania, the Company participated
in two meetings in Hungary during the final week of August 2006 to meet Espoo
Convention commitments. On January 31, 2007, the Company received the official
list of questions gathered during the public consultation process and judged
by the Romanian Government to require a response. In total approximately
5,600 questions and 95 statements were included in the official list of
questions. In preparation, Gabriel, the project design team and the EIA team
have drafted answers for the anticipated questions from the 16 public
meetings, the questions provided by the Hungarian Ministry of Environment, as
well as, other third party questions and comments made in the media. These
preparatory efforts, together with an in depth expert examination of all new
issues raised should allow the Annex to the EIA to be submitted with robust
responses promptly during the spring 2007. The delay in receipt of the
questions, which had been expected before the end of 2006, has extended the
permitting process into summer 2007. While we expect EIA approval in summer
2007, the Romanian Government ultimately determines the timing of the
decision.
    While the EIA is by far the most important project permit, the Urbanistic
Certificate lays out approximately 80 other permits and approvals required,
such as the zonal urbanistic plans for the industrial and protected areas, the
forestry permit, the land use change permit, as well as other permits and
approvals that result from the EIA approval, to obtain the construction
permit. The process for each of these permits and approvals is underway to run
parallel with or follow within 60 days of EIA approval. As Gabriel, through
Rosia Montana Gold Corporation, is the first company to permit a project under
the new European legislation, it is pioneering with the Government of Romania
the permitting process. As a result, we along with the government are working
through new legislation that has never been applied.
    On July 11, 2006 the Alba Iulia Court of Appeal dismissed the application
of the foreign-funded NGO Alburnus Maior to suspend the assessment process for
our EIA. While Alburnus Maior initiated its actions against the Romanian
Ministry of Environment and not Gabriel, the Company intervened in the case to
present its arguments together with the Ministry of Environment. With the
Court's decision, the public consultation process began as scheduled on July
24, 2006. Alburnus Maior has appealed the decision of the Court of Appeal and
that appeal is currently pending.
    Alburnus Maior has 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 as sanctions cancellation of the
permit or authorization. Gabriel, through Rosia Montana Gold Corporation
(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 our permitting and construction schedule does not make any allowance for
legal challenges that may arise, we have been very successful in the past in
these legal challenges and have designed the project and attempted to follow
all applicable laws to protect against and prevent, as much as possible,
potential future legal challenges.

    Surface Rights
    During third quarter 2006, the Company raised $93 million in an equity
offering, the majority of which was allocated to fund the purchase of the
homes and properties in the project area. During August 2006, the Company
updated the real estate survey in the region to determine appropriate prices
for homes and properties. The estimated cost to acquire 100 percent of the
homes in the project area increased from US$48 million to US$68 million,
reflecting the general increase in real estate prices in Romania and our
efforts to address issues raised by the community regarding the compensation
program. The increase in costs is not expected to effect the overall project
budget as the definitive feasibility study budget contained a contingency and
covered more properties then required to construct the mine. The new prices
were announced to the community and public meetings were held in September
2006, as required under World Bank Guidelines.
    On October 9, 2006, the Company recommenced purchasing homes in the
project area, which is comprised of the industrial zone, the Protected Area
and the buffer zone. While the Company only needs homes which are located in
the industrial zone to build the project, as a consideration to community
opinion, an offer to purchase homes in the Protected Area and buffer zone was
made to those residents at their request. 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. However,
since not all the homes in the industrial zone are necessary to start
construction, this issue will be managed in the context of the phases of
mining. Overall, the Company has acquired or has options on 134 of the 379
remaining homes within the industrial area needed to build and operate the
project over its 16 year life. More importantly, the Company now has over half
of the homes required for construction and the first five years of operation.
    The pace of acquisitions has decreased during the first quarter 2007 as
the Company and the community find a solution to a surge in the construction
of illegal wood structures referred to as "cabins," for which sellers expect
compensation. The Company is confident that a solution will soon be reached
and that the pace of acquisitions will pick up to levels consistent with those
in fall 2006.
    In addition to the private properties required, the Company needs to
acquire about 35% of the project area which is owned by institutions,
including the local administrations of Rosia Montana and Abrud, as well as
certain churches and state-owned mining companies. The process to acquire the
institutional properties is well underway and we expect to obtain access
rights to those properties required for construction and the first five years
of operations by the time the EIA is approved.

    Community Support
    Support for the project in the Rosia Montana community continued to gain
momentum in 2006. Following up on the march during second quarter 2006 in
which over 500 residents marched in favour of the project, in early July 2006
ProRosia, a local pro-project NGO, hosted a fund raising barbeque which
attracted over 600 people. In addition, the Company held an open house and
barbeque for the residents of Rosia Montana at the new town site at Piatra
Alba in July 2006, where 2,000 people gathered for the unveiling of the new
town and home designs. Support continued through the public consultation
hearings, with many residents attending all 14 of the public meetings across
Romania to show community support for the project.
    Support for the community and the project was also received from a group
of Romanian NGO's in July 2006. A total of 21 NGO's visited Rosia Montana and
18 NGO's issued a press release supportive of the project, with two NGO's
asserting their neutrality and one NGO being against the project. The main
conclusions of the 18 NGO's were:

    
    1.   If the Rosia Montana project complies with all applicable laws then
         the project should proceed;
    2.   Neither Alburnus Maior nor ProRosia represent the interests of the
         local community of Rosia Montana, but the interests of a small group
         of people; and
    3.  The opinion shared by most participants was that the Rosia Montana
        area is socially, economically and environmentally disastrous -- that
        people do not have jobs and life is very hard.
    

    During October 2006 a committee of 28 members of the Romanian Parliament
visited the site. The mayors of the villages of Rosia Montana, Abrud and
Bucium openly made public comments in support of the project during the course
of the visit. After the visit, some Parliamentarians vocally expressed their
disapproval of the project. Pro or con, the Parliamentarians have no role in
the permitting process, which takes place in the Executive/Ministerial branch
of the Romanian Government.

    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. The area has been mined for at least two
thousand years and, in spite of damage done by 20th Century mining, continues
to provide traces of the earlier activity. We have spent approximately
US$10 million sponsoring a program of rescue archaeology to recover and
document the remaining evidence. Over the past five years we have been granted
several discharge permits to acknowledge completion of the program.
    Here as on other issues, project opponents have used the courts to
obstruct the discharge process. On July 11, 2006 we -- along with the Minister
of Culture and Religious Affairs -- won our appeal when the Romanian Supreme
Court (the "Court") decided that the series of lower court decisions that
resulted in the annulment of our archaeological discharge certificate no. 4
(the "Discharge Certificate") was not conducted properly, and as a result,
overturned the previous annulment. The Supreme Court has referred the matter
back to a different lower court, the Brasov Court of Appeal, to be retried on
its merits. The retrial, which began in October 2006, should not delay the
commencement of construction of the Rosia Montana project, as the Discharge
Certificate relates to an area not required for construction start up. All
discharge certificates required to begin construction in 2007 have been
secured.

