gdrzfform40f042618.htm - Generated by SEC Publisher for SEC Filing  

 United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 40-F

¨   REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x   ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2017                                             Commission File Number:  001-31819

GOLD RESERVE INC.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Alberta, Canada

(Province or other jurisdiction of incorporation or organization)

1040

(Primary Standard Industrial Classification Code Number)

N/A

(I.R.S. Employer Identification Number)

999 West Riverside Avenue, Suite 401, Spokane, Washington 99201   (509) 623-1500

(Address and telephone number of Registrant’s principal executive offices)

Rockne J. Timm,

999 West Riverside Avenue, Suite 401, Spokane, Washington, 99201   (509) 623-1500

(Name, address (including zip code) and telephone number (including area code)

of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Class A common shares, no par value per share

 (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 (Title of Class)

For annual reports, indicate by check mark the information filed with this Form:

x  Annual Information Form                    x  Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:  Class A common shares, no par value per share: 99,395,048

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   x  Yes     ¨  No

Form 40-F – Page 1

 


 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). x  Yes     ¨  No

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act. ¨ Emerging Growth Company. If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Explanatory note

Gold Reserve Inc. ("Gold Reserve", the "Company", "we", "us", or "our") is a Canadian issuer eligible to file its annual report pursuant to Section 13 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), on Form 40-F.  We are a "foreign private issuer" as defined in Rule 3b-4 under the Exchange Act and in Rule 405 under the U.S. Securities Act of 1933, as amended (the "Securities Act").  Our equity securities are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.

 

CAUTIONARY NOTE REGARDING differences in united states and
canadian reporting practices

 

We are permitted, under a multi-jurisdictional disclosure system adopted by the United States and Canada, to prepare this Annual Report in accordance with Canadian disclosure requirements, which are different from those of the United States.  

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
AND INFORMATION

 

The information presented or incorporated by reference in this report contains both historical information and "forward-looking statements" (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) or "forward-looking information" (within the meaning of applicable Canadian securities laws) (collectively referred to herein as "forward-looking statements") that may state our intentions, hopes, beliefs, expectations or predictions for the future.

Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies that may cause our actual financial results, performance or achievements to be materially different from those expressed or implied herein and many of which are outside our control.

Forward-looking statements involve risks and uncertainties, as well as assumptions, including those set out herein, that may never materialize, prove incorrect or materialize other than as currently contemplated which could cause our results to differ materially from those expressed or implied by such forward-looking statements.  The words "believe," "anticipate," "expect," "intend," "estimate," "plan," "may," "could" and other similar expressions that are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements.  Any such forward-looking statements are not intended to provide any assurances as to future results.

Form 40-F – Page 2

 


 

Numerous factors could cause actual results to differ materially from those described in the forward-looking statements, including, without limitation:

·         delay or failure by the Bolivarian Republic of Venezuela ("Venezuela") to continue to make payments or otherwise honor its commitments under the settlement agreement (as amended, the "Settlement Agreement"), including with respect to the transfer of the funds already deposited into a trust account for the benefit of the Company at Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") (the "Trust Account");

·         delay or failure by Venezuela to honor its commitments associated with the formation and operation of Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera");

·         the risk that the conclusions of management and its qualified consultants contained in the most recent Preliminary Economic Assessment of the Siembra Minera Gold Copper Project (the "Siembra Minera Project")  in accordance with Canadian National Instrument 43-101- Standards of Disclosure for Mineral Projects ("NI 43-101") may not be realized in the future;

·         risks associated with the current sanctions or the imposition of further sanctions by the U.S., Canada or other jurisdictions that negatively impact our ability to freely transfer funds held in the Trust Account or our ability to do business in Venezuela;

·         risks associated with the ability of the Company and Venezuela to (i) successfully overcome any legal or regulatory obstacles to operate Siembra Minera for the purpose of developing the Siembra Minera Project, (ii) the completion of any additional definitive documentation and finalization of any remaining governmental approvals and (iii) obtain financing to fund the capital costs of the Siembra Minera Project;

·         risks associated with exploration, delineation of adequate reserves, regulatory and permitting obstacles and other risks associated with the development of the Siembra Minera Project;

·         risks associated with the concentration of our future operations and assets in Venezuela, including operational, security, regulatory, political and economic risks;

·         risks associated with the collection of the proceeds related to the sale of our mining data and our ability to resume our efforts to enforce and collect the International Centre for the Settlement of Investment Disputes  arbitral award granted in our favor, including the associated costs of such enforcement and collection effort and the timing and success of that effort, if Venezuela fails to make payments under the Settlement Agreement, it is terminated and further efforts related to the Settlement Agreement are abandoned;

·         risks associated with our continued ability to service outstanding obligations as they come due and access future additional funding, when required, for ongoing liquidity and capital resources, pending the receipt of payments under the Settlement Agreement;

·         risks associated with our prospects in general for the identification, exploration and development of mining projects and other risks normally incident to the exploration, development and operation of mining properties, including our ability to achieve revenue producing operations in the future;

·         shareholder dilution resulting from the future sale of additional equity, if required;

·         value realized from the disposition of the remaining assets related to our previous mining project in Venezuela known as the “Brisas Project”, if any;

·         abilities of and continued participation by certain employees; and

·         impact of current or future U.S. and/or Canadian tax laws to which we are subject.

Form 40-F – Page 3

 


 

This list is not exhaustive of the factors that may affect any of our forward-looking statements.  See "Risk Factors" in Management's Discussion and Analysis for the fiscal year ended December 31, 2017 included herein as Exhibit 99.3.

Investors are cautioned not to put undue reliance on forward-looking statements, and investors should not infer that there has been no change in our affairs since the date of this report that would warrant any modification of any forward-looking statement made in this document, other documents periodically filed with the U.S. Securities and Exchange Commission (the "SEC") or other securities regulators or presented on the Company’s website.  Forward-looking statements speak only as of the date made.  All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this notice.  We disclaim any intent or obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, subject to our disclosure obligations under applicable U.S. and Canadian securities regulations.  Investors are urged to read the Company’s filings with U.S. and Canadian securities regulatory agencies, which can be viewed online at www.sec.gov and www.sedar.com, respectively.

The terms "mineral resource," "measured mineral resource," "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101. However, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC.  Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases, and such estimates are not part of the SEC industry Guide 7.

 

CURRENCY

 

Unless otherwise indicated, all references to "$", “U.S. $” or "U.S. dollars" in this Annual Report refer to U.S. dollars and references to "Cdn$" or "Canadian dollars" refer to Canadian dollars.  The 12 month average rate of exchange for one Canadian dollar, expressed in U.S. dollars, for each of the last two calendar years equaled 0.7705 and 0.7544, respectively, and the exchange rate at the end of each such period equaled 0.7989 and 0.7448, respectively.

PrincipAl Canadian Documents

Annual Information Form. Our Annual Information Form for the fiscal year ended December 31, 2017 is included herein as Exhibit 99.1.

Audited Annual Financial Statements. Our audited consolidated financial statements as at December 31, 2017 and 2016 and for the fiscal years ended December 31, 2017 and 2016, including the report of the independent registered public accounting firm with respect thereto, are included herein as part of Exhibit 99.2.

Management’s Discussion and Analysis. Management’s discussion and analysis for the fiscal year ended December 31, 2017 is included herein as Exhibit 99.3.

DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report.  Based on that evaluation, management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC rules and forms.

Form 40-F – Page 4

 


 

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management's Annual Report on Internal Control over Financial Reporting for the fiscal year ended December 31, 2017 is included herein as part of Exhibit 99.2.

Attestation Report of The Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm (“PwC”), as stated in their report included herein as part of Exhibit 99.2.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal year ended December 31, 2017, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15d-15(f) under the Exchange Act).

AUDIT COMMITTEE

Our Board of Directors (the "Board") has a separately-designated standing Audit Committee for the purpose of overseeing our accounting and financial reporting processes and audits of our annual financial statements. As at the date of the Annual Report, the following individuals comprise the entire membership of our Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act:

Jean Charles Potvin (Chair)               James P. Geyer                     Michael Johnston

Mr. Potvin holds a Hon. BSc. in geology as well as an MBA and has been a director of the Company for almost 25 years and is also a director of Murchison Minerals Ltd. (formerly Flemish Gold Corp.) and a director and chairman of the audit committee of Azimut Exploration Ltd. a publicly listed mineral exploration company. He is also a director and member of the audit committee of Canadian Zinc Corporation. Mr. Potvin also has nearly 14 years' experience as a top-ranked mining investment analyst a Burns Fry Ltd. (now BMO Nesbitt Burns Inc.).  Mr. Potvin has been a member of the Audit Committee since August 2003.

Mr. Geyer has a Bachelor of Science in Mining Engineering from the Colorado School of Mines, has 41 years of experience in underground and open pit mining and has held engineering and operations positions with a number of companies including AMAX and ASARCO. Mr. Geyer was the Senior Vice President of the company responsible for the development of the Brisas Project and also led the analysis of the Brisas Cristinas Project on behalf of the Company. Mr. Geyer is a former Director of Thompson Creek Metals Inc. where he was previously a member of the audit committee. Mr. Geyer has been a member of the Audit Committee since March 19, 2015.

Mr. Johnston co-founded Steelhead Partners LLC in late 1996 to form and manage the Steelhead Navigator Fund. Prior thereto, as senior vice president and senior portfolio manager at Loews Corporation, Mr. Johnston co-managed over $5 billion in corporate bonds and also managed an equity portfolio. He began his investment career at Prudential Insurance as a high yield and investment-grade credit analyst. Mr. Johnston was promoted to co-portfolio manager of an $11 billion fixed income portfolio in 1991. He graduated with honors from Texas Christian University with a degree in finance and completed his MBA at the Johnson Graduate School of Business at Cornell University.

Our Audit Committee’s Charter can be found on our website at www.goldreserveinc.com in the Investor Relations section under "Governance."

Independence. The Board has made the affirmative determination that all members of the Audit Committee are "independent" pursuant to the criteria outlined by the Canadian National Instrument 52-110 - Audit Committees, Rule 10A-3 of the Exchange Act and the policies of the TSX Venture Exchange.

Audit Committee Financial Expert. Each member of the Audit Committee is considered to be financially literate. The Board has determined that Mr. Potvin is an "audit committee financial expert" as such term is defined under Item 8(b) of General Instruction B to Form 40-F.  The SEC has indicated that the designation of Mr. Potvin as an audit committee financial expert does not make Mr. Potvin an "expert" for any purpose, impose any duties, obligations or liabilities on Mr. Potvin that are greater than those imposed on other members of the Audit Committee and Board who do not carry this designation or affect the duties, obligations or liability of any other member of the Audit Committee and Board. 

Form 40-F – Page 5

 


 

CODE OF ETHICS

We have adopted a Code of Conduct and Ethics (the "Code") that is applicable to all our directors, officers and employees.  The Code contains general guidelines for conducting our business. The Code was amended and approved by the Board effective March 24, 2006.  No waivers to the provisions of the Code have been granted since its inception.  We intend to disclose future amendments to, or waivers from, certain provisions of the Code on our website within five business days following the date of such amendment or waiver.  A copy of the Code can be found on our website at www.goldreserveinc.com in the Investor Relations section under "Governance."  We believe that the Code constitutes a "code of ethics" as such term is defined by Item 9(b) of General Instruction B to Form 40-F.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by our independent registered public accounting firm, PwC, for the integrated audit of our annual financial statements, quarterly reports and services provided in respect of other regulatory-required auditor attest functions associated with government audit reports, registration statements, prospectuses, periodic reports and other documents filed with securities regulatory authorities or other documents issued in connection with securities offerings for 2017 and 2016 were $204,238 and $140,131, respectively.

Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by PwC for tax compliance, consulting and return preparation services for 2017 and 2016 were $111,340 and $116,620, respectively.

All Other Fees.  None.

Audit Committee Services Pre-Approval Policy

The Audit Committee is responsible for the oversight of our independent registered public accounting firm’s work and pre-approves all services provided by PwC.  Audit Services and Audit-Related Services rendered in connection with the annual financial statements and quarterly reports are presented to and approved by the Audit Committee typically at the beginning of each year. Audit-Related Services other than those rendered in connection with the quarterly reports and Tax services provided by PwC are typically approved individually during the Committee’s periodic meetings or on an as-needed basis. The Audit Committee’s Chair is authorized to approve such services in advance on behalf of the Committee with such approval reported to the full Audit Committee at its next meeting.  The Audit Committee sets forth its pre-approval and/or confirmation of services authorized by the Audit Committee Chair in the minutes of its meetings.