    Financing

    At December 31, 2006, we have $79.9 million in working capital. Our rate
of expenditure was approximately $3.8 million per month during 2006, excluding
working capital adjustments and the commencement of home acquisitions in
fourth quarter 2006, which cost an additional $25.3 million. This rate is
higher than 2005 when we spent an average of $1.8 million per month, largely
due to increased corporate activity related to the progress of the project,
higher communications costs and completion of the EIA. The expenditure rate is
expected to rise in 2007 as we continue to acquire properties, complete
detailed engineering, order long-lead-time equipment and begin construction of
the new village at Piatra Alba and Alba Iulia. Once the Company receives the
construction permit, which is expected in fall 2007, the nature and rate of
expenditure changes significantly as site construction begins. Based on fall
2007 construction permit receipt, we expect to spend approximately
$200 million in 2007 for corporate activities (US$10 million) and project
related activities (US$190 million) leading up to construction and
commencement of construction in the fall of 2007. The strong demand for mining
and process equipment has forced the Company to accelerate the ordering of
long-lead-time equipment and has resulted in larger deposits than was
historically the case. Long-lead-time equipment and permitting are the
critical path items in meeting our schedule for first pour of gold in fall
2009.
    Project financing discussions with traditional lenders are well underway
with the goal of completing a final term sheet for both senior and
subordinated debt during summer 2007 to coincide with the expected timing of
EIA approval. An independent Risk Assessment Report ("Report") was completed
by the banks' technical consultants during third quarter 2006. The Report
confirms that the Project is Equator Principle compliant, which is a necessary
pre-condition for project debt financing. Based on discussions with financial
institutions and our target debt financing requirements, some form of price
guarantee (hedging) will be required. The level and type of price guarantee
has not been discussed. The final amount will be a function of negotiations
with lenders and spot gold prices at the time.

    Expected Financing Plan

    
    -   The estimated capital cost to complete the development of Rosia
        Montana project - including interest, financing and corporate costs
        is approximately US$750 million.
    -   The Company anticipates financing these costs with approximately
        20 percent equity - US$150 million, of which US$80 million was raised
        in the third quarter of 2006 - and 80 percent debt, which could
        include senior and mezzanine or high yield debt.
    -   The estimated capital cost to complete does not include a provision
        for (i) a cost overrun facility, (ii) a financial guarantee
        (reclamation deposit), or (iii) hedging program if required. These
        additional items could add $100 million to the financing plan.
    

    The cost to construct the project is estimated at US$638 million based on
 a definitive feasibility study updated in early 2006. The estimated total
cash cost to produce gold over the first five years is expected to average
US$181 per ounce and average US$237 per ounce over the life of the project.
Some of the increase in both capital and operating costs over the previous
estimates from early 2003 reflects significant cost pressures due to
strengthening of currencies, higher raw material costs, higher steel and fuel
costs as well as higher wages. While the updated cost estimate to build and
operate the project contains contingencies, if these trends continue, these
contingencies may not be sufficient to absorb the higher costs.
    Gabriel currently anticipates that it will need to raise approximately
US$750 million, of which US$88 million was raised during 2006, to place the
Rosia Montana project into production. These amounts are a combination of debt
and equity and include working capital. A cost overrun facility, which is
required by lenders in a financing of this type, is being negotiated over and
above the amounts targeted above. If a cost overrun facility can not be
successfully negotiated, or there becomes a need for a cash deposit as part of
a financial guarantee or if we decide to purchase puts to meet our hedging
commitments, the Company would have to increase the equity offering above the
current target in the overall financing plan by up to $100 million. The
lenders requirement for gold price guarantee could be accomplished through a
variety of instruments, most of which would be at no cost to the Company,
however, those instruments may limit our participation in rising gold prices.
Puts are the only gold price guarantee that would not limit the Company's
participation in higher gold prices but come with a cash cost. On the positive
side, gold prices are at their highest level in 25 years, which overall have
increased the return and the profitability of the Rosia Montana project. The
estimated internal rate of return of the project based on US$500 gold is 18%
and the estimated return increases to 26% at US$600 gold.

    
    Capital and Operating Cost Summary

    -------------------------------------------------------------------------
    Capital
    Mine                          $  45
    Process                         142
    Infrastructure                   82
    Tailings Management Facility     43
    Total Directs                   311
    Total Indirects                 156
    Owners' costs                   116
    Contingencies                    55
    -------------------------------------------------------------------------
    Total                         $ 638
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating cost per tonne
    Mine                          $2.41
    Process                        6.09
    Administration                 0.96
    -------------------------------------------------------------------------
    Subtotal                      $9.46
    -------------------------------------------------------------------------
    Silver credit                 (1.13)
    Royalties and taxes            0.39
    -------------------------------------------------------------------------
    Net cost per tonne            $8.72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) For details on proven and probable mineral reserves, please see
        page 26 of this report.


    Annual Summary
                                                  Year       Year       Year
                                                 ended      ended      ended
                                              December   December   December
                                              31, 2006   31, 2005   31, 2004

    In thousands of Canadian dollars
    -------------------------------------------------------------------------
    Loss                                      $ 12,613   $  8,481   $  8,587
    Loss per share - basic and diluted        $   0.07   $   0.05   $   0.06
    -------------------------------------------------------------------------

    Total assets                              $338,056   $238,343   $184,502
    Long-term liabilities                     $  1,387   $    449   $    221
    -------------------------------------------------------------------------
    Investments in exploration and
     development including working capital
     changes                                  $ 53,058   $ 15,992   $ 35,049
    Cash flows from financing activities      $ 98,145   $ 59,416   $ 26,947
    -------------------------------------------------------------------------

    Loss

    -   The higher loss in 2006 reflects higher corporate, general and
        administrative expenses, project financing costs and 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 2006 compared to 2005.

    -   Overall, the 2004 and 2005 losses were similar. Lower project finance
        costs in 2005 were offset by reorganization severance costs,
        settlement of a lawsuit and an increase in non-cash charges related
        to stock option compensation.

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

    Total Assets

    -   The increase in total assets from the year ended 2004 to 2006 relates
        to two equity issues and the exercise of stock options and warrants,
        which raised a total of $157.4 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

    -   The only long-term liability on the Company's balance sheet is
        Deferred Stock Units (DSUs) due to Directors and officers of the
        Company and the fidelity bonus, a retention bonus for Romanian
        employees. The DSUs are revalued at each balance sheet date; the
        increase in 2005 and 2006 reflects the increase in our share price
        and the issuance of additional DSU's.

    Investment in Exploration and Development

    -   The reduction in expenditures in 2005 compared to 2004, relates to
        the shift to only those activities related to the permitting process.
        As a result, detailed engineering and acquisition of properties had
        been put on hold. The increase in 2006 expenditures reflects the
        restart of the acquisition of properties, higher permitting and
        communications costs.

    -   Expenditures are expected to rise significantly in 2007 with the
        approval of the EIA and commencement of site construction.

    Cash Flow from Financing Activities

    -   The Company's primary source of liquidity has been the equity
        markets. The Company raised $183.2 million over the past three years
        through four financings, as well as the exercise of warrants and the
        exercise of stock options by employees.

    -   The Company will need to raise at least an additional US$670 million
        to finance the development of Rosia Montana.
    

    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 will respond to
these questions in the form of an Annex to the EIA, which we anticipate will
be completed during spring 2007. We expect EIA approval during summer 2007. If
we are able to purchase the necessary properties in the village to begin
initial construction during the first two quarters of 2007 and obtain the
other permits and approvals required for the project in parallel or shortly
after EIA approval, we would expect receipt of the construction permit
enabling us to begin construction in fall 2007. This timetable has slipped
from our previous guidance during 2006, which targeted receipt of EIA and
construction permit during the fall/winter 2006-2007 and construction start up
in spring 2007. The longer than anticipating lead time for critical path
equipment and the delay in receipt of the official questions have caused the
delay. We had expected receipt of the official questions from the Romanian
Government from the public consultation process by the end of third quarter
2006; however, due to the volume of questions received by the Romanian
Government, we did not receive the questions until January 2007, a delay of
four months. The schedule has also been adjusted to reflect, based on past
experience, the workings of the permitting process and construction schedule.
Overall, we expect first pour in fall 2009.

    Romania's Accession to European Union

    Romania became a full member of the European Union on January 1, 2007.
The robust economic growth that characterized the five years proceeding
accession is projected to continue at levels exceeding five percent. The
inflow of foreign direct investment, although reduced from the record levels
of 2006, is also expected to continue at higher than average levels into the
post accession period.
    This relatively bright economic picture is not matched however, in the
political arena. Since accession, cohesiveness in the ruling coalition has
deteriorated with the departure of one of the smaller partners while open
disputes between the bigger members dominate the political agenda. The
Opposition has exploited this situation by launching an impeachment process
against the President who according to the polls is the most popular president
Romania has ever had. While these events are not expected to bring about his
removal from office, they do tend to impede attention to urgent government
business and the implementation of needed reforms that would improve Romania's
ranking as a place to do business.
    We have adjusted our permitting and construction schedule to reflect,
based on our current best estimate, past experience, the workings of the
permitting and construction schedule but no allowance has been made in our
schedule for any delay that may result from the current political environment.

    2007 Outlook

    Our key objectives for next year are similar to those of 2006, and
include:

    
    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.
    

    We made solid strides in meeting each one of our key objectives in 2006
and our aim in 2007 is to obtain all permits and approvals, as well as
financing, to begin project construction.

    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                    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                     79,903   120,360    34,803    44,272

    Total assets                       338,056   330,489   236,685   238,026
    -------------------------------------------------------------------------

    Statement of Cash Flows

    Investments in exploration and
     development including working
     capital changes                    31,447     6,663     8,460     6,488

    Cash flow from financing activities  1,954    94,640     1,190       361
    -------------------------------------------------------------------------


    Cdn $ thousands                    2005 Q4   2005 Q3   2005 Q2   2005 Q1
    -------------------------------------------------------------------------

    Statement of Loss

    Loss                               $ 2,037   $ 1,745   $ 2,340   $ 2,359

    Loss per share                        0.01      0.01      0.01      0.02
    -------------------------------------------------------------------------

    Balance Sheet

    Working capital                     52,870    28,908    32,850    38,247

    Total assets                       238,343   208,906   210,216   211,834
    -------------------------------------------------------------------------

    Statement of Cash Flows

    Investments in exploration and
     development including working
     capital changes                     4,369     3,631     4,242     3,816

    Cash flow from financing
     activities                         30,539       576      (247)   28,548
    -------------------------------------------------------------------------
    

    Fourth Quarter 2006 Analysis

    For the quarter ended December 31, 2006, we incurred a loss of
$5.1 million, or 3 cent per share, compared to a loss of $2.0 million, or 1
cent per share, in the year-earlier quarter. The increased loss is due to
higher corporate, general and administrative expenses, project financing costs
and provision for income taxes partially offset by higher interest income. In
addition, we invested $38.5 million during the fourth quarter in our Rosia
Montana and Bucium properties, compared to $4.9 million in the year earlier
period. The increased expenditures related to the commencement in the fourth
quarter of property acquisitions. Cash flow from financing activities in
fourth quarter 2006 totaled $2.2 million due to the exercise of stock options,
compared to $30.5 million in fourth quarter 2005, reflecting the exercise of
warrants and stock options.

    Statement of Loss

    Loss for the Period

    For the year ended December 31, 2006, we lost $12.6 million, or $0.07 per
share, compared to a loss of $8.5 million, or $0.05 per share, for 2005. The
higher loss in 2006 reflects higher corporate, general and administrative
expenses and project financing costs partially offset lower costs related to
stock option compensation, severance costs and higher interest income due to
higher cash balances during 2006 compared to 2005. We will continue to incur
losses until after commercial production commences and revenues are generated.

    Expenses

    Corporate General and Administrative

    During 2006, we incurred a total of $9.3 million for corporate general
and administrative expenses ("G&A"), compared to $5.5 million in 2005.
Excluding the effect of the change in value of the deferred share units
("DSUs"), costs increased by $3.0 million due primarily to higher
communications, travel and legal costs. Corporate general and administrative
costs are anticipated to remain at current levels, excluding the impact of
DSUs, for the foreseeable future.
    DSU costs for 2006 increased corporate general and administrative costs
by $1 million, compared to an increase of $228 thousand in 2005. The DSUs are
revalued each year based on the closing share price at year end, with the
difference between the total value of the DSUs at year end compared to the
value at the end of the previous year. If the value is higher, as it was at
the end of 2006 and 2005, the difference is charged to the Statement of Loss,
increasing costs for the year. If the share price declines, the lower value of
the DSUs is credited against costs during the year. Overall, for 2006 our
share price increased by $2.22, compared to last year when our share price
increased from the close of the previous year end by $1.28.

    Stock Option Compensation

    Stock option compensation expensed for 2006 was $1.8 million, compared to
$2.8 million for 2005. The lower expense for 2006 reflects the issuance of
fewer options in 2006 (2.5 million) compared to 2005 (6.0 million), partially
offset by the higher value ascribed to the options under the Black-Scholes
option pricing model in 2006 ($1.68) compared to 2005 ($0.85). The higher
value of the options in 2006 is due to the higher share price, interest rates
and volatility. Of the options granted in 2006, 750 thousand were granted to
personnel working on development projects for which the cost of those options
-- which totaled $385 thousand -- was capitalized to mineral properties.
    The fair value of stock options when granted is amortized over the period
in which the options vest. 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.

    Severance and Settlement Costs

    In 2005, we closed our existing office in Alba Iulia, eliminating a
number of staff positions not immediately relevant to our permitting and other
development efforts, and relocated all remaining staff to either Bucharest or
the project site in Rosia Montana. The total cost to sever the 9 employees was
$547 thousand, which amount was accrued at the end of the second quarter.
Two-thirds of the severance accrued was paid during 2005, with the balance
being paid over the course of the first six months of 2006.
    In January 2006, the Company settled for US$250,000 a lawsuit with a
former employee who claimed unspecified damages for breach of contract,
negligence and breach of fiduciary duty arising out of an employment contract.
The trial was set to begin in February 2006. The amount was recorded in the
2005 Statement of Loss, even though the settlement occurred after year end
since the contingency was known prior to year end and could be reasonably
estimated.

    Project Financing Costs

    We incurred $2.1 million in project financing costs in 2006, related to
completion of the Risk Assessment Report for the banks and advisory services,
as well as payments to former advisors to terminate contracts. We did not
incur any project financing costs in 2005, as we had elected to put project
financing activities on hold until the project was further advanced. We
restarted project financing activities in January 2006, toward a goal of
finalizing project financing term sheets in parallel with EIA approval, which
is now expected in the summer 2007. Overall, we expect to incur costs of $1.0
million for project financing activities in 2007, leading up to the
finalization of the term sheets. The activities include advisory services and
completion of term sheet negotiations for the various facilities under our
financing plan.

    Interest Income

    Interest income for 2006 increased to $2.7 million, compared to $0.7
million in 2005. The higher interest income in 2006 relates to the higher cash
balance due to an equity issue at the end of first quarter 2005, the exercise
of warrants in December 2005, an equity issue during third quarter 2006 and
higher interest rates earned on our cash balances. Interest income should
decrease in 2007 as our cash balance declines while we continue permitting and
development activities at our Rosia Montana project.

    Foreign Exchange

    For 2006, we reported a gain of $33 thousand compared to a $63 thousand
gain in 2005. We record foreign exchange gains or losses on US dollar cash
balances held. While a significant portion of our expenses are denominated in
US dollars, EU Euros and Romanian Lei, we only convert our Canadian dollar
cash balance to Euros and Lei at the time of payment. We would expect to
continue to see foreign currency gains and losses as we continue to hold US
dollars.

    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, pits,
tailings management facilities and associated infrastructure.