OFF-BALANCE SHEET ARRANGEMENTS

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial performance, financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

 

We had no material contractual obligation payments as of December 31, 2017.

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

 

We undertake to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

Form 40-F – Page 6

 


 

We previously filed an Appointment of Agent for Service of Process and Undertaking on Form F-X signed by us and our agent for service of process on May 7, 2007 with respect to the class of securities in relation to which the obligation to file this Annual Report on Form 40-F arises.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

GOLD RESERVE INC.

 

By: /s/ Robert A. McGuinness                                                                         

        Robert A. McGuinness, its Vice President of Finance,

        Chief Financial Officer and its Principal Financial and Accounting Officer

        April 26, 2018

 

Form 40-F – Page 7

 


 

EXHIBIT INDEX

 

Exhibit                                                                                                                                                                                             

Number         Exhibit                                                                                                                                                                     

99.1                Annual Information Form for the fiscal year ended December 31, 2017

 

99.2                Audited Consolidated Financial Statements as at December 31, 2017 and 2016 and for the fiscal years ended December 31, 2017 and 2016

 

99.3                Management’s Discussion and Analysis for the fiscal year ended December 31, 2017

 

99.4                Certification of Gold Reserve Inc. Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                                                                                                                                

 

99.5                Certification of Gold Reserve Inc. Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002                                                                                                                                

 

99.6                Certification of Gold Reserve Inc. Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

 

99.7                Certification of Gold Reserve Inc. Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                                                                                                                                

         

99.8                Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting firm

                       

 

 

 

Form 40-F – Page 8

 

gdrzfform40fexhibit991042618.htm - Generated by SEC Publisher for SEC Filing

Exhibit 99.1 – Annual Information Form

GOLD RESERVE INC.

ANNUAL INFORMATION FORM

For The Year Ended December 31, 2017

As filed on April 26, 2018

Exhibit 99.1 Annual Information Form - Page 1


 

TABLE OF CONTENTS
 
Introductory Notes 3  
Cautionary Statement Regarding Forward-Looking Statements and Information 4  
Corporate Structure 6  
General Development and Description of the Business 6  
Properties 8  
Dividends and Distributions 32  
Description of Capital Structure 33  
Market for Securities 33  
Prior Sales 34  
Escrowed Securities and Securities Subject to Contractual Restriction on Transfer 34  
Directors and Officers 34  
Audit Committee Information 38  
Conflicts of Interest 40  
Legal Proceedings and Regulatory Actions 40  
Interest of Management and Others in Material Transactions 40  
Transfer Agents and Registrars 41  
Material Contracts 41  
Interests of Experts 41  

 

Exhibit 99.1 Annual Information Form - Page 2


 

Introductory Notes

THE COMPANY

     In this Annual Information Form, the terms "Gold Reserve", the "Company" "we," "us," or "our," refer to Gold Reserve Inc. and its consolidated subsidiaries and affiliates, unless the context requires otherwise. When appropriate, capitalized terms are defined herein.

     Gold Reserve, an exploration stage company, is engaged in the business of acquiring, exploring and developing mining projects. We were incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014. We are the successor issuer to Gold Reserve Corporation which was incorporated in 1956. We have only one operating segment, the exploration and development of mineral properties.

Our recent activities, as more fully described herein, have included: SETTLEMENT AGREEMENT

§      Collection of the agreed upon payments pursuant to the settlement agreement, as amended (the "Settlement Agreement"), whereby the Bolivarian Republic of Venezuela ("Venezuela") agreed to pay us the amount of the International Centre for the Settlement of Investment Disputes ("ICSID") arbitral award (the "Award") granted in our favor, (including interest) and purchase our mining data, previously compiled in association with the development of our previous mining project in Venezuela known as the “Brisas Project” (the "Mining Data").
  As of the date of this report, Venezuela had deposited approximately $187.5 million in a trust account for the benefit of the Company at Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") (the "Trust Account"); Bandes Bank has transferred a total of approximately $128.5 million to Gold Reserve with approximately $59 million remaining in the Trust Account. Venezuela has not paid the Company, or deposited into the Trust account, the required payments for the last five months (including April 2018) totaling approximately $147.5 million.

MIXED COMPANY- Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera")

§      Completed a National Instrument 43-101- Standards of Disclosure for Mineral Projects ("NI 43-101") report for a Preliminary Economic Assessment ("PEA") which included updated resource estimates and cost estimates for the Siembra Minera Gold Copper Project ("Siembra Minera Project");
§      Compiled preliminary design and cost estimates on a smaller 15,000 tonne per day ("tpd") cyanidation plant (the "Small Plant") and a larger 140,000 tpd flotation plant (the "Large Plant");
§      Prepared an Early Works Program (including earthwork, timber clearing and road building) along with various permitting applications which have been submitted to the government and will be used to prepare Venezuelan Environmental Impact Statements ("VEIS") for both the saprolite and hard rock process plants;
§      Preliminary assessments and preparations related to the completion of an International Environmental and Social Impact Assessment ("IESIA") for the Siembra Minera Project;
§      Working with the Ministry of Health to provide medical assistance to the local communities, in the area of the Siembra Minera Project, to minimize and eradicate the impact of malaria, HIV and other tropical diseases; and
§      Working with the Ministry of Ecological Mining Development, Mission Piar, the Bolivar State government, the Army and National Guard to coordinate the local communities and small miners regarding the development of the Siembra Minera Project.

CONVERTIBLE NOTES AND INTEREST NOTES

§      In the third and fourth quarter of 2017, the Company settled all of its outstanding 11% Senior Secured Convertible Notes due December 31, 2018 ("2018 Convertible Notes") and Interest Notes (as herein defined) (approximately $59.1 million face value) (collectively, the "2018 Notes") and all of its 5.5% Senior Subordinated Convertible Notes due June 15, 2022 (the "2022 Convertible Notes") (approximately $1.0 million face value) for cash and Class A common shares.

Exhibit 99.1 Annual Information Form - Page 3


 

     We have no commercial production at this time. Recent net income and positive cash flow are a result of the payments made to us by Venezuela pursuant to the Settlement Agreement. Historically we have financed our operations through the issuance of common stock, other equity securities and debt. Funds necessary for ongoing corporate activities, including the development of the Siembra Minera Project or other future investments and/or transactions if any, cannot be precisely determined at this time and are subject to available cash, future payments under the Settlement Agreement or future financings.

     We currently employ eight individuals. Our Class A common shares are listed for trading on the TSX Venture Exchange (the "TSXV") and the OTCQX under the symbol "GRZ.V" and "GDRZF", respectively.

     Our registered office is located at the office of Norton Rose Fulbright Canada LLP, 400 3rd Avenue SW, Suite 3700, Calgary, Alberta T2P 4H2, Canada. Telephone and fax numbers for our registered agent are 403.267.8222 and 403.264.5973, respectively. Our administrative office is located at 999 West Riverside Avenue, Suite 401, Spokane, WA 99201, U.S.A. and our telephone and fax numbers are 509.623.1500 and 509.623.1634, respectively.

FINANCIAL REPORTING

     We maintain our accounts in U.S. dollars and prepare our financial statements in accordance with accounting principles generally accepted in the United States. Our audited consolidated financial statements as at December 31, 2017 and 2016 and for the years ended December 31, 2017 and 2016 are available for review under our profiles at www.sedar.com and www.sec.gov. All information in this Annual Information Form is as of April 26, 2018, unless otherwise noted.

CURRENCY

     Unless otherwise indicated, all references to "$", “U.S. $” or "U.S. dollars" in this Annual Information Form refer to U.S. dollars and references to "Cdn$" or "Canadian dollars" refer to Canadian dollars. The 12 month average rate of exchange for one Canadian dollar, expressed in U.S. dollars, for each of the last two calendar years equaled 0.7705 and 0.7544, respectively, and the exchange rate at the end of each such period equaled 0.7989 and 0.7448, respectively.

Cautionary Statement Regarding Forward-Looking Statements and Information

     The information presented or incorporated by reference in this Annual Information Form contains both historical information and "forward looking information" (within the meaning of applicable Canadian securities laws) or "forward-looking statements" (within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act, as amended) (collectively referred to herein as "forward looking statements") that may state our intentions, hopes, beliefs, expectations or predictions for the future. Such forward-looking statements include, without limitation, statements with respect to the collection of future payments under the Settlement Agreement and/or the Award and development plans for the Siembra Minera Project.

     Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies that may cause our actual financial results, performance or achievements to be materially different from those expressed or implied herein and many of which are outside our control.

     Forward-looking statements involve risks and uncertainties, as well as assumptions, including those set out herein, that may never materialize, prove incorrect or materialize other than as currently contemplated which could cause our results to differ materially from those expressed or implied by such forward-looking statements. The words "believe," "anticipate," "expect," "intend," "estimate," "plan," "may," "could" and other similar expressions that are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements. Any such forward-looking statements are not intended to provide any assurances as to future results.

     Numerous factors could cause actual results to differ materially from those described in the forward-looking statements, including, without limitation:

Exhibit 99.1 Annual Information Form - Page 4


 

     This list is not exhaustive of the factors that may affect any of our forward-looking statements. See the section entitled "Risk Factors" in our Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 31, 2017 which is incorporated by reference herein. The MD&A has been filed on SEDAR and can be viewed at www.sedar.com.

     Investors are cautioned not to put undue reliance on forward-looking statements, whether in this document, other documents periodically furnished or filed with the Ontario Securities Commission ("OSC") or the U.S. Securities and Exchange Commission (the "SEC") or other securities regulators or presented on our website. Forward-looking statements speak only as of the date made.

     All subsequent written and oral forward-looking statements attributable to Gold Reserve or persons acting on its behalf are expressly qualified in their entirety by this notice. Gold Reserve disclaims any intent or obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, subject to its disclosure obligations under applicable Canadian provincial and territorial securities laws or rules promulgated by the Securities and Exchange Commission. Investors are urged to read our filings with the Canadian and United States securities regulatory authorities, which can be viewed online at www.sedar.com and www.sec.gov, respectively.

     The terms "mineral resource," "measured mineral resource," "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101. However, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases, and such estimates are not part of the SEC industry Guide 7.

Exhibit 99.1 Annual Information Form - Page 5


 

Corporate Structure

     We are domiciled in Alberta, Canada and conduct our business primarily through our wholly-owned subsidiaries. The following table lists the names of our significant subsidiaries, our ownership in each subsidiary and each subsidiary's jurisdiction of incorporation or organization.

Subsidiary Ownership   Domicile
 
Gold Reserve Corporation 100 % Montana, USA
GR Mining (Barbados) Inc. 100 % Barbados
GR Procurement (Barbados) Inc.(1) 100 % Barbados
GR Mining Group (Barbados) Inc. 100 % Barbados
1) Previously GR Engineering      

 

     In October 2016, together with Venezuela, we established Siembra Minera of which we own 45%, to develop the Siembra Minera Project. We also have several dormant subsidiaries domiciled in Venezuela, Barbados and Canada which were previously formed to hold our interest in our foreign subsidiaries or for future transactions.

General Development and Description of the Business

Brisas Arbitral Award Settlement and Mining Data Sale

     In October 2009, we initiated a claim (the "Brisas Arbitration") under the Additional Facility Rules of the ICSID of the World Bank to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project in violation of the terms of the Treaty between the Government of Canada and the Government of Venezuela for the Promotion and Protection of Investments.

     In September 2014, the ICSID Tribunal unanimously awarded us the Award totaling (i) $713 million in damages, plus (ii) pre-award interest from April 2008 through the date of the Award based on the U.S. Government Treasury Bill Rate, compounded annually totaling, as of the date of the Award, approximately $22.3 million and (iii) $5 million for legal costs and expenses, for a total, as of September 22, 2014, of $740.3 million. The Award (less legal costs and expenses) accrues post-award interest at a rate of LIBOR plus 2%, compounded annually for a total estimated Award as of the date of the Settlement Agreement of $770 million.

     In July 2016, we signed the Settlement Agreement whereby Venezuela agreed to pay us the Award (including interest) and purchase our Mining Data. Under the terms of the Settlement Agreement Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data for a total of approximately $1.032 billion in monthly installments. The first $240 million to be received by Gold Reserve from Venezuela is related to the sale of the Mining Data.

     In addition, the Company agreed to suspend the legal enforcement of the Award until final payment is made by Venezuela and Venezuela irrevocably waived its right to appeal the February 2017 judgment issued by the Cour d'appel de Paris dismissing the annulment applications filed by Venezuela in respect of the Award and agreed to terminate all other proceedings seeking annulment of the Award. Pursuant to the Settlement Agreement, Venezuela agreed to make a payment of $40 million (the "Initial Payment") followed by 23 monthly payments of $29.5 million on or before the 15th day (previously the 10th day) of each month starting in July 2017, with a final payment of approximately $313.3 million scheduled to be paid on or before June 15, 2019.

     The terms of the Settlement Agreement also included Venezuela's obligation to make available to an escrow agent negotiable financial instruments, with a face value of at least $350 million, partially guaranteeing the payment obligations to the Company. As of the date of this report, the collateral has not yet been provided to the escrow agent. The Company and Venezuela continue discussions regarding this matter.

     Payments made by Venezuela associated with the Settlement Agreement were initially deposited into the Trust Account with Bandes Bank, a Venezuelan state-owned development bank. Under the Trust Agreement, the Company has the right to direct the transfer of the funds to its bank accounts outside of Venezuela. For financial statement purposes, deposits held in the Trust Account as of the balance sheet date are recorded as cash and cash equivalents and deposits made to the Trust Account subsequent to the balance sheet date but prior to the date of issuance of the consolidated financial statements are recorded as a receivable from sale of Mining Data.

Exhibit 99.1 Annual Information Form - Page 6


 

     On June 13, 2017, Venezuela deposited the Initial Payment of $40 million into the Trust Account and subsequently made additional monthly installment deposits of $29.5 million each from July through November, 2017 for a total of $187.5 million. Since June 30, 2017 and through the date of this report Venezuela has transferred a total of $128.5 million to our bank account in the U.S. with $59 million remaining in the Trust Account. The monthly payments pursuant to the Settlement Agreement from December 2017 and January, February, March and April 2018 totaling approximately $147.5 million remain unpaid.

     In August 2017, the U.S. government imposed financial sanctions targeting the Venezuelan government by issuing an executive order that prohibits U.S. persons from dealing in financing of greater than 30 days for the Venezuelan government, including any entity owned or controlled by the Venezuelan government (with respect to the state oil company and its subsidiaries, these restrictions prohibit financings of greater than 90 days). In addition, U.S. persons are prohibited from dealing in, among other things, bonds or equity issued by the Venezuelan government after the U.S. financial sanctions were imposed on August 25, 2017. These U.S. financial sanctions built on sanctions imposed by the U.S. government starting in March 2015 that prohibit various Venezuelan officials from traveling to the U.S., freeze any assets they may have in the U.S. and generally prohibit U.S. persons from doing business with them and any entity they own 50% or more. Subsequent to the U.S. actions, Canada imposed its own sanctions. Recently the U.S. government added several additional individuals to the sanctions list and prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. The U.S. and Canadian governments have been reported to be considering further sanctions (collectively, the “Sanctions”). Sanctions, in addition to the economic and financial condition of Venezuela, have complicated the monthly transfer of funds from the Trust Account to our bank accounts.

Obligations Due Upon Collection of the Award and Sale of Mining Data

     In the third quarter of 2017, the Company settled all of its outstanding 2018 Notes. Prior to settlement, the Company had a total of $59.1 million face value of 2018 Notes outstanding. Of these notes, $36.3 million were redeemed for cash and the Company paid an additional $6.4 million related to a 20% premium due on the redeemed notes and $0.2 million in interest to the redemption date. The remaining $22.8 million 2018 Notes were converted to approximately 7.6 million Class A common shares. As a result of the redemption or conversion of 2018 Notes, the Company recorded a $16.6 million loss on settlement of debt consisting of the $6.4 million premium paid and approximately $10.2 million of remaining unamortized discount. In October 2017, the Company redeemed for cash its remaining debt, which consisted of approximately $1.0 million face value of 2022 Convertible Notes.

     Pursuant to a 2012 restructuring of convertible notes, we issued Contingent Value Rights ("CVRs") that entitle the holders to an aggregate of 5.466% of proceeds associated with the collection of the Award, sale of mining data or an enterprise sale (the "Proceeds"), less amounts sufficient to pay or reserve for taxes payable, certain associated professional fees and expenses not to exceed $10 million, any accrued operating expenses as of the date of the receipt of proceeds not to exceed $1 million and the balance of any remaining Notes and accrued interests thereon (the "Net Proceeds"). We have been advised by a CVR holder that it believes that the Company’s 45% interest in Siembra Minera represents “Proceeds” for purposes of the CVRs and as such it believes it is entitled to the value of 5.466% of that interest. For a variety of reasons, the Board of Directors does not agree with that position and believes it is inconsistent with the CVRs and the terms and manner upon which we reached settlement as to the Award with the Venezuelan government. We are in discussions with the CVR holder on this subject, all of which are preliminary and it is not possible at this time to know the outcome of this matter.

     The Board of Directors approved a bonus plan (the "Bonus Plan") in May 2012, which was intended to compensate the participants, including executive officers, employees, directors and consultants for their contributions related to: the development of the Brisas Project; the manner in which the development effort was carried out allowing the Company to present a strong defense of its arbitration claim; the support of the Company’s execution of the Brisas Arbitration; and the ongoing efforts to assist with positioning the Company in the collection of an award, sale of the Mining Data or enterprise sale. The bonus pool under the Bonus Plan is comprised of the gross proceeds collected or the fair value of any consideration realized related to such transactions less applicable taxes multiplied by 1% of the first $200 million and 5% thereafter. The Bonus Plan is administered by a committee of independent directors. The committee selected the individual participants in the Bonus Plan and fixed the relative percentage of the total pool to be distributed to each participant. Participation in the Bonus Plan by existing participants is fully vested, subject to voluntary termination of employment or termination for cause.

Exhibit 99.1 Annual Information Form - Page 7


 

     As noted elsewhere, as of December 31, 2017 Venezuela had deposited approximately $187.5 million to the Trust Account. Of this amount, approximately $99 million had been transferred to the Company's bank account outside of Venezuela with the balance of approximately $88.5 million remaining in the Trust Account. Due to the uncertainties associated with the funds still on deposit in the Trust account, the Board of Directors has only considered those funds actually received by the Company in its bank account as funds available for purposes of calculating the CVR and Bonus Plan distributions, however, the full amount due based on total payments to the Trust Account has been accrued as a payable in the Consolidated Balance Sheets and recorded as an expense in the Consolidated Statements of Operations.

     The total estimated amount due pursuant to the terms of the CVRs as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data was approximately $3.1 million. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $1.8 million.

     The total estimated amount due pursuant to the terms of the Bonus Plan as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data is approximately $1.4 million which is included in corporate general and administrative expense in the Consolidated Statements of Operations for the year ended December 31, 2017. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $0.8 million.

     The Company maintains the Gold Reserve Director and Employee Retention Plan. Each unit (a "Retention Unit") granted to a participant entitles such person to receive a cash payment equal to the fair market value of one Gold Reserve Class A common share on the date the Retention Unit is granted or on the date any such participant becomes entitled to payment, whichever is greater. Units previously granted under the plan became fully vested upon the collection of proceeds from sale of the Mining Data and the Board of Director's agreement to distribute a substantial majority of the remaining proceeds to our shareholders. In June 2017, as a result of the collection of proceeds related to the sale of the Mining Data, the Retention Units vested and in the third quarter of 2017 the Company paid $7.7 million to plan participants. As of December 31, 2017 there were no Retention Units outstanding.

Our Intent to Distribute Collection of the Award or Sale of Mining Data to Shareholders

     Following receipt of funds transferred from the Trust Account to our bank account and after applicable payments of Net Proceeds to holders of our CVRs and participants under our Bonus Plan, we expect to distribute to our shareholders a substantial majority of any remaining proceeds, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the collection of the Award and/or sale of the Mining Data.

Properties

Siembra Minera Project

EMPRESA MIXTA ECOSOCIALISTA SIEMBRA MINERA, S.A.

     In August 2016, we executed an agreement with the government of Venezuela to form a jointly owned company and in October 2016, together with an affiliate of the government of Venezuela, we established Siembra Minera, the entity whose purpose is to develop the Siembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation and 45% by Gold Reserve.

     The significant negotiated terms related to the formation of Siembra Minera and its development and operation of the Siembra Minera Project include:

§      Siembra Minera holds certain gold, copper, silver and other strategic mineral rights within Bolivar State comprising approximately 18,950 hectares in an area located in the Km 88 gold mining district of southeast Bolivar State which includes the historical Brisas and Cristinas areas. The mineral rights held by Siembra Minera have a 20 year term with two 10 year extensions.
§      Gold Reserve, under a Technical Services Agreement, is expected to provide engineering, procurement and construction services to Siembra Minera for a fee of 5% over all costs of construction and development and, thereafter, for a fee of 5% over operating costs during operations;

Exhibit 99.1 Annual Information Form - Page 8


 

§      Presidential Decrees, within the legal framework of the "Orinoco Mining Arc" (created on February 24, 2016 under Presidential Decree No. 2.248 as an area for national strategic development Official Gazzette No.
  40.855), will or have been issued to provide for tax and fiscal incentives for companies owned jointly with the government (”Mixed Companies”) operating in that area that include exemption from value added tax, stamp tax, municipal taxes and any taxes arising from the contribution of tangible or intangible assets, if any, to the mixed companies by the parties and the same cost of electricity, diesel and gasoline as that incurred by the government or related entities;
§      Gold price participation, in accordance with an agreed upon formula resulting in specified respective percentages based on the sales price of gold per ounce. For sales up to $1,600 per ounce, net profits will be allocated 55% to Venezuela and 45% to us. For sales greater than $1,600 per ounce, the incremental amount will be allocated 70% to Venezuela and 30% to us. For example, with sales at $1,600 and $3,500 per ounce,

net profits will be allocated 55.0% 45.0% and 60.5% 39.5%, respectively;

§      Payment of a special advantage to Venezuela of 3% of gross sales;
§      Net smelter return royalty (“NSR”) to Venezuela on the sale of gold, copper, silver and any other strategic minerals of 5% for the first ten years of commercial production, 6% for the next ten years;
§      Income tax rate of 14% for years one to five, 19% for years 6 to 10, 24% for years 11 to 15, 29% for years 16 to 20 and 34% thereafter;
§      Authorization to export and sell concentrate and doré containing gold, copper, silver and other strategic minerals outside of Venezuela and maintain foreign currency balances associated with sales proceeds;
§      Siembra Minera is expected to undertake initiatives to secure financing(s) to fund the anticipated capital costs of the Siembra Minera Project, which is expected to be in excess of $2 billion. In order to facilitate the early startup of the pre-operation and construction activities, Venezuela agreed to advance $110.2 million to Siembra Minera, which is expected to be repaid from the financing proceeds;
§      Funds associated with future capital cost financings and sale of gold, copper and silver will be held in offshore US dollar accounts and dividends and profit distributions, if any, will be directly paid to the shareholders of Siembra Minera;
§      All funds will be converted into local currency at the most favorable exchange rate offered by Venezuela to other entities to pay, as required, Venezuela income taxes and annual operating and capital costs denominated in Bolivars for the Siembra Minera Project;
§      Venezuela agreed to use its best efforts to grant to Siembra Minera similar terms that would apply to the Siembra Minera Project in the event Venezuela enters into an agreement with a third party for the incorporation of a mixed company to perform similar activities with terms and conditions that are more favorable than the above tax and fiscal incentives;
§      Venezuela will indemnify us and our affiliates against any future legal actions related to property ownership associated with the Siembra Minera Project;
§      The parties will retain their respective interest in Siembra Minera in the event the settlement payments are not made by Venezuela; and
§      The board of directors is comprised of seven individuals, of which four are appointed by Venezuela and three by us.

PRELIMINARY ECONOMIC ASSESSMENT

     Set forth below is the summary section of the March 16, 2018 technical report for the PEA of the Siembra Minera Project Report prepared in compliance with NI 43-101. The scientific and technical information contained therein, including resource estimates, pit design, mine plan, flowsheet design, design criteria, project layout, infrastructure requirements, capital and operating estimates was prepared by Roscoe Postle Associates, Inc. ("RPA"), Samuel Engineering Inc. ("Samuel Engineering"), Tierra Group International, Ltd ("Tierra Group"), and AATA International, Inc. ("AATA"). The Qualified Persons (as defined in NI 43-101) in respect of the PEA who have reviewed, verified and approved such information are Richard J. Lambert, P.E., P.Eng., José Texidor Carlsson, P.Geo., Grant A. Malensek, P.Eng., Hugo Miranda, C.P., and Kathleen A. Altman, Ph.D., P.E., each of whom is independent of the Company. The PEA was filed on SEDAR on April 6, 2018 and is available at www.sedar.com. The following information is of a summary nature only and reference is made to the detailed disclosure contained in the PEA, which is incorporated herein by reference.