    Mineral Properties

    We capitalize all costs incurred in Romania related to our two
development projects, Rosia Montana and Bucium, to mineral properties. We
invested $59.9 million in our two projects during 2006, compared with $16.0
million in 2005.
    For the year ended December 31, 2006, expenditures increased in all the
major project areas as permitting and development activities moved ahead.
Community development activities totaled $30.1 million in 2006, compared to
$2.4 million in 2005. The increase was due largely to the recommencement of
surface rights acquisitions in the fourth quarter totaling $25.3 million. In
addition, we spent $3.1 million on engineering during 2006, as compared to
$0.9 million in 2005, for detailed engineering to order long-lead-time
equipment. During 2006, expenditures for permitting increased to $8.0 million
from $5.0 million in the year-earlier period, as the EIA was completed, we
participated in 16 public meetings and began preparatory work to respond to
the expected questions from the Romanian Government. For 2006, expenditures on
finance and administration increased to $16.3 million from $6.4 million in the
year-earlier period, reflecting higher communications, legal and consulting
costs. Exploration at Rosia Montana totaled $0.9 million in 2006 compared to
$0.7 million in 2005, with the focus of activity in both years on geologic
mapping and metallurgical sampling. At Bucium, a scoping study was completed
in 2006 to determine the economics of developing the resource. The scoping
study cost $1.1 million during 2006, compared to $1.5 million in 2005. Note 4,
Mineral Properties, of our Consolidated Financial Statements also includes
capitalized depreciation in the amount of $0.5 million for 2006 and
$0.8 million for 2005, related to capital assets used in Romania.
    Expenditures for project construction are expected to total
US$190 million in 2007, as we acquire properties, continue detailed
engineering, order long-lead-time equipment, begin construction of the new
village at Piatra Alba and subdivision in Alba Iulia and begin site
construction, which is scheduled for fall 2007.

    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 complete senior
and subordinate 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. Capital costs
increased to US$638 million, reflecting design changes to accommodate
stringent environmental laws and the general increase in cost inflation
witnessed by the entire mining industry. 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 debt and
equity financing for construction. If we were unable to raise the required
funds, we would seek strategic alternatives to move the project toward
development. We remain confident, however, that we will be able to obtain the
necessary financing to construct the mine on reasonable commercial terms.

    Working Capital
    As at December 31, 2006, we had working capital of $79.9 million versus
$52.9 million as at December 31, 2005. The increase in working capital in 2006
relates to an equity issue and exercise of stock options totaling $98 million,
partially offset by the loss incurred and the investment in capital assets and
mineral properties during the year. In 2005, we issued 15 million units, with
each unit consisting of one common share of Gabriel and one-half of one common
share purchase warrant. Each whole warrant entitles the holder to acquire one
common share at a price of Cdn$2.75 at any time on or before March 31, 2007. A
total of 7.5 million warrants were listed and posted for trading on the
Toronto Stock Exchange under the trading symbol GBU.WT, signifying the first
time the Company has listed warrants for trading. If exercised, these warrants
would raise approximately $20.6 million of working capital for the Company.

    Net Change in Non-Cash Working Capital
    The net change in operating non-cash working capital increased for the
year ended December 31, 2006, reflecting an increase in accounts payable.
    The net change in investing non-cash working capital increased for the
year ended December 31, 2006, primarily as a result of a significantly higher
accruals related to a higher level of activity related to the Rosia Montana
project and the addition of resettlement liabilities related to those
residents of Rosia Montana who have sold their homes in exchange for a new
home in one of the two development sites the Company is building.
    The increase in financing non-cash working capital in the year ended
December 31, 2005 represents consulting costs incurred in 2003 related to a
future public financing, which was expensed as part of share issuance costs at
the end of first quarter 2005.

    Related Party Transactions

    During second quarter 2006, the Company provided an interest free loan of
$50 thousand to an employee. The principal amount is repayable on June 15,
2010, but is forgivable in 2009 provided certain conditions are met. The
principal amount of the loan has been discounted for 3 years at the Bank of
Canada's key interest rate of 4.5%.
    During 2006, our Romanian subsidiary RMGC paid $14 thousand (2005 -
$39 thousand) to a company owned by Minvest, a minority shareholder of RMGC,
for power costs related to RMGC's assay laboratory in Romania. As the
laboratory was sold to a third party during third quarter 2006, future
payments to Minvest are not anticipated.
    During 2006, we paid $27 thousand (2005 - $19 thousand) to a director of
the Company for consulting services.
    We subleased a portion of our premise to Alamos Gold Inc., on the board
of which our CEO, Alan R. Hill, serves as Chairman. The sublease commenced
March 1, 2004, before Mr. Hill joined the Company, and expired on November 23,
2005. The amount of the sublease totaled $38 thousand for 2005 and was
included as an offset to corporate general and administrative expenses. There
were no transactions in 2006.
    In December 2004, we 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, 2006, the
Company had entered into resettlement contracts totaling $4.4 million,
obligating the Company to deliver a new property under those contracts by
September 30, 2007. A penalty of 0.5% per month of delay past September 30
will have to be paid.

    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, 2006, the remaining
expenditure commitment was US$3.2 million (December 31, 2005 - Nil).
    The Company has a number of agreements with arms-length third parties who
provide a wide range of services to it or RMGC. Typically, these 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. As at
December 31, 2006, commitments under such agreements totaled $6.0 million
(December 31, 2005 - $3.1 million).
    During fourth quarter 2005, RMGC initiated its pre-sale agreement program
- referred to as the options program - for residents of the impacted area,
whereby each resident receives three percent of the value of their properties
in exchange for signing a pre-sale agreement. The program cost approximately
US$0.7 million during the first three quarters of 2006, representing the 3%
up-front payment to the pre-sale agreement, committing the Company to acquire
approximately US$24 million in local properties in the project area. The
commitment becomes binding once the EIA is approved. During the fourth quarter
the Company began purchasing homes, acquiring US$22.2 million of these
properties, leaving US$1.8 million remaining at year end to purchase homes and
properties of residents who signed the pre-sale agreement.

    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:

    Recoverability of mineral properties
    We have determined that the area covered by the Rosia Montana
exploitation license contains economically recoverable reserves. The ultimate
recoverability of the $234.5 million carrying value at December 31, 2006 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 $9.4 million
carrying value at December 31, 2006 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 could require material write-downs of the
Rosia Montana project and/or the Bucium carrying 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. The Company has elected to disclose pro-forma net loss and loss per
share amounts related to options granted prior to January 1, 2003.
    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.

    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
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, regulations 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.
    New elections will undoubtedly return different proportions of senators
and deputies from the various political parties and while a coalition will
have to form, it may not be the same as the incumbent. 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 Company has adjusted permitting and construction schedule to reflect,
on its best estimate the possible effect of political turbulence on our
project, but no allowances have been made to provide for delays that might be
caused by such a situation.
    The incidents 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, 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 dam - operated by Minvest in the
village of Rosia Montana but 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.

    Project Approval Risks

    EIA
    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. There are significant risks that the
governmental review and approval process could be delayed due to circumstances
beyond the Company's control, and any such delays could negatively impact the
Company's development plans or result in additional expenses on our part.

    Surface Rights
    In order to construct and operate a new mine at Rosia Montana, all land
required for the open pits, waste dumps, processing plant, tailings management
facility and associated facilities and infrastructure must be zoned and/or
reclassified for industrial uses. To date, the majority of the proposed
project site has been zoned and classified for industrial use, and application
is presently being made to have the balance of the project site re-zoned
and/or reclassified to permit industrial uses such as mining. There are
significant risks that the rezoning process 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 our part.

    Archaeological Discharge
    The validity of one of the archaeological discharge certificates
previously issued to RMGC has become the subject of a court challenge
initiated by a NGO opposed to the development of the Rosia Montana project.
The court challenge was commenced against the Ministry of Culture and
Religious Affairs, the governmental authority issuing the discharge
certificate, and not against RMGC. The Alba Court granted a temporary
injunction suspending the operation of the discharge certificate pending a
final hearing on the matter. The Company along with the Ministry of Culture
and Religious Affairs appealed the Alba Court ruling to Romania's Supreme
Court and won the appeal when the Romanian Supreme Court (the "Court") decided
that the series of lower court decisions that resulted in the annulment of our
archaeological discharge certificate no. 4 (the "Discharge Certificate") was
not conducted properly. As a result, the Supreme Court overturned the previous
annulment, and has referred the matter back to a different lower court, the
Brasov Court of Appeal, to be retried on its merits. The retrial began in
October. There can be no assurance that the validity of the discharge
certificate will be upheld the Brasov Court of Appeal and there can be no
assurance that other previously obtained discharge certificates will not be
challenged. Any successful challenges could negatively impact the Company's
development plans, require additional work and re-application for discharge
certificates, or result in additional delays and expenses on our part.

    Project Development Risks

    We plan to commence construction of the new mine at Rosia Montana in fall
2007. However, there are significant risks that the commencement of
construction of the new mine at that time could be significantly delayed due
to circumstances beyond our control. Such risks 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.
    In the past few years, gold prices have risen from the low
US$300-per-ounce level to over US$650 per ounce, resulting in higher share
prices for gold equities. During 2006, our share price increased from $2.84 to
close 2006 at $5.06, due in part to the advancement of permitting activities
but also due to rising gold prices. 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.

    Risk Associated With Mineral Tenure Rights

    The acquisition of title to mineral concessions in Romania is a detailed
and time-consuming process. Title to the area of mining concessions may be
disputed. We have diligently investigated title to all mineral concessions and
obtained title opinions with respect thereto and, based upon such opinions, we
believe that title to all properties covering the mineral resources and
reserves at the Rosia Montana project is in good standing; however, the
foregoing should not be construed as a guarantee of title to those properties.
Title to those properties may be affected by undisclosed and undetected
defects.

    Risks Associated With the Existing State-Run Mining Operations

    RMGC is the titleholder of the mining License for the Rosia Montana
project and Minvest has been designated as the affiliated company under the
mining License for the sole purpose of running its now-closed state-subsidized
mining operation at Rosia Montana. While Minvest ceased operations during the
second quarter 2006, there can be no assurance that Minvest's operating
activities will not attract liability to RMGC and therefore the Company, as
the titleholder to 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 RMGC and therefore Gabriel
from such liabilities will be enforceable against Minvest.

    Risk Associated with Acquisition of Surface Rights and Resettlement and
    Relocation

    In order to develop the Rosia Montana project, we must acquire all
necessary surface rights for the construction of the new mine, including
initial open pits, waste dumps, plant site and associated infrastructure, as
well as for the tailings management facility. This process involves the
acquisition of properties owned by residents in the Rosia Montana and Corna
valleys and the construction of the new village of Piatra Alba to house such
former residents of Rosia who wish to live there, as well as the acquisition
and replacement of all public buildings, social facilities and other
structures. While we updated the Company's property acquisition program in
third quarter 2006 to reflect changing circumstances within the affected
communities, there is no certainty that the acquisition of all surface rights
will be carried out within the timeframe and within the range of costs we have
currently estimated.

    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.

    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.

    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 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, 2006 that these controls and procedures are operating
effectively. In addition, our Chief Executive Officer and Chief Financial
Officer have concluded at December 31, 2006 that management has designed such
internal controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting as required by the new
Ontario Securities Commission Internal Control certification requirements for
year end, December 31, 2006.

    Outstanding Share Data

    The Company's issued shares outstanding as at the report date was:

    
                                                                 Outstanding
    -------------------------------------------------------------------------
    Preferred shares                                                     Nil
    Common shares                                                211,048,182
    Common stock options                                          10,160,831
    Common stock warrants                                         10,086,000
    Deferred share units - common shares                             232,742
    -------------------------------------------------------------------------
    Fully diluted share capital                                  231,527,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    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.
    Gabriel Resources Ltd. expressly disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, events or otherwise.

    Proven and Probable Mineral Reserves

    At year end 2005 (no change in 2006), we updated proven and probable
reserves for the project: Proven and probable reserves decreased from
10.6 million ounces to 10.1 million ounces. The decrease in reserves reflects
the reduction of 200,000 ounces due to a more conservative method of measuring
reserves to include internal dilution, as well as the fact that 700,000 ounces
were removed from reserves primarily as a result of expanding the buffer zone
around the protected area, reducing the size of three of the four pits.
Partially offsetting those reductions was the conversion of internal waste to
ore within the existing pit cones as a result of increasing the gold price
used to calculate reserves from US$300 to US$400 per ounce, partially offset
by the increase in estimated operating costs.

    
                               ----------------------------------------------
                                       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
    -------------------------------------------------------------------------
    Total          214,905,000      1.46       6.9   10,100,000   47,600,000
    -------------------------------------------------------------------------

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


    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, and contain estimates based on management's judgment.
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 are 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, 2007


    Auditors' Report
    To the Shareholders of
    Gabriel Resources Ltd.

    We have audited the consolidated balance sheet of Gabriel Resources Ltd.
as at December 31, 2006 and the consolidated statements of loss and deficit
and cash flows for the year 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 audit.
    We conducted our audit 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, 2006 and the results of its operations and its cash flows for the year
then ended in accordance with Canadian generally accepted accounting
principles.
    The consolidated financial statements as at December 31, 2005 and for the
year then ended was audited by other auditors who expressed an opinion without
reservation on those consolidated financial statements in their report dated
February 10, 2006.


    PricewaterhouseCoopers LLP
    Chartered Accountants
    Toronto, Canada
    March 5, 2007


    
    Consolidated Balance Sheets
    As at December 31
    (In thousands of Canadian dollars)
                                                             2006       2005
    -------------------------------------------------------------------------
    Assets
    Current Assets
    Cash and cash equivalents                           $  12,598  $  25,306
    Short-term investments (note 3)                        77,717     29,156
    Accounts receivable                                     2,326        407
    Prepaid expenses and supplies                             583        604
    -------------------------------------------------------------------------
                                                           93,224     55,473
    Capital assets (note 4)                                 3,491      1,545
    Mineral properties (note 5)                           241,341    181,325
    -------------------------------------------------------------------------

                                                        $ 338,056  $ 238,343
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current Liabilities
    Accounts payable and accrued liabilities            $   8,928  $   2,603
    Resettlement liabilities (note 6)                       4,393          -
    -------------------------------------------------------------------------
                                                           13,321      2,603

    Other Liabilities (note 7)                              1,387        449
    -------------------------------------------------------------------------

                                                           14,708      3,052
    -------------------------------------------------------------------------

    Shareholders' Equity
    Capital Stock (note 9)                                385,444    284,987
    Common Share Purchase Warrants (note 10)                1,946      1,950
    Contributed Surplus (note 12)                           5,904      5,687
    Deficit                                               (69,946)   (57,333)
    -------------------------------------------------------------------------

                                                          323,348    235,291
    -------------------------------------------------------------------------

                                                        $ 338,056  $ 238,343
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

    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)

                                                             2006       2005
    -------------------------------------------------------------------------
    Expenses
    Corporate, general and administrative               $   9,310  $   5,530
    Stock option compensation (note 11)                     1,801      2,846
    Project financing costs                                 2,119          -
    Severance and settlement costs                              -        838
    Amortization                                              138         59
    -------------------------------------------------------------------------

                                                           13,368      9,273
    -------------------------------------------------------------------------

    Other income
    Interest and foreign exchange                           2,755        792
    -------------------------------------------------------------------------

    Loss before income taxes                            $  10,613  $   8,481
    Provision for income taxes                              2,000          -
    -------------------------------------------------------------------------