Exhibit 99.1 Annual Information Form - Page 9


 

     The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. The PEA only demonstrates potential viability and there is no certainty that the PEA will be realized, or that any production will be realized from the Siembra Minera Project. Mineral resources are not mineral reserves and do not have demonstrated economic viability. The potential viability of the mineral resources at the Siembra Minera Project have not yet been supported by a pre-feasibility or a feasibility study. The terms “mineralised material” and "material" are used in this summary to denote mineralised material above an economic cut-off grade on which the proposed mining and processing activities are designed to operate. It does not imply that mineral reserves have been estimated.

SUMMARY OF MARCH 16, 2018 PEA ON THE SIEMBRA MINERA PROJECT

EXECUTIVE SUMMARY

     Roscoe Postle Associates Inc. (RPA) was retained by Gold Reserve Inc.(GRI), and its wholly owned subsidiary GR Engineering Barbados, Inc. (GRE) to prepare an independent Technical Report on the Siembra Minera Project (the Project), located in Bolivar State, Venezuela. The operating company Empresa Mixta Ecosocialista Siembra Minera, S.A. (Siembra Minera), which holds the rights to the Siembra Minera Project, is a mixed capital company with 55% being owned by a Venezuelan state entity [owned by the Bolivarian Republic of Venezuela through the Corporación Venezolana de Minería (CVM)] and 45% by GR Mining Barbados, Inc. (GRM), a wholly-owned subsidiary of GRI. GRE has been set up to perform engineering, procurement, construction, and operation of the Project.

     The Project is a combination of the Brisas and Cristinas properties into a single project now called the Siembra Minera Project. The purpose of this report is to provide GRI and GRE with an initial assessment of the Siembra Minera Project including a resource estimate, conceptual mine plan, and a preliminary economic review. This Technical Report conforms to NI 43-101 Standards of Disclosure for Mineral Projects. RPA visited the Project on September 19, 2017.

     The Siembra Minera Project is a gold-copper deposit located in the Kilometre 88 mining district of Bolivar State in southeast Venezuela. Local owners and illegal miners have worked the property for many years. Shallow pitting and hydraulic methods were used to mine the upper saprolite zone, and coarse gold was recovered by gravity concentration and amalgamation with mercury. Most of the large-scale exploration work at Cristinas was performed by Placer Dome Inc. (Placer), which worked on the property from 1991 to 2001. At Brisas, GRI carried out the exploration program on the concession from 1992 to 2005. The most recent Technical Report for Cristinas is dated November 7, 2007, which is based on a feasibility study and includes historic mineral reserves. The most recent Technical Report for Brisas is dated March 31, 2008, which is also based on a feasibility study and includes historic mineral reserves.

     RPA has relied on data derived from work completed by previous owners on the Cristinas concessions and by GRI on the Brisas concessions. The current resources for Cristinas were estimated by RPA based on the drill hole data supplied by Corporación Venezolana de Guayana (CVG) to GRI in 2002. The database had 1,174 drill holes and 108 trenches which were included in the Cristinas database. Hard copies of the assay data sheets were not available, however, GEOLOG data files from Placer were provided including assay data, geological descriptions, structural data, geotechnical data, and check sample data. The current resources for Brisas were estimated by RPA based on drill hole data supplied by GRI in Geovia GEMS format which formed the basis of the last Technical Report by Pincock Allen & Holt (PAH) in 2008.

     This report is considered by RPA to meet the requirements of a Preliminary Economic Assessment (PEA) as defined in Canadian NI 43-101 regulations. The mine plan and economic analysis contained in this Technical Report are based, in part, on Inferred Mineral Resources, and are preliminary in nature. Inferred Mineral Resources are considered too geologically speculative to have mining and economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that economic forecasts on which this PEA is based will be realized.

CONCLUSIONS

RPA offers the following conclusions by area.

Geology and Mineral Resources

Exhibit 99.1 Annual Information Form - Page 10


 

Mining

Exhibit 99.1 Annual Information Form - Page 11


 

Mineral Processing

Environment

RECOMMENDATIONS

     Given the positive economic results presented in this report, RPA recommends that the Project be advanced to the next stage of engineering study and permitting. RPA offers the following recommendations.

Geology and Mineral Resources

  • Acquire new topographic data.
  • Drill approximately 150 to 200 drill holes totaling approximately 75 km to 100 km. This drilling would have a number of objectives including:
      o      Conversion of Inferred Mineral Resources to Indicated with priority set on Inferred Mineral Resources situated in the 5 and 10-year pit shells.
      o      Drilling to determine the extent of mineralization at depth in the Main Zone as this will determine the limits of the largest possible pit and help with the location of features such as dumps and roads.
      o      Better definition of the copper mineralization in the Main Zone footwall.
      o      Improving preliminary artisanal mining sterilization assumptions.
      o      Condemnation drilling of proposed waste rock storage sites.
      o      Closer spaced drilling in the El Potaso area between Brisas and Cristinas concession areas.
      o      Drilling on the northwest extensions of the mineralization in the Morrocoy and Cordova areas.
      o      Drilling on the Cristinas Main Zone for density measurements.
  • Improve understanding of the geological and structural controls on the shapes and local trends of high grade lenses in the Main Zone. Northwest striking cross-faults need to be identified and modelled and structural sub-domains built to improve future variography studies and dynamic anisotropy trend surfaces. This will improve the local accuracy of future gold and copper grade models.
  • Carry out additional 3D mineralization trend analysis studies, domain modelling, and variography work for the gold and copper mineralization. This will also assist in evaluating if additional 5-spot drill holes are needed to support the Indicated classification in some areas with more complex geology.
  • Depending on the outcome of new variography work, build gold and copper models using ordinary kriging.
  • Develop a new lithology model once new drill holes have been drilled so that an improved material densities
      model      can be created.
  • Build a structural model.
  • For the proposed drilling, implement field and coarse duplicate sampling programs at Siembra Minera at a rate of approximately 1 in 50.

    Exhibit 99.1 Annual Information Form - Page 12


     

    Mining

    Mineral Processing

  • Every effort should be made to acquire access to the detailed metallurgical and plant data for Cristinas. In the absence of that data, detailed metallurgical sampling and testing are required to provide the information required to
      design      the oxide leaching plant.
  • Additional test work should be conducted for the flotation plant using variability samples taken from throughout the deposits with particular emphasis on Cristinas where limited variability testing was done using the flotation flowsheet. Currently, industry standard emphasizes the use of variability samples as opposed to the composite samples that were predominantly used in previous flotation testing.
  • RPA is of the opinion that there is considerable potential for optimization of the flowsheet of the Siembra Minera Project. Examples include:
      o      Increased efficiency if larger equipment sizes are utilized in the design. Due to cost savings and enhanced performance, the sizes for grinding mills and flotation cells have increased substantially. As examples, semi-autogenous grinding (SAG) mills that are now available are as large as 12.2 m diameter by 8.8 m long as opposed to the 11.6 m by 6.7 m that are in the current design and flotation cells now have capacities of 600 m3 instead of the 160 m3 that are in the current design. The larger pieces of equipment result in a reduced footprint and fewer pieces of equipment and, therefore, lower installed
       costs.     
      o      The use of an adsorption desorption recovery (ADR) that is designed for the combined Project will probably result in less cost than merely doubling the size of the current design. In addition to this, consolidating the ADR from the oxide leach plant into a plant that can later be expanded to process the doré from the flotation plant has the potential to not only cut costs but also reduce security concerns and efforts.
  • RPA is of the opinion that the current conceptual design for the oxide leach plant does not include the best options for Siembra Minera. Areas that require detailed evaluations include:
      o      Use of carbon-in-leach (CIL) instead of carbon-in-pulp (CIP) particularly since the plant designs for both Cristinas and Brisas were changed to CIL from CIP during previous studies.
      o      Investigate elimination of the copper circuits. Data from the Cristinas feasibility study shows that copper is only soluble in the sulphide saprolite and that it is not soluble in material that has lower copper concentrations. Therefore, the copper circuit should not be needed as the sulphide saprolite that contains
       higher      concentrations of copper will be processed in the flotation plant and not in the oxide leach plant.
      o      Changes to the gravity separation circuit. The use of continuous centrifugal concentrators instead of
       batch      units to eliminate manual labour and reduce potential for theft. Use intensive cyanide leaching to
       process the gravity gold concentrate instead of shaking tables. Prior studies showed that intensive cyanide leaching was preferable for treatment of the gravity concentrate for both Brisas and Cristinas.
      o      Selection of designs that are appropriate for processing clay-like saprolitic material, including:
       §      Appropriate tank sizing using slurry densities that are consistent with the material that has a low specific gravity and is viscous in nature
       §      Proper agitator selection
       §      Selection of pumps and design of piping

    Exhibit 99.1 Annual Information Form - Page 13


     

    Environment

    Costs and Economics

    PROPOSED PROGRAM AND BUDGET

    RPA’s proposed program for the next stage of study is summarized in Table 1-1.

    TABLE 1-1 PROPOSED PROGRAM  
    GR Engineering (Barbados), Inc. – Siembra Minera Project  
      Cost
    Description (US$ M)
    Drilling to upgrade Inferred Mineral Resources – 150 to 200 holes 20
    Geotechnical Studies 2
    Hydrogeology Study 1
    Metallurgical Studies 2
    Pre-feasibility/Feasibility Study 5
    ESIA and Permitting 2
    Total 32

     

    ECONOMIC ANALYSIS

         The economic analysis contained in this report is based, in part, on Inferred Mineral Resources, and is preliminary in nature. Inferred Mineral Resources are considered too geologically speculative to have mining and economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that economic forecasts on which this PEA is based will be realized.

         A Cash Flow Projection has been generated from the LoM production schedule and capital and operating cost estimates, and is summarized in Table 1-4. All currency is in US dollars (US$ or $). A summary of the key criteria is provided below.

    ECONOMIC CRITERIA

    Production

    Exhibit 99.1 Annual Information Form - Page 14


     

    Revenue

    · Doré payable factors at refinery are 99.9% Au and 98% Ag.

    · Copper concentrate average payable factors at smelter are 98% Au, 97% Ag, and 95.8% Cu.

    · Payable metal sales for the Project total 37.6 Moz Au, 16.6 Moz Ag, and 3.2 billion lb Cu split as follows: o From Doré: 14.4 Moz Au and 4.1 Moz Ag. o From Concentrate: 23.2 Moz Au, 12.5 Moz Ag, and 3.2 billion lb Cu.

    · Metal prices: US$1,300 per troy ounce Au; US$17 per troy ounce Ag and US$3.00 per pound Cu.

    · NSR for doré includes transport and refining costs of $0.50 per ounce doré and $6 per ounce gold/$0.40 per ounce silver, respectively.

    · NSR for copper concentrate includes: o Cost Insurance and Freight (CIF) charge of $103 per wet tonne concentrate (8% moisture content) consisting of:§ Road Transport (350 km one way): $11/t§ Port Charges (Puerto Ordaz) : $17/t§ Ocean Transport (Europe): $75/t. o Smelter treatment charge of $95 per dry tonne concentrate. o Smelter refining charges of $0.095/lb Cu, $6/oz Au, and $0.40/oz Ag. o Copper price participation is not included.

    Costs

    · Pre-production period to CIP plant First Production: 24 months (January Year -2 to December Year -1).· Pre-production period to concentrator First Production: 48 months (January Year -2 to December Year 2).

    · Project development capital totals $2.57 billion, including $459 million in contingency (22% of direct and indirect capital).

    · Sustaining capital of $1.42 billion.

    · Average unit operating costs in $/t milled over the mine life:

    Mine ($1.36/t mined):   2.89
    Process:   4.93
    G&A:   1.32
    Other Infrastructure:   0.14
    Direct Operating Costs   9.29
    Concentrate Freight   0.36
    Off-site Costs   0.54
    Total $ 10.19

     

    Exhibit 99.1 Annual Information Form - Page 15


     

    Royalties and Government Payments

         Royalties and other government payments total $5.6 billion, or $2.77/t milled, over the LoM as shown in Table 1-2.