    Loss for the year                                      12,613      8,481
    Deficit - beginning of year                            57,333     48,852
    -------------------------------------------------------------------------

    Deficit - end of year                               $  69,946  $  57,333
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss per share (basic and diluted)                  $    0.07  $    0.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of shares                     189,823    158,971
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)

                                                             2006       2005
    -------------------------------------------------------------------------
    Cash flows from operating activities

    Loss for the year                                   $ (12,613) $  (8,481)
    Items not affecting cash
      Amortization                                            138         59
      Stock option compensation                             1,801      2,846
      Deferred share units                                  1,002        229
    -------------------------------------------------------------------------
                                                           (9,672)    (5,347)

    Net changes in non-cash working capital (note 17)       2,122        130
    -------------------------------------------------------------------------

                                                           (7,550)    (5,217)
    -------------------------------------------------------------------------

    Cash flows from (used) in investing activities
    Increase in short-term investments                    (48,561)   (28,884)
    Exploration and development expenditures              (59,940)   (16,036)
    Purchase of capital assets                             (1,684)      (273)
    Net changes in non-cash working capital (note 17)       6,882         44
    -------------------------------------------------------------------------

                                                         (103,303)   (45,149)
    -------------------------------------------------------------------------
    Cash flows from financing activities
    Proceeds from issuance of capital stock,
     net of issue costs                                    98,145     59,245
    Net changes in non-cash working capital (note 17)           -        171
    -------------------------------------------------------------------------

                                                           98,145     59,416
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents      (12,708)     9,050
    Cash and cash equivalents - beginning of year          25,306     16,256
    -------------------------------------------------------------------------

    Cash and cash equivalents - end of year             $  12,598  $  25,306
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Supplemental cash flow information (note 17)

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



    Notes to Consolidated Financial Statements
    For the years ended December 31, 2006 and 2005
    (Tabular amounts in thousands of Canadian dollars, unless otherwise
    shown. References to US$ are to United States dollars)

    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 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. 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.

    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. However, there can be no assurances that the Company's
    activities will be successful and as a result there may be 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.  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 three 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.
    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.

    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. The Company has elected to disclose pro-forma net loss and loss
    per share amounts related to options granted prior to January 1, 2003.

    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 at fair value. At December 31, 2006, the Company has not
    incurred or committed to any asset retirement obligations related to the
    development of its mineral properties in Romania.

    Impairment of long-lived assets

    Long-lived assets to be held and used by the Company are reviewed for
    possible impairment whenever events or changes in circumstances indicate
    that the carrying amount of an asset may not be recoverable. When
    management determines that an 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
    believes that there has been no impairment of the Company's long-lived
    assets as at December 31, 2006.

    Recent Canadian accounting pronouncements

    In April 2005, the Canadian Institute of Chartered Accountants (CICA)
    issued three new standards relating to financial instruments. These
    standards are applicable for fiscal years beginning on or after
    October 1, 2006. The Company is currently reviewing the impact of these
    new standards. These standards are as follows:

    (i) Financial Instruments - Recognition and Measurement, Section 3855

    This standard prescribes when a financial asset, financial liability or
    non-financial derivative is to be recognized on the balance sheet and
    whether fair value or cost-based measures are used. It also specifies how
    financial instrument gains and losses are to be presented.

    (ii) Hedges, Section 3865

    This standard is applicable when a company chooses to designate a hedging
    relationship for accounting purposes. It builds on the existing
    Accounting Guideline 13 (AcG-13) "Hedging Relationships" and Section 1650
    "Foreign Currency Translation", by specifying how hedge accounting is
    applied and what disclosures are necessary when it is applied.

    (iii) Comprehensive Income, Section 1530

    This standard introduces new rules for the reporting and display of
    comprehensive income. Comprehensive income represents a change in
    shareholders' equity (net assets) of an enterprise during a reporting
    period from transactions and other events and circumstances from non-
    owner sources. It includes all changes in equity during a period except
    those resulting from investments by owners and distributions to owners.
    These items include holding gains and losses on certain investments,
    gains and losses on certain derivative instruments, and foreign currency
    gains and losses related to self-sustaining foreign operations.

    
    3.  Short-term investments

                                                             2006       2005
    -------------------------------------------------------------------------
    Money market investments with maturities
     from the date of acquisition of
    4 - 6 months                                        $  68,446  $  14,838
    7 - 12 months                                           8,763     13,895
    Restricted cash                                           508        423
    -------------------------------------------------------------------------

                                                        $  77,717  $  29,156
    -------------------------------------------------------------------------

    Money market investments yield average interest of 4.3% (2005 - 3.1%).

    4.  Capital Assets

                                                             2006       2005
    -------------------------------------------------------------------------
    Office equipment                                    $   3,508  $   1,729
    Buildings                                               1,015        205
    Vehicles                                                1,269      1,355
    Leasehold improvements                                    131        106
    -------------------------------------------------------------------------

                                                            5,923      3,395
    -------------------------------------------------------------------------

    Less: Accumulated amortization
    Office equipment                                        1,552      1,133
    Buildings                                                  35         30
    Vehicles                                                  736        589
    Leasehold improvements                                    109         98
    -------------------------------------------------------------------------
                                                            2,432      1,850
    -------------------------------------------------------------------------

    Net book value
    Office equipment                                        1,956        596
    Buildings                                                 980        175
    Vehicles                                                  533        766
    Leasehold improvements                                     22          8
    -------------------------------------------------------------------------

                                                        $   3,491  $   1,545
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In 2006, $960 thousand related to historical monument buildings and a
    concession license have been reclassified from Mineral Properties to
    Capital Assets.

    5.  Mineral Properties

                              Rosia Montana     Bucium   Baisoara      Total
    -------------------------------------------------------------------------
    Balance - December 31, 2004   $ 157,626  $   6,831  $       -  $ 164,457

    Development costs                14,572          -          -     14,572
    Exploration costs                   790      1,506          -      2,296
    -------------------------------------------------------------------------

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

    The Company's principal asset is its 80% direct ownership interest in a
    Romanian company, Rosia Montana Gold Corporation ("RMGC"), which holds
    two mineral licences 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 the Company holds the pre-emptive right to acquire the 20% minority
    interest. The Company 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, expires May 19, 2007. The Company was obliged
    to spend US$3.4 million over the term of the license extension period.
    During 2006, the Company met its expenditure commitment. The expiring
    exploration license can be converted into an exploitation license upon
    submission and approval of a feasibility study which is currently being
    compiled.

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

    6.  Resettlement liabilities

    The Company entered into resettlement agreements with certain property
    owners in the project area. Under the agreements, property owners have
    sold their properties to the Company in exchange for a new property to be
    constructed by the Company. The Company is obligated to deliver the new
    property by September 30, 2007. If the Company fails to deliver these new
    properties, 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.

    As at December 31, 2006, the total value of resettlement contracts
    entered into amounted to $4.4 million (2005 - Nil).

    7.  Other liabilities

    As at December 31, 2006, other liabilities included the following:

    
                                                        Price per
                                                           Common
                                                            share
    Deferred Share Units ("DSUs")(a)              DSUs   (dollars)     Value
    -------------------------------------------------------------------------
    Outstanding - December 31, 2004                125  $    1.56  $     195
    Granted                                         33       1.82         60
    Change in value                                  -          -        194
    -------------------------------------------------------------------------

    Outstanding - December 31, 2005                158       2.84        449
    Granted                                        205       4.07        833
    Settled                                       (125)      2.75       (344)
    Change in value                                  -          -        265
    -------------------------------------------------------------------------

    Balance - December 31, 2006                    238  $    5.06      1,203
    -------------------------------------------------------------------------

    Fidelity Bonus(b)                                                    184
    -------------------------------------------------------------------------

    Other liabilities                                              $   1,387
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    (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. 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. During
    2006, the Company settled 125 thousand DSUs by issuing common shares of
    the Company valued at $2.75 per share, the price at which retirement
    occurred.