    TABLE 1-2 ROYALTIES AND GOVERNMENT PAYMENTS
    GR Engineering (Barbados), Inc. – Siembra Minera Project

     

    Item US$ M US$/t milled
    NSR Royalty 3,262.8 1.63
    Special Advantages Tax 1,710.0 0.85
    Science, Technology and Innovation Contributions 588.1 0.29
    Total 5,560.9 2.77

     

         The Project will pay an annual NSR royalty to Venezuela on the sale of gold, copper, and silver and any other strategic minerals of 5% for the first ten years of commercial production and 6% thereafter.

         The Project is subject to an additional 3% NSR annual royalty called Special Advantages Tax which is a national social welfare fund.

         The Project is subject to a 1% gross revenue levy as part of the Science, Technology and Innovation Contributions fund (LOCTI).

    Customs duties and Value Added Taxes (VAT) are assumed to be waived for the Project.

    Income Taxes, Working Capital, and Other

         Income taxes/contributions, upfront working capital and reclamation/closure costs total $8.3 billion as shown in Table 1-3. Withholding taxes on corporate dividends and interest payments are not incorporated into the Project economic analysis.

    TABLE 1-3 INCOME TAXES, WORKING CAPITAL, AND OTHER
    GR Engineering (Barbados), Inc. – Siembra Minera Project

     

    Item US$ M
    Anti-Drug Contributions 283.9
    Sports Contributions 283.9
    Corp. Income Taxes Paid 7,373.8
    Upfront Working Capital (Yrs 1-4) 195.4
    Reclamation and Closure 150.0
    Salvage Value 0.0
    Total 8,286.9

     

    Anti-drug and Sport Contributions

         These profit-based taxes are assessed at 1% of current year and previous year operating income, respectively. The annual operating margin is calculated by taking annual gross revenues and deducting all operating costs and depreciation/amortization allowances.

    Corporate Income Tax

         The Project economic analysis incorporates a sliding scale of tax rates applicable on income based on Project phases starting in Year 1 of commercial production as follows:

    Years 1 through 5: 14 %
    Years 6 through 10: 19 %
    Years 11 through 15: 24 %
    Years 16 through 20: 29 %
    Years 21+: 34 %

     

    Exhibit 99.1 Annual Information Form - Page 16


     

      Year 1 is the first year of gold production, after commissioning of the 15,000 tpd oxide plant.
      Deductions from income for the purpose of estimating income subject to tax include the following items:
  • Operating Expense
      Expensed operating costs are deducted 100% in year incurred.
  • Stockpile adjustments
      As a result of large stockpiles of mill feed being generated during the life of the mine, the Project economic analysis includes annual adjustments to EBITDA to match mining costs with recognized revenue. The net effect of these adjustments over the life of the mine is zero but the adjustments increase EBITDA in years where stockpiling exceeds processing and inversely decrease EBITDA when processing stockpile material exceeds stockpile placement amounts.
  • Depreciation/Amortization
      o      All prior expenditures before January 2018 are considered sunk with respect to this analysis.
      o      Depreciation commences once the facilities are placed into service and the mine and mill are operating.
      o      Heavy mine fleet equipment capital is depreciated using 8-year straight line (SL) method. Light vehicle capital is depreciated using 5-year SL method.
      o      All process and infrastructure capital are depreciated using the Units of Production (UoP) method.
      o      Capitalized pre-production activities such as pre-stripping and water management are amortized the UoP method.
      o      The Project economic analysis incorporates an accelerated depreciation methodology which combines the first 12 years of annual SL depreciation allowances with the standard UoP cost basis. The resulting combined UoP/SL basis is then re-calculated using the UoP method. After 12 years, the depreciation allowances come directly from each UoP or SL category.
      o      Reclamation costs are amortized during the LoM by an annual accrual of $0.035/t mined ($150 million cost divided by 4.33 billion tonnes mined). This allowance is adjusted annually by periodic reclamation capital expenditures during the LoM.
  • Other Deductions
      Other      deductions from income for the purposes of estimating taxable income include management fees which
      amount to 5% of annual operating and capital costs. The annual management fees derived from operating costs are within the G&A opex category and thus expensed 100% in the year incurred while the annual fees derived from capital costs are amortized using the UoP method starting in the year they are incurred.
  • Loss Carryforwards
      Income tax losses may be carried forward indefinitely but may not be used for prior tax years.

    Upfront Working Capital

    A total of $195 million has been allocated for upfront working capital in Years 1 to 4. This amount covers year over year changes in accounts receivable and payable plus consumable inventory.

    Reclamation/Closure Costs

    The Project economic analysis has a $150 million LoM closure cost estimate.

    Salvage

    No salvage value was estimated as part of the Project economic analysis.

    CASH FLOW ANALYSIS

         The Project as currently designed has significant variations in the mining schedule, processing methods, and head grades over its planned 45-year life. These variations are shown in Figures 1-1 and 1-2 and the resulting impact on the pre-tax free cash flow profile is shown in Figure 1-3.

    Exhibit 99.1 Annual Information Form - Page 17


     

    FIGURE 1-1 MINE VS. MILL PRODUCTION


    FIGURE 1-2 MILL PRODUCTION PROFILE BY PLANT


    FIGURE 1-3 PROJECT PRE-TAX METRICS SUMMARY

    Exhibit 99.1 Annual Information Form - Page 18


     

         Table 1-4 shows the LoM total metrics for the Project as currently designed. Due to the length of the 45-year mine life, the full annual cash flow model is presented in Appendix 1.

    TABLE 1-4 INDICATIVE PROJECT ECONOMICS

    GR Engineering (Barbados), Inc. – Siembra Minera Project

    Item Unit Value  
    Realized Market Prices      
    Au US$/oz 1,300.00  
    Ag US$/oz 17.00  
    Cu US$/lb 3.00  
    Payable Metal      
    Au Moz 37.6  
    Ag Moz 16.6  
    Cu Mlb 3,197.6  
    Total Gross Revenue US$ M 58,806.2  
    Mining Cost US$ M (5,790.9 )
    Process Cost US$ M (9,881.0 )
    G & A Cost US$ M (2,653.6 )
    Other Infrastructure Cost US$ M (288.9 )
    Concentrate Freight Cost US$ M (728.0 )
    Off-site Costs US$ M (1,076.5 )
    NSR Royalty Cost US$ M (3,262.8 )
    Special Advantages Tax Cost US$ M (1,710.0 )
    Science (LOCTI) Contributions US$ M (588.1 )
    Total Operating Costs US$ M (25,979.7 )
    Operating Margin (EBITDA) US$ M 32,826.5  
    Anti-Drug Contributions US$ M (283.9 )
    Sport Contributions US$ M (283.9 )
    Effective Tax Rate % 22.5 %
     
    Exhibit 99.1 Annual Information Form - Page 19    

     


     

    Item Unit Value  
    Income Tax US$ M (7,373.8 )
    Total Taxes US$ M (7,941.5 )
    Working Capital ($195 M in Years 1 to 4) US$ M 0.0  
    Operating Cash Flow US$ M 24,885.0  
    Development Capital US$ M (2,570.6 )
    Sustaining Capital US$ M (1,941.7 )
    Closure/Reclamation Capital US$ M (150.0 )
    Total Capital US$ M (4,662.3 )
     
    Pre-tax Free Cash Flow US$ M 28,164.2  
    Pre-tax NPV @ 5% US$ M 11,209.4  
    Pre-tax NPV @ 10% US$ M 5,534.5  
    Pre-tax IRR % 36.8 %
    After-tax Simple Payback Years 3.8  
     
    After-tax Free Cash Flow US$ M 20,222.7  
    After-tax NPV @ 5% US$ M 8,101.2  
    After-tax NPV @ 10% US$ M 3,930.1  
    After-tax IRR % 31.1 %
    After-tax Simple Payback Years 4.1  

     

         On a pre-tax basis, the undiscounted cash flow totals $28,164 million over the mine life. The pre-tax Internal Rate of Return (IRR) is 36.8%, and simple payback from start of commercial production occurs in 3.8 years. The pre-tax Net Present Values (NPV) are:

    $11,209 million at a 5% discount rate.
    $5,534 million at a 10% discount rate.

         On an after-tax basis, the undiscounted cash flow totals $20,223 million over the mine life, the IRR is 31.1%, and simple payback from start of commercial production occurs in 4.1 years. The after-tax NPVs are:

    $8,101 million at a 5% discount rate.
    $3,930 million at a 10% discount rate.

         The average annual gold sales during the forty-five years of operation is 836 koz per year (37.6 Moz over the LoM) at an average all in sustaining cost (AISC) of US$483 per ounce. Table 1-5 shows the AISC build up which is net of a US$262/oz copper and silver by-product credit (nbp).

    TABLE 1-5 ALL-IN SUSTAINING COSTS COMPOSITION
    GR Engineering (Barbados), Inc. – Siembra Minera Project  
     
    Item US$M US$/oz Au
    Mining 5,790.9 154
    Process 9,881.0 263
    G & A 2,653.6 71
    Other Infrastructure 288.9 8
    Subtotal Site Costs 18,614.3 495
    Transportation 728.0 19
    Off-site Treatment 1,076.5 29
    Subtotal Off-site Costs 1,804.5 48

     

    Exhibit 99.1 Annual Information Form - Page 20


     

    Item US$M   US$/oz Au  
    Direct Cash Costs 20,418.8   542  
    Ag and Cu By-Product Credit (9,875.4 ) (262 )
    Total Direct Cash Costs (nbp) 10,543.4   280  
    NSR Royalty 3,262.8   87  
    Special Advantages Tax 1,710.0   45  
    STI Contributions 588.1   16  
    Total Indirect Cash Costs 5,560.9   148  
    Total Production Costs 16,104.3   428  
    Sustaining Capital Cost 1,941.7   52  
    Closure/Reclamation Capital 150.0   4  
    Corporate G&A 0.0   0  
    Off-mine Exploration 0.0   0  
    Total Sustaining Costs 2,091.7   56  
    Total All-in Sustaining Costs 18,196.0   483  

     

         Figure 1-4 shows the annual AISC trend during the mine operations against an overall average AISC of US$483/payable oz over the 45-year LoM at an annual production rate of 836 koz Au per year. The AISC variations are mainly driven changes in grades, mine schedule, and processing methods. The AISC metric can range from US$309/oz to US$992/oz Au in a given year (excluding final year spike in Year 45 of $1,956/oz) but can be subdivided into three distinct phases:

    Phase 1:

    Phase 2: Phase 3:

    Years 1 and 2 (CIP only) - 133 koz/yr Au at $853/oz.

    Years 3 through 18 (mining highest grades) - 1,191 koz/yr Au at $411/oz. Years 19 through 45 EoM (mining lower grades) - 665 koz/yr Au at $554/oz.

    FIGURE 1-4 ANNUAL AISC CURVE PROFILE

     

    Exhibit 99.1 Annual Information Form - Page 21


     

    SENSITIVITY ANALYSIS

         Project risks can be identified in both economic and non-economic terms. Key economic risks were examined by running cash flow sensitivities:

         Pre-tax NPV and IRR sensitivities over the base case has been calculated for -20% to +20% variations metal-related categories. For operating costs and capital costs, the sensitivities over the base case has been calculated at -15% to +35% variation. The sensitivities are shown in Table 1-6 and in Figures 1-5 and 1-6, respectively.

    Exhibit 99.1 Annual Information Form - Page 22


     

    TABLE 1-6 PRE-TAX SENSITIVITY ANALYSIS
    GR Engineering (Barbados), Inc. – Siembra Minera Project
     
    Factor Change   Head Grade (g/t Au) NPV at 10% IRR  
          (US$ M) (%)  
    0.8   0.56 3,477.3 28.3 %
    0.9   0.63 4,505.8 32.7 %
    1.0   0.70 5,534.5 36.8 %
    1.1   0.78 6,563.2 40.6 %
    1.2   0.85 7,591.9 44.3 %
     
    Factor Change   Recovery NPV at 10% IRR  
        (% Au) (US$ M) (%)  
    0.8   67 3,477.3 28.3 %
    0.9   76 4,505.8 32.7 %
    1.0   84 5,534.5 36.8 %
    1.1   92 6,563.2 40.6 %
    1.2   100 7,489.0 44.0 %
     
    Factor Change   Metal Price NPV at 10% IRR  
        (US$/oz Au) (US$ M) (%)  
    0.8   1,040 3,166.4 27.2 %
    0.9   1,170 4,350.4 32.2 %
    1.0   1,300 5,534.5 36.8 %
    1.1   1,430 6,718.5 41.1 %
    1.2   1,560 7,902.5 45.1 %
     
    Factor Change   Operating Costs NPV at 10% IRR  
        (US$/t milled) (US$ M) (%)  
    0.85 $ 11.57 6,068.2 38.6 %
    0.93 $ 12.27 5,801.3 37.7 %
    1.00 $ 12.96 5,534.5 36.8 %
    1.18 $ 14.59 4,911.7 34.6 %
    1.35 $ 16.21 4,289.0 32.3 %
     
    Factor Change   Capital Costs NPV at 10% IRR  
        (US$ M) (US$ M) (%)  
    0.85 $ 4,222 5,812.0 41.1 %
    0.93 $ 4,385 5,673.2 38.8 %
    1.00 $ 4,547 5,534.5 36.8 %
    1.18 $ 4,927 5,210.7 32.7 %
    1.35 $ 5,306 4,886.9 29.3 %

     

    Exhibit 99.1 Annual Information Form - Page 23


     

    FIGURE 1-5 PRE-TAX NPV 10% SENSITIVITY ANALYSIS


    FIGURE 1-6 PRE-TAX IRR SENSITIVITY ANALYSIS


    Exhibit 99.1 Annual Information Form - Page 24


     

         A sensitivity analysis of discount rates is presented in Figure 1-7 and 1-8 and shows that the Project as currently designed would be NPV positive through a 20% discount rate.

    FIGURE 1-7 PRE-TAX DISCOUNT RATE SENSITIVITY ANALYSIS

    FIGURE 1-8 AFTER-TAX DISCOUNT RATE SENSITIVITY ANALYSIS

    Exhibit 99.1 Annual Information Form - Page 25


     

    TECHNICAL SUMMARY

    Property Description and Location

         The Siembra Minera Project is located in the Kilometre 88 mining district of Bolivar State, in southeast Venezuela at Latitude 6° 11’ North and Longitude 61° 28’ West. The property is approximately 3.5 km west of Highway 10. Las Claritas is the closest town to the property.

         The Project site is located in the Guyana region, which covers approximately one-third of Venezuela’s national territory. The closest nearby large city is Ciudad Guayana, with approximately 1,050,000 inhabitants (2001), situated on the Orinoco River near its confluence with the Caroní River. Ciudad Guayana consists of the old town of San Félix to the east and the new town of Puerto Ordaz to the west. Puerto Ordaz is home to most of the major industrial facilities such as aluminum smelters and port facilities. Puerto Ordaz has major port facilities accessible to ocean-going vessels from the Atlantic Ocean via the Orinoco River, a distance of approximately 200 km. There is regularly scheduled commercial airline service to Puerto Ordaz from Caracas.

         Highway 10 provides paved access from Ciudad Guayana, which is 373 km northwest of the property, to within 3.5 km of the Project site. Unpaved roads provide the remaining 3.5 km of access.

         The Project area encompasses approximately 18,951 ha and has been designated as an Economic Zone by the Venezuelan Government.

    History

         Gold in the Siembra Minera region was first discovered in 1920. Gold mining in the Project area was initiated in the 1930s and continued sporadically on a minor scale until the early 1980s when a gold rush occurred. Approximately 5,000 to 7,000 small miners worked alluvial and saprolite-hosted gold deposits using hydraulic mining techniques. The amount of gold recovered is unknown and much of the area of the concessions is now covered with tailings.

         Placer conducted essentially all of the modern exploration on Cristinas during its tenure on the property from 1991 to 2001. Placer completed line cutting, mapping, rock and soil sampling, geophysics, and drilling of 1,174 drill holes for a total of 158,738 m of drilling. In 2003, Crystallex undertook drilling of 12 holes totaling 2,199 m to confirm the tenor of mineralization presented in the pre-existing database and also assayed check samples. Between 2003 and 2007, Crystallex released at least two feasibility studies and several resource and reserve estimates for Cristinas, all of which are historic in nature and should not be relied upon.

         The Brisas concession was acquired by GRI in August 1992 with the acquisition of Compañia Aurifera Brisas del Cuyuni C.A. A large stratabound gold-copper mineralization was discovered in both alluvial and hard rock material by a drilling program in 1993. A majority of the exploration and development drilling took place in 1996 and 1997, with additional drilling completed in 1999, 2003, 2004, and 2005. As of 2005, 802 exploration holes had been drilled including 186,094 m of core drilling and 189,985 m of exploration core and auger drilling. In 2005-2006, an additional 76 holes were drilled on the Brisas concessions for geotechnical and other studies. A number of resource estimates have been completed for the Brisas deposit, all of which are superseded by the current Mineral Resource estimate in this report. A pre-feasibility study was carried out in 1998 and a feasibility study in 2005, with a feasibility update in 2008, all including historic reserve estimates.

    Geology

         The Siembra Minera Project is within the Guyana Shield in northern South America. The shield covers easternmost Colombia, southeastern Venezuela, Guyana, Suriname, French Guiana, and northeastern Brazil. The Venezuelan portion of the shield is subdivided into five geological provinces with different petrological, structural and metallogenic characteristics. The provinces are, from oldest to youngest, Imataca, Pastora, Cuchivero, Roraima, and Parguaza. Only the Imataca, Pastora and Roraima provinces are found in the vicinity of the Siembra Minera deposit.

         The Siembra Minera deposit lies within a portion of the lower Caballape Formation volcanic and volcanic-related sedimentary rocks. The units present are (1) andesitic to rhyolitic tuffaceous volcanic beds, (2) related sedimentary beds, and (3) a tonalitic intrusive body. All rocks have been tilted and subjected to lower greenschist facies metamorphism. It is thought, based on information from nearby properties, that the Siembra Minera Project occupies one limb of a large regional fold. Limited direction-indicating structures show the strata to be top-up. In the main mineralized trend, moderate to strong foliation is oriented N10°E and dipping 30° to 55° northwest. This foliation appears to be parallel to the original bedding and tends to be strongest in the finer-grained rocks. A much weaker foliation orientation appears in outcrop exposures, striking north-northwest and dipping to the southwest.

    Exhibit 99.1 Annual Information Form - Page 26


     

         There are four distinct types of gold and copper mineralization present at Brisas, defined by geometry, associated minerals, and the gold-copper ratio. These zones are the Blue Whale body, disseminated gold+pyrite (± copper), disseminated high copper, and shear-hosted gold. Only the first three types are encountered within the proposed pit geometry.

         Two distinct styles of mineralization are present at Cristinas: hydrothermal breccia-hosted mineralization at Mesones-Sofia and stratiform mineralization at Conductora, Morrocoy, and Cordova. The vast majority (approximately 95%) of the gold at Cristinas is contained in the stratiform mineralized zone.

    Exploration Status

         Drilling at Brisas was carried out by GRI from late 1992 to 2006 and consisted of 975 drill holes totalling approximately 207,000 m. In addition, four trenches were dug for a total of 60 m. At Cristinas, drilling was carried out by Placer from 1992 to 1997, consisting of 1,182 drill holes totaling approximately 155,000 m, and by Crystallex from 2003 to 2007, consisting of 90 holes totalling approximately 28,000 m. The Crystallex drill hole data was not available for RPA’s resource modelling work.

         The Siembra Minera mineralization is open down dip in all zones and along strike to the northwest in Morrocoy and Cordova because of insufficient drilling. Current plans for exploration are based on brownfield expansion of the existing deposit. As the Project advances, GRE proposes to carry out approximately 75,000 m to 100,000 m of new drilling.

    Mineral Resource Estimates

         A Mineral Resource estimate, dated December 31, 2017, was completed by RPA using the Surpac and Leapfrog Geo software packages. Wireframes for geology and mineralization were constructed in Leapfrog Geo based on geology sections, assay results, lithological information, and structural data. Assays were capped to various levels based on exploratory data analysis and then composited to three metre lengths. Wireframes were filled with blocks measuring 10 m by 10 m by 6 m (length, width, height). Block grades were estimated using dynamic anisotropy and inverse distance squared algorithms. Block estimates were validated using industry standard validation techniques. Classification of blocks was based on drill hole spacing distances and other criteria.

    A summary of the Mineral Resources at the Project is provided in Table 1-7.

    TABLE 1-7 SUMMARY OF MINERAL RESOURCES – DECEMBER 31, 2017
    GR Engineering (Barbados), Inc. – Siembra Minera Project
     
    Category Tonnes Grade Grade Contained Gold Contained Copper
      (Mt) (g/t Au) (% Cu) (koz Au) (kt Cu) (Mlb Cu)
    Measured 10 1.02 0.18 318 17 38
    Indicated 1,174 0.70 0.10 26,504 1,202 2,649
    Total Measured +            
    Indicated 1,184 0.70 0.10 26,823 1,219 2,687
    Inferred 1,291 0.61 0.08 25,389 1,044 2,300

     

    Notes:

    1.      CIM (2014) definitions were followed for Mineral Resources.
    2.      Mineral Resources are estimated at an NSR cut-off value of US$7.20 per tonne for oxide-saprolite material and US$5.00 per tonne for sulphide-saprolite and fresh rock material.
    3.      Mineral Resources are constrained by a preliminary pit shell created using the Whittle software package.
    4.      Mineral Resources are estimated using a long-term gold price of US$1,300 per ounce, and a copper price of US$3.00 per pound.
    5.      Bulk density varies by material type.
    6.      Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
    7.      Numbers may not add due to rounding.

    RPA is not aware of any environmental, permitting, legal, title, taxation, socio-economic, marketing, political, or other relevant factors that could materially affect the Mineral Resource estimate.

    Exhibit 99.1 Annual Information Form - Page 27


     

    Mining

         The Siembra Minera Project is an open pit gold-copper mining project that will utilize 30 m3 hydraulic shovels and 236-tonne trucks as the primary mining equipment.

         The resource pit optimization was developed by RPA based on the RPA Mineral Resource estimate (Table 1-7). Blocks classified as Measured, Indicated, and Inferred Mineral Resources were included in the resource pit optimization process for the Siembra Minera deposit. The resource pit is approximately 6,000 m long and 1,900 m wide with a maximum depth of approximately 700 m. The pit slope on the east wall follows the mineralization with slopes from 36° to 38°, while the west wall final pit has overall pit slopes ranging from 48° to 50°.

         Mine production is scheduled to be carried out at a maximum mining rate ranging from 330 ktpd to 380 ktpd of total material. Stripping ratios are expected to average 1.16 over the LoM plan. The production schedule was produced using Whittle software to guide the mining sequence, Vulcan to design phases, waste dumps and the final pit, and XPAC to schedule the phases following the processing requirements.

         During the first ten years of the Project, 5.8 million tonnes per annum (Mtpa) of oxide saprolite that does not require grinding will be processed in the oxide saprolite plant. The flotation plant starts two years after the oxide plant. Feed to the flotation mill is scheduled for 58.0 Mtpa for years 3 to10, while softer high copper sulphide saprolite material is available. In year 11, one quarter of the flotation grinding mill (12.25 Mtpa) is converted to oxide to accommodate the harder low-copper sulphide saprolite and low-copper hard rock materials. The other 36.75 Mtpa of capacity in the grinding mill are used for the harder higher-copper material in the flotation. The oxide plant will start processing with a combination of saprolite and low copper hard rock using the leach tanks from the oxide saprolite plant and additional leach tanks required for processing. The hard rock and sulphide saprolite was divided into high copper and low copper using a 0.02% Cu threshold.

         In order to supply the processing input required in the first 10 years of production, the total material mined must achieve up to 120 Mtpa from a combination of the mining phases. The mining rate will change depending on stockpile size, increasing total mining rate to 140 Mtpa in year 20.

         Total resources potentially mineable by open pit are estimated at approximately 2.0 billion tonnes of mineralized material at a gold grade of 0.705 g/t and a copper grade of 0.1% with 2.3 billion tonnes of waste for a stripping ratio of 1.16 tonnes of waste per tonne of mineralized material.

         All of the waste rock, except that used for TMF construction, will be disposed of in the WRD facilities located to the north, west, and south of the pit. It appears that a portion of the Siembra Minera pit could be backfilled with waste rock, however, further investigation into tailings disposal and pit backfill opportunities are recommended.

    Exhibit 99.1 Annual Information Form - Page 28


     

    Mineral Processing and Metallurgical Testing

         The Siembra Minera Project consists of three rock types. Hard rock ore comprises approximately 87% of the material that will be processed. The remaining 13% of the mineralized material is saprolite with a split composed of approximately 43% oxide saprolite and 57% sulphide saprolite. Metallurgical test work was conducted on hard rock that contains higher and lower copper concentrations, and on blends that simulate the blends projected for the plant operation.