    The annual change in the fair market value of the DSUs has been recorded
    in corporate, general and administrative expense except for costs
    relating to personnel working on projects in Romania, which is
    capitalized. As at December 31, 2006, $1 million (2005 - $228) was
    expensed and $96 thousand (2005 - Nil) was capitalized.

    (b) Fidelity Bonus

    Under the Collective Bargaining Agreement between RMGC and its employees,
    under certain conditions, employees of RMGC are entitled to a bonus when
    celebrating 3, 5, 10, 15, 20, and 25 years of uninterrupted service.
    These bonuses are equal to one month of average gross salary. As of
    December 31, 2006, $184 thousand has been accrued.

    8.  Related Party Transactions

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

    
    (a) During the second quarter of 2006, the Company provided an employee
        with an interest free loan of $50 thousand. The principal amount is
        repayable on June 15, 2010, but is forgivable in 2009 if certain
        conditions are met. The principle amount of the loan has been
        discounted for 3 years at the Bank of Canada's key interest rate of
        4.5%.

    (b) Power costs for an assay laboratory in Romania paid by RMGC to
        Minvest, a company owned by a minority shareholder of RMGC, was
        $14 thousand for the year (2005 - $39 thousand). The laboratory was
        sold to a third party during the third quarter 2006, and no other
        costs will be paid to Minvest.

    (c) The Company paid $27 thousand (2005 - $19 thousand) during the year
        to a director of the Company for consultation services provided to
        the Company.

    (d) In 2005, the Company sublet a portion of its office space to
        Alamos Gold Inc. The sublease ended November 23, 2005. Sublease
        revenue of $38 thousand was received in 2005 and was included as an
        offset to corporate, general and administrative expenses.
        Mr. Alan R. Hill, the President and Chief Executive Officer of the
        Company as of May 10, 2005, is the Chairman of the Board of Alamos
        Gold Inc. There were no transactions during 2006.

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

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

    9.  Capital Stock

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

    Common shares issued and outstanding
                                                 Number of shares     Amount
    -------------------------------------------------------------------------

    Balance - December 31, 2004                           146,413  $ 227,158
      Shares issued from a public offering (b)             15,000     28,050
      Less: Share issue costs                                   -     (1,870)
      Shares issued on the exercise of stock
       options (note 11)                                      661      1,115
      Stock-based compensation - exercise of
       stock options (note 12)                                  -        534
      Shares issued from the exercise of share
       purchase warrants (c)                               15,000     30,000
    -------------------------------------------------------------------------
    Balance - December 31, 2005                           177,074    284,987
      Shares issued from a public offering (a)             31,050     97,808
      Less: Share issue costs                                   -     (4,780)
      Shares issued on the exercise of stock options
       (note 11)                                            2,628      5,079
      Stock-based compensation - exercise of stock
       options (note 12)                                        -      1,963
      Stock-based compensation - settlement of DSUs
       (note 7(a))                                            125        344
      Shares issued from the exercise of share purchase
       warrants (note 10(a))                                   14         43
    -------------------------------------------------------------------------

    Balance - December 31, 2006                           210,891  $ 385,444
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (a) During the third quarter 2006, the Company issued 31.05 million
        common shares at $3.15 per share to a syndicate of underwriters for
        aggregate net proceeds of $93 million, after deducting underwriting
        fee of $4.3 million plus various professional fees related to the
        offering of $0.5 million. The Company intends to use the net proceeds
        of the offering to advance the development of the Rosia Montana gold
        deposit in Romania, completing surface rights acquisition, advancing
        detailed engineering, ordering long lead-time equipment and
        commencing construction of the new village of Piatra Alba.

        Newmont Canada Limited ("NCL"), a subsidiary of Newmont Mining
        Corporation, participated to acquire 20% (6.21 million common shares)
        of the total offering. As of the closing of the offering, NCL held
        39.7 million common shares or 19% of the issued and outstanding
        common shares.

    (b) On March 31, 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. Each unit has been apportioned
        $1.87 to common share and $0.13 to one half of one common share
        purchase warrant, resulting in an assigned value of $28.05 million to
        the 15 million common shares and an assigned value of $1.95 million
        to the share purchase warrants. The net proceeds of the offering were
        $28.1 million after deducting a cash commission to the underwriters
        of $1.4 million plus various professional fees related to the
        offering of $0.5 million.

    (c) On December 6, 2005, NCL exercised all 15 million common share
        purchase warrants for proceeds of $30 million.

    (d) The Board of Directors has adopted a Shareholder Rights Plan (the
        "Rights Plan") designed to protect the shareholders of the Company
        from unfair, abusive or coercive take-over strategies. The Rights
        Plan contains a permitted bid feature that allows a take-over bid to
        proceed in the face of the Rights Plan, provided that it meets
        certain minimum standards of fairness and disclosure. To qualify as a
        permitted bid, at least 50% of the common shares not beneficially
        owned by the person making the bid and certain related third parties
        must be tendered within a period of 60 days, in which case the bid
        must be extended for an additional 10 business days on the same
        terms. The Rights Plan will encourage an offer to proceed by way of a
        permitted bid or to approach the Board of Directors with a view to
        negotiation as the Rights Plan creates the potential for substantial
        dilution of the offeror's interest in the Company. As required by its
        terms, the Rights Plan was reconfirmed at the Annual and Special
        Meeting and will expire on February 10, 2010.

    10. Share Purchase Warrants

    (a) During the years ended December 31, 2006 and 2005, share purchase
    warrants were issued and exercised as follows:

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

    Balance - December 31, 2004          15,000  $   2.00  December 31, 2005
    Warrants issued and outstanding
     (note 9(b))                          7,500      2.75     March 31, 2007
    Warrants exercised                  (15,000)     2.00  December 31, 2005
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 (the "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. This warrant compensation
        replaces the previous Tranche A and B warrants referred to in the
        2005 annual financial statements.
    

    11. Stock Options

    The Incentive Stock Option Plan (the "Plan") authorizes the Directors to
    grant options to purchase shares of the Company to directors, officers,
    employees and consultants. The Plan originally allowed for the issuance
    of up to 19 million shares of which 1.7 million are available for
    issuance as at December 31, 2006, (2005 - 3.6 million). 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
    to 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.

    As at December 31, 2006, common share stock options held by directors,
    employees and consultants are as follows:

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

    $1.48 - $2.00       3,418      $1.56          3.3       2,142      $1.57
     2.01 -  3.00       2,935       2.49          3.6       1,422       2.47
     3.01 -  4.00           -          -            -           -          -
     4.01 -  5.00       2,375       4.65          3.1       1,097       4.75
     5.01 -  5.50         855       5.50          0.4         855       5.50
                  ------------------------------------  ---------------------

                        9,583      $2.96          3.1       5,516      $3.05
                  ------------------------------------  ---------------------

    During the years ended December 31, 2006 and 2005, director, employee and
    consultants stock options were granted, exercised and cancelled as
    follows:

                                                                    Weighted
                                                                     average
                                                                    exercise
                                                        Number of      price
                                                          options   (dollars)
    -------------------------------------------------------------------------
    Balance - December 31, 2004                            12,538  $    3.27
      Options granted                                       6,000       1.77
      Options expired                                      (6,362)      3.22
      Options cancelled                                    (1,222)      2.81
      Options exercised                                      (661)      1.69
    -------------------------------------------------------------------------

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

    Balance - December 31, 2006                             9,583  $    2.96
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    The fair value of 2.5 million options granted in 2006 (2005 - 6 million)
    has been estimated at the date of grant using a Black-Scholes option
    pricing model. The current year's valuation was calculated with the
    following assumptions: weighted average risk-free interest rate of 4.0%
    (2005 - 3.3%); volatility factor of the market price of the Company's
    common stock of 69% (2005 - 75%); and a weighted average expected life of
    the options of 2.6 years (2005 - 2.6 years). The resulting weighted
    average cost per option granted was $1.68 (2005 - $0.85). 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 awards granted subsequent to December 31, 2002, the fair value
    compensation recorded for the year ended December 31, 2006 was
    $2.2 million (2005 - $2.8 million), of which $1.8 million was expensed in
    2006 and $0.4 million was capitalized to mineral properties in respect of
    personnel working on projects in Romania.