         Based on the results of metallurgical testing, the conceptual processes selected for the combined project include a cyanide leach plant to process oxide saprolite and sulphide saprolite that contains low concentrations of copper to recover gold as doré from gravity concentration and cyanide leaching plus a flotation concentrator to process sulphide saprolite and hard rock that contain higher concentrations of copper. The flotation concentrator will recover copper and gold into a copper flotation concentrate and gold as doré utilizing gravity concentration and cyanide leaching of cleaner scavenger tailings.

         The production schedule for this PEA is based on initially processing oxide saprolite through a 15,000 tpd cyanide leach plant. The crushing and screening plant feed is designed to process approximately 10% higher assuming that some of the material will be rejected due to oversize and/or rock material. Starting in year 7, the majority of the oxide saprolite is depleted and sulphide saprolite that contains low concentrations of copper will also be fed to the plant. In years 9 and 10, only low copper sulphide saprolite will be fed to the oxide plant.

         In year 4, the flotation concentrator will be commissioned. The feed to the plant includes sulphide saprolite that contains higher concentration of copper and a combination of high and low copper hard rock material at a nominal rate of 140,000 tpd although the actual feed rate is higher in the early years due to the presence of sulphide saprolite which is easier to grind.

         In year 11, the quantity of hard rock with suitable copper grades to produce acceptable concentrate grades in the flotation plant diminishes so the plant will be re-configured to process less material through the flotation plant and additional material through the oxide leach plant. The conceptual plan, at this early stage of the Project development, is to reduce the feed to the flotation concentrator to approximately 105,000 tpd and increase the tonnage to the oxide leach plant to 35,000 tpd. The low copper hard rock material will be ground in the existing milling circuit in the flotation plant and the leach plant will be expanded to accommodate the higher tonnage of material. The ball mill in the oxide leach plant, which is only sized to process saprolite, can be decommissioned or used to grind saprolite that is pumped from the open pit mine to the oxide leach plant.

    Environment

         Two separate, but parallel ESIA are being prepared for the Project. One ESIA is intended to meet Venezuelan regulatory requirements and the second one, international standards and guidelines. The Venezuelan ESIA is expected to be completed and submitted to the Ministry of People’s Power for Ecosocialism and Water (MINEA) in 2018; and the International ESIA will be completed soon thereafter.

         Prior to submission of the ESIA, an Authorization to Occupy the Territory (AOT) must be obtained and a Term of Reference (TDR) approved. The AOT certifies that the proposed use of the land by the Project is compatible with the land use designation of the area and the TDR defines the scope and contents of the ESIA. Both AOT and TDR must be submitted to MINEA. GRE has submitted the application for an AOT, and the TDR for the Project will be submitted as soon as the AOT is approved. Upon the approval of the TDR, GRE will prepare and submit the ESIA to MINEA. An application for the Authorization to Affect Natural Resources (AANR), a permit for exploitation, will be submitted as soon as the Project ESIA is approved, which is expected to be in 2018.

         In addition to the ESIAs, GRE is in the process of developing a series of environmental and social management plans and programs. Thousands of small-scale miners are actively working in the Project area and adequate management of small-scale mining is critical to the success of the Project. A conceptual plan for small-scale mining management has been developed by GRE to relocate these miners to the Oro concession area.

         Based on the current Project design, reclamation activities will commence soon after construction begins, and will continue throughout the life of the Project. Closure activities will continue for three years after the end of the mine life in year 27. Some intermittent reclamation would also take place before year 23, when areas are no longer needed for mine operation activities. Total expenditures for reclamation and closure are currently estimated to be approximately US$150 million.

    Exhibit 99.1 Annual Information Form - Page 29


     

    Capital Cost Estimate

    A summary of capital costs is shown in Table 1-8.

    TABLE 1-8 CAPITAL COST SUMMARY

        GR Engineering (Barbados), Inc. – Siembra Minera Project  
     
        Description Development   Sustaining LoM Total  
        Mineral Reserve Definition 0.0   100.0   100.0  
        Mining 436.6   1,212.6   1,649.2  
        Processing - CIP 97.0   0.0   97.0  
        PROCESSING - Concentrator 696.8   11.0   707.8  
        Processing - Tailings Dam 54.9   322.5   377.4  
        Processing - Port/Diversion/Vehicles 74.8   34.2   109.0  
        Processing - CIP Plant Conversion to 35 ktpd 0.0   35.0   35.0  
        Engineering & Geology 15.9   30.1   46.0  
        ARD Plant 2.3   0.0   2.3  
        Site Infrastructure 111.8   9.5   121.3  
        Subtotal Direct Cost 1,490.1   1,754.9   3,245.0  
        Indirects - CIP 34.3   0.0   34.3  
        Indirects - Concentrator 278.1   0.0   278.1  
        Indirects - Owner's Cost 310.4   150.6   461.0  
        Total Cost Before Contingency 2,112.8   1,905.5   4,018.3  
        Contingency - Mining 30.0   0.0   30.0  
        Contingency - CIP 26.3   0.0   26.3  
        Contingency - Concentrator 238.6   0.0   238.6  
        Contingency - TMF 16.5   0.0   16.5  
        Contingency - Port/Diversion/Vehicles 18.2   0.0   18.2  
        Contingency - Infrastructure 35.2   0.0   35.2  
        Contingency - Owner's Cost 93.1   36.2   129.3  
        Total Contingency 457.8   36.2   494.0  
        % Contingency 21.7 % 1.9 % 12.3 %
        Total Capital Cost 2,570.6   1,941.7   4,512.3  
        Reclamation/Closure Cost 0.0   150.0   150.0  
        Total Capital Cost excl. Working Capital 2,570.6   2,091.7   4,662.3  
        Working Capital1 195.4   0.0   195.4  
        Total LoM Capital Cost 2,766.0   2,091.7   4,857.7  
    Note:                
    1 . Upfront working capital of $195 million during Yrs 1 to 4. Recaptured at end of mine life.      

     

    Exhibit 99.1 Annual Information Form - Page 30


     

    Operating Cost Estimate

         The Siembra Minera Project will process approximately 2,005 million tonnes of mineralized material over its planned 45-year mine life. The estimated average operating costs for the Project life are shown in Table 1-9.

    TABLE 1-9 ESTIMATED LOM OPERATING COSTS
    GR Engineering (Barbados), Inc. – Siembra Minera Project

     

    Area US$/t Milled
    Mining (US$1.36/t mined) 2.89
    Process 4.93
    G&A 1.32
    Other Infrastructure 0.14
    Transportation 0.36
    Off-site Treatment 0.54
    Subtotal Operating Costs Before Royalties 10.19
    Royalties/Production Taxes 2.77
    Total 12.96

     

         Operating costs for this Project appear to be low, however, the diesel fuel price of $0.02/L, the electricity cost of $0.038/kWh ($38/MWh), and the low labour costs have a significant impact on the unit operating costs.

    SIEMBRA MINERA PROJECT COMPLETED ACTIVITIES

    The primary activities of Siembra Minera since its formation haves included:

    ·

    Local contractors have provided support services working with Gold Reserve and Siembra Minera by mobilizing certain equipment to the site and assisting with the anti-malaria program with smoker units going throughout the local communities to assist with the eradication of the source of the malaria;

     

    Exhibit 99.1 Annual Information Form - Page 31


     

         The Company's cumulative expenditures associated with Siembra Minera through December 31, 2017 amounted to approximately $9.2 million. These expenditures primarily include costs associated with consultants working on the Project, which have been recognized in the Consolidated Statements of Operations.

    LMS GOLD PROJECT

         On March 1, 2016, we completed the acquisition of certain wholly-owned mining claims known as the LMS Gold Project (the "LMS Property"), together with certain personal property for $350,000, pursuant to a Purchase and Sale Agreement with Raven Gold Alaska Inc. ("Raven"), a wholly-owned subsidiary of Corvus Gold Inc.

         Raven retains a royalty interest with respect to (i) "Precious Metals" produced and recovered from the LMS Property equal to 3% of "Net Smelter Returns" on such metals (the "Precious Metals Royalty") and (ii) "Base Metals" produced and recovered from the Property equal to 1% of Net Smelter Returns on such metals, however we have the option, for a period of 20 years from the date of closing of the acquisition, to buy back a one-third interest (i.e. 1 %) in the Precious Metals Royalty at a price of $4 million. The Property consists of 36 contiguous State of Alaska mining claims covering 61 km² in the Goodpaster Mining District situated approximately 25 km north of Delta Junction and 125 km southeast of Fairbanks, Alaska. The LMS Property remains at an early stage of exploration and is not considered material to the Company.

    Dividends and Distributions

         We have not declared or paid any dividends on our Class A common shares since 1984. We may declare cash dividends or make distributions in the future only if our earnings and capital are sufficient to justify the payment of such dividends or distributions. Regarding the collection of the Award and/or payment for the Mining Data, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and taxes, we expect to distribute a substantial majority of any net proceeds received.

    Exhibit 99.1 Annual Information Form - Page 32


     

    Description of Capital Structure

    CLASS A COMMON SHARES

         We are authorized to issue an unlimited number of Class A common shares without par value of which 99,395,048 Class A common shares are issued and outstanding as at the date hereof. Shareholders are entitled to receive notice of and attend all meetings of shareholders with each Class A common share held entitling the holder to one vote on any resolution to be passed at such shareholder meetings. Shareholders are entitled to dividends if, as and when declared by the Board. Shareholders are entitled upon liquidation, dissolution or winding up of the Company to receive the remaining assets available for distribution to shareholders.

    PREFERRED SHARES

         We are authorized, subject to the limitations prescribed by law and our articles of incorporation, from time to time, to issue an unlimited number of serial preferred shares and to determine variations, if any, between any series so established as to all matters, including, but not limited to: the rate of dividend and whether dividends shall be cumulative or non-cumulative; the voting power of holders of such series; the rights of such series in the event of our dissolution or upon any distribution of our assets; whether the shares of such series shall be convertible; and such other designations, rights, privileges, and relative participating, optional or other special rights, and such restrictions and conditions thereon as are permitted by law. There are no preferred shares issued or outstanding as of the date hereof.

    SHARE PURCHASE OPTIONS

         We maintain the 2012 Equity Incentive Plan (the "2012 Plan") which provides for the grant of stock options of up to 8,750,000 of our Class A common shares. As of December 31, 2017, there were 5,091,565 options outstanding and 1,585,000 remaining options available for grant. Grants are made for terms of up to ten years with vesting periods as required by the TSXV and as may be determined by a committee established pursuant to the 2012 Plan, or in certain cases, by the Board.

    CONVERTIBLE NOTES AND INTEREST NOTES

         At December 31, 2016, we had $50.9 million aggregate principal amount of convertible notes outstanding, which were comprised of (i) approximately $49.9 million aggregate principal amount of 2018 Convertible Notes and approximately $1.0 million aggregate principal amount of 2022 Convertible Notes. Interest on the 2018 Convertible Notes accrued and was capitalized quarterly and was payable in Interest Notes. Interest on the Interest Notes was also payable in additional Interest Notes. We had $6.2 million aggregate principal amount of Interest Notes outstanding at December 31, 2016.

         In the third quarter of 2017, the Company settled all of its outstanding 2018 Notes. Prior to settlement, the Company had a total of $59.1 million face value of 2018 Notes outstanding. Of these notes, $36.3 million were redeemed for cash and the Company paid an additional $6.4 million related to a 20% premium due on the redeemed notes and $0.2 million in interest to the redemption date. The remaining $22.8 million 2018 Notes were converted to approximately 7.6 million Class A common shares. As a result of the redemption or conversion of 2018 Notes, the Company recorded a $16.6 million loss on settlement of debt consisting of the $6.4 million premium paid and approximately $10.2 million of remaining unamortized discount. In October 2017, the Company redeemed for cash its remaining debt, which consisted of approximately $1.0 million face value of 2022 Convertible Notes.

    Market for Securities

         Our Class A common shares are traded in Canada on the TSXV under the symbol "GRZ.V" and in the United States on the OTCQX under the symbol "GDRZF". The following table sets forth for the periods indicated the high and low sales prices of our Class A common shares as reported on the TSXV and the OTCQX during 2017.