    The following is the Company's pro-forma loss applying the fair value
    method to all options granted prior to January 1, 2003 and vested to
    date:

    
    Income Statement (year ended December 31)                2006       2005
    -------------------------------------------------------------------------

    Loss for the year                                   $  12,613  $   8,481
    Compensation expense related to fair value of
     stock options                                              -      1,079
    -------------------------------------------------------------------------

    Pro-forma loss for the year                         $  12,613  $   9,560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pro-forma loss per share (dollars)                  $    0.07  $    0.06
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Balance Sheet (as at December 31)                        2006       2005
    -------------------------------------------------------------------------

    Mineral properties                                  $ 241,341  $ 181,325

    Compensation expense related to fair value
     of stock options                                           -        284
    -------------------------------------------------------------------------

    Pro-forma mineral properties                        $ 241,341  $ 181,609
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Contributed Surplus

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

                                      Corporate   Stock-based
                                 reorganization  compensation          Total
    -------------------------------------------------------------------------

    Balance - December 31, 2004         $ 1,013       $ 2,363        $ 3,376
    Stock-based compensation                  -         2,845          2,845
    Exercise of stock options                 -          (534)          (534)
    -------------------------------------------------------------------------
    Balance - December 31, 2005           1,013         4,674          5,687
    Stock-based compensation                  -         2,180          2,180
    Exercise of stock options                 -        (1,963)        (1,963)
    -------------------------------------------------------------------------

    Balance - December 31, 2006         $ 1,013       $ 4,891        $ 5,904
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. Income Taxes

    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.

                                                             2006       2005
    -------------------------------------------------------------------------
    Income tax rate                                            36%        36%
    Income tax at statutory rates                         $(3,821)   $(3,053)
    Adjustment for foreign subsidiaries                     2,018        219
    Stock option compensation                                 648      1,025
    Deferred share units                                      360         82
    Other                                                      46         61
    Valuation allowance                                     2,749      1,666
    -------------------------------------------------------------------------
    Provision for income taxes                            $ 2,000    $     -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table reflects future income tax assets at December 31,
    2006 and 2005:

                                                             2006       2005
    -------------------------------------------------------------------------
    Loss carry forwards                                 $  14,612  $  15,471
    Share issue costs                                       1,739      1,010
    Capital assets                                            156        130
    Cumulative eligible capital expenditures                3,060      2,744
    Valuation allowance                                   (19,567)   (19,355)
    -------------------------------------------------------------------------
    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:                          2006       2005
    -------------------------------------------------------------------------
    2006                                                $       -  $   2,321
    2007                                                    3,578      3,578
    2008                                                    5,741      6,620
    2009                                                    6,324      6,324
    2010                                                   11,421     11,421
    2014                                                    6,309      6,309
    2015                                                    6,397      6,401
    2026                                                    7,364          -
    -------------------------------------------------------------------------

    14. Segmented Information

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

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

                                                             2006       2005
    -------------------------------------------------------------------------
    Romania                                             $ 243,899  $ 182,814
    Canada                                                    933         56
    -------------------------------------------------------------------------

                                                        $ 244,832  $ 182,870
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    15. Financial Instruments

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

    The Company's 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.

    16. 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.

    
                                                                    2011 and
                                                                       there-
                          Total     2007     2008     2009     2010    after
    -------------------------------------------------------------------------
    Baisoara
     exploration
     license (note 5)   $ 3,730  $   223  $   287  $   744  $ 1,526  $   950
    Goods and services
     agreements (a)       5,972    5,504       43        9        9      407
    Rosia Montana
     exploitation
     license (b)            326       27       27       27       27      218
    Surface
     concession
     rights (c)           1,020       23       23       23       23      928
    Lease
     agreements (d)       1,096      338      217      221      225       95
    -------------------------------------------------------------------------

    Total
     commitments        $12,144  $ 6,115  $   597  $ 1,024  $ 1,810  $ 2,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (a) The Company and its subsidiaries have a number of agreements with
        arms-length third parties who provide a wide range of services which
        totaled $6 million at December 31, 2006 (2005 - $3.1 million).
        Typically, these 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) 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 $27 thousand. These fees are indexed annually by the
        Romanian Government and the license has 12 years remaining.

    (c) RMGC has approximately 44 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 US$20 thousand.

    (d) 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 summary of contingencies of the Company.

    (a) During the fourth quarter of 2005, RMGC initiated a program whereby
        owners of property in the impacted area of the Project could agree
        (the "Promissory Agreement") to either: (a) sell their property for
        cash consideration, or (b) exchange their property for property owned
        by RMGC in Piatra Alba or Alba Iulia within 180 days of the issuance
        by the Romanian authorities of the environmental impact assessment
        ("EIA") for the Project. The agreements expire June 30, 2007. RMGC
        agreed to pay owners who sign a Promissory Agreement an immediate up-
        front payment of 3% of the Property Value (as agreed in the
        Promissory Agreement). As at December 31, 2006, the Company has
        committed to purchasing approximately US$1.8 million of local
        properties in the project area which it has not acquired as of year
        end. The commitment is binding once the EIA is approved.

    (b) 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.

    17. Supplemental Cash Flow Information

    (a) Net changes in non-cash working capital

                                                             2006       2005
    -------------------------------------------------------------------------
    Operating activities:
      Accounts receivable, prepaid expenses
       and supplies                                     $  (1,003) $    (244)
      Accounts payable and accrued liabilities              3,125        374
    -------------------------------------------------------------------------

                                                            2,122        130
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Investing activities:
    Accounts receivable, prepaid expenses and
     supplies                                                (895)       416
    Accounts payable and accrued liabilities                3,384       (372)
    Resettlement liabilities                                4,393          -
    -------------------------------------------------------------------------

                                                            6,882         44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Financing activities:
    Accounts receivable, prepaid expenses and
     supplies                                                   -        171
    -------------------------------------------------------------------------

                                                        $       -  $     171
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (b) Exploration and development expenditures        $ (60,016) $ (16,868)
        Non-cash depreciation and disposal
         capitalized                                          560        581
        Reclassification from Mineral Properties             (960)         -
        Stock based compensation capitalized                  476        251
    -------------------------------------------------------------------------

                                                        $ (59,940) $ (16,036)
    -------------------------------------------------------------------------


                                                             2006       2005
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (c) Cash and cash equivalents is comprised of:
        Cash                                            $   8,611  $   3,619
        Short-term investments (less than 90 days)
         - weighted
           average interest of 4.3% (2005 - 3.4%)           3,987     21,687
    -------------------------------------------------------------------------

                                                        $  12,598  $  25,306
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company did not incur interest expense during 2006 and 2005.

    18. Reclassification of Comparative Figures

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





For further information:

For further information: GABRIEL RESOURCES LTD., 1501 - 110 Yonge
Street, Toronto, Ontario, M5C 1T4, Canada, T: (416) 955-9200, F: (416)
955-4661, E: info@gabrielresources.com, www.gabrielresources.com

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