    Exhibit 99.1 Annual Information Form - Page 33


     

        TSXV     OTCQX  
        (Cdn $)     (U.S. $)  
      High Low Volume High Low Volume
    January 5.60 4.50 356,800 4.21 3.40 243,600
    February 4.85 4.02 478,300 3.71 3.10 223,200
    March 4.22 3.45 248,100 3.15 2.54 344,300
    April 4.00 3.44 277,400 2.97 2.56 251,800
    May 3.75 2.72 252,000 2.66 1.98 227,400
    June 4.05 2.61 765,500 3.01 1.94 493,500
    July 5.30 3.75 631,400 4.08 2.78 437,300
    August 4.89 4.26 255,600 4.07 3.00 249,100
    September 5.06 4.47 317,700 4.10 3.63 176,600
    October 5.35 4.57 644,800 4.25 3.73 514,700
    November 5.14 3.80 447,800 4.01 2.99 283,000
    December 4.53 3.26 357,000 3.57 2.60 269,700

     

         On April 25, 2018, the closing price for our Class A common shares was Cdn $3.28 per share on the TSXV and U.S. $2.56 per share on the OTCQX. As of the date hereof, there were a total of 99,395,048 Class A common shares issued and outstanding.

    Prior Sales

         The only securities of the Company not listed or quoted on a marketplace are stock options. During 2017, we issued options to purchase 5.3 million Class A Common Shares.

    Escrowed Securities and Securities Subject to Contractual Restriction on Transfer

         As of the date hereof, none of our securities were subject to escrow or contractual restrictions on transfer. Directors and Officers Our articles provide that the Board shall consist of a minimum of three and a maximum of fifteen directors, with the actual number of directors to be determined from time to time by the Board. The Board presently consists of seven members. Our by-laws provide that each director shall be appointed and/or elected to hold office, until our next annual meeting of shareholders, or until their qualified successors are elected. All of the current directors’ terms expire on the date of the next annual meeting.

         The following table and notes thereto states the names of each of our directors and executive officers, the province or state and country of residence, their age, all offices now held by such individual, their principal occupation, the period of time such individual has acted as a director or executive officer and the number of Class A common shares beneficially owned, or controlled or directed, directly or indirectly, by each such director or executive officer.

    Exhibit 99.1 Annual Information Form - Page 34


     

          Number      
          of Common      
          Shares      
        Director Beneficially      
        and/or Owned as of Percent   Committee
    Name, Residence and Principal Occupation Officer March 31, of   Member-
    Position during the last five years Since 2018 Class   ship
    James H. Coleman, Q.C. (2) (3) Mr. Coleman is the Executive Chairman of February 780,588     A,B,E,F
    Alberta, Canada the Company since 2016 and prior thereto 1994        
    Executive Chairman was the non-Executive Chairman since 2004.          
    and Director He has also been a director of the Company          
      and its predecessor Gold Reserve Corporation          
      since 1994, and a lawyer and a senior partner          
      with the law firm of Norton Rose Fulbright          
      Canada LLP. He has extensive international          
      industry and public company experience as a          
      result of his membership on the Board for          
      over 24 years and on the board of directors of          
      other mining issuers such as Amex          
      Exploration Inc., Avion Gold Corporation          
      and Endeavour Mining Corporation. He has          
      also been a director of Siembra Minera since          
      2016, Great Basin Energies Inc. since 1996          
      and MGC Ventures, Inc. since 1997 as well          
      as Energold Drilling Corp. (an oil and gas          
      and mining services company) since 1994,          
      Sterling Resources Ltd. (a mining exploration          
      company) since 2013, and Petrowest          
      Corporation (an oil and gas company) since          
      2012.          
     
    Rockne J. Timm (2) (3) Mr. Timm has been a director of the March 1,530,040 1.5 % A, B
    Washington, USA Company for over 30 years and the Chief 1984        
    Chief Executive Officer Executive Officer of the Company and its          
    and Director predecessor Gold Reserve Corporation for 29          
      years. Prior to his involvement with the          
      Company, he was the Chief Financial Officer          
      and Vice President of Finance of a mining          
      company with six producing gold mines. Mr.          
      Timm is also the President and director of          
      Gold Reserve Corporation, Chief Executive          
      Officer of GR Mining (Barbados) Inc. and          
      GR Procurement (Barbados) Inc. since 2016.          
      Mr. Timm has also been a director of          
      Siembra Minera since 2016. In addition, Mr.          
      Timm has been a director of Great Basin          
      Energies, Inc. since 1981 and MGC Ventures,          
      Inc. since 1989.          
    A. Douglas Belanger (2) (3) Mr. Belanger’s principal occupation is August 1,700,940 1.7 % A,C,D,E
    Washington, USA President of the Company, a position he has 1988        
    President and Director held since January 2004. Mr. Belanger also          
      served as Executive Vice President from          
      1988 through January 2004. Mr. Belanger is a          
      director of Siembra Minera, director and          
      President of GR Mining (Barbados) Inc. and          
      GR Procurement (Barbados) Inc. since 2016          
      and GR Mining Group (Barbados) Inc. since          
      2018. Mr. Belanger has been Executive Vice          
      President and director of Great Basin          
      Energies Inc. since 1984 and MGC Ventures,          
      Inc. since 1997.          

     

    Exhibit 99.1 Annual Information Form - Page 35


     

          Number      
          of Common      
          Shares      
        Director Beneficially      
        and/or Owned as of Percent   Committee
    Name, Residence and Principal Occupation Officer March 31, of   Member-
    Position during the last five years Since 2018 Class   ship
    James P. Geyer Mr. Geyer, who has a Bachelor of Science in June 407,473 *   C,H
    Washington, USA Mining Engineering, has been a director of 1997        
    Independent Director the Company for 20 years and has significant          
      operating and mine project experience in gold          
      and copper operations around the world as          
      well as public company experience as a result          
      of his roles with the Company, Wheaton          
      River Minerals Ltd., USMX Inc., Thompson          
      Creek Metals Company Inc. (“Thompson          
      Creek”) (during which time Thompson Creek          
      constructed and commissioned the Mount          
      Milligan Mine) and Stonegate Agricom Ltd.          
      Prior to the expropriation of the Brisas          
      Project by Venezuela, Mr. Geyer was the          
      Senior Vice President of the Company          
      responsible for the development of the Brisas          
      Project. Mr. Geyer also led the analysis on          
      behalf of the Company of the Brisas Cristinas          
      Project (now known as the Siembra Minera          
      Project). Mr. Geyer has considerable          
      knowledge of and experience with mining          
      regulations in Venezuela.          
    Jean Charles Potvin Mr. Potvin holds a Hon. BSc. in geology as November 316,672 *   C,D,F,G,H
    Ontario, Canada well as an MBA and has been a director of 1993        
    Independent Director the Company and its predecessor Gold          
      Reserve Corporation since 1993. He has also          
      been a director of Murchison Minerals Ltd.          
      (formerly Flemish Gold Corp.) and is a          
      director and Chairman of the Audit          
      Committee of Azimut Exploration Ltd. a          
      publicly listed mineral exploration company.          
      He is also a director and member of the Audit          
      Committee of Canadian Zinc Corporation.          
      Mr. Potvin has been a key member of the          
      Company's Audit Committee for almost 15          
      years. Mr. Potvin also has nearly 14 years          
      experience as a top-ranked mining investment          
      analyst at Burns Fry Ltd. (now BMO Nesbitt          
      Burns Inc.). Mr. Potvin was also a founder          
      and the Chief Executive Officer of an          
      international mineral exploration company          
      that was acquired in a friendly transaction by          
      one of the largest gold companies in the          
      world. Mr. Potvin has extensive mineral          
      development experience in Canada, Central          
      and South America as well as Africa.          
     
    Robert A. Cohen Mr. Cohen retired as of October 1, 2016 from August - *   B,F
    Massachusetts, USA his position as a litigation partner in the 2017        
    Independent Director international law firm Dechert LLP, and its          
      predecessor firms, in the New York office.          
     
    James Michael Johnston(1) Mr. Johnston is the co-founder and managing August 10,499,924 10.6 % G,H
    Washington, USA partner of Steelhead Partners, LLC, 2017        
    Independent Director ("Steelhead") established in Seattle,          
      Washington in 1996 to form and manage          
      Steelhead Navigator Fund, L.P.          

     

    Exhibit 99.1 Annual Information Form - Page 36


     

          Number      
          of Common      
          Shares      
        Director Beneficially      
        and/or Owned as of Percent   Committee
    Name, Residence and Principal Occupation Officer March 31, of   Member-
    Position during the last five years Since 2018 Class   ship
    Mary E. Smith (2) (3) Ms. Smith’s principal occupation has been as February 189,855 *    
    Washington, USA Vice President of Administration of the 1997        
    Vice President Company since January 1997 and Secretary          
    Administration and Secretary since June 1997. She has also served as Vice          
      President of Administration for Gold Reserve          
      Corporation since 1997, Vice President of          
      Administration of GR Mining (Barbados)          
      Inc. and GR Procurement (Barbados) Inc.          
      since 2016, Vice President of Administration          
      of GR Mining Group (Barbados) Inc. since          
      2018, Vice President of Administration and          
      Secretary of Great Basin Energies Inc. and          
      MGC Ventures, Inc. since 1997. Ms. Smith          
      will be retiring as of June 15, 2018.          
     
    Robert A. McGuinness (2) (3) Mr. McGuinness’ principal occupation has March 208,004 *    
    Washington, USA been as Vice President of Finance of the 1993        
    Vice President Finance and Company since March 1993 and Chief          
    CFO Financial Officer since June 1993. He has          
      also served as Vice President of Finance for          
      Gold Reserve Corporation since 1993, Vice          
      President of Finance and director of GR          
      Mining (Barbados) Inc. and GR Procurement          
      (Barbados) Inc. since 2016, Vice President of          
      Finance and director of GR Mining Group          
      (Barbados) Inc. since 2018 and Vice          
      President of Finance, Chief financial Officer          
      and Treasurer of Great Basin Energies, Inc.          
      and MGC Ventures, Inc. since 1997.          
     
    Directors and officers            
    as a group     15,633,496 15.7 %  

     

    *      Indicates less than 1%
    (1)      Mr. Johnston is the managing member of Steelhead Partners, LLC, which acts as investment manager of Steelhead Navigator Master, L.P. and
      another      client account that together hold 10,499,924 Class A Shares. As such, Mr. Johnston may be deemed to beneficially own the shares owned by
      these      client accounts in that he may be deemed to have the power to direct the voting or disposition of these shares. Otherwise, Mr. Johnston
      disclaims      beneficial ownership of these securities.
    (2)      Messrs. Timm, Belanger, Coleman, McGuinness, and Ms. Smith are directors and/or officers of Great Basin Energies, Inc.
      (OTC:      GBEI), which owns 491,192 Class A Shares, or 0.6% of the outstanding Class A Shares. The foregoing individuals beneficially own 17.6%,
      11.2%,      4.2%, 2.7%, 1.3%, and 1.2%, respectively, of the outstanding common shares of Great Basin Energies, Inc. and may be deemed indirectly to
      have      an interest in the Company through their respective management positions and/or ownership interests in Great Basin Energies, Inc. Each of the
      foregoing      individuals disclaims any beneficial ownership of the Class A Shares owned by Great Basin Energies, Inc. and such Class A Shares are not
      included      in this total.
    (3)      Messrs. Timm, Belanger, Coleman, McGuinness, and Ms. Smith are directors and/or officers of MGC Ventures, Inc.
      (OTC:      MGCV), which owns 258,083 Class A Shares, or 0.3% of the outstanding Class A Shares. The foregoing individuals beneficially own 18.4%,
      18.6%,      7.5%, 5.6%, 1.9%, and 1.5%, respectively, of the outstanding common shares of MGC Ventures, Inc. and may be deemed indirectly to have
      an      interest in the Company through their respective management positions and/or ownership interests in MGC Ventures, Inc. Each of the foregoing
      individuals      disclaims any beneficial ownership of the Class A Shares owned by MGC Ventures, Inc. and such Class A Shares are not included in this
      total.     
      (A)      Executive Committee; (B) Legal Committee; (C) Mining Committee; (D) Financial Markets Committee; (E) Barbados Committee; (F)
      Nominating      Committee; (G) Compensation Committee; (H) Audit Committee.

         Information concerning Class A common shares beneficially owned, or controlled or directed, directly or indirectly, is based on information provided to us by our directors and executive officers.

    Corporate Cease Trade Orders

         At the date of this Annual Information Form, none of our directors or executive officers is, or has been within ten years prior to the date of this Annual Information Form, a director, chief executive officer or chief financial officer of any company that:

    Exhibit 99.1 Annual Information Form - Page 37


     

    (i)      was subject to a cease trade order, an order similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued while the director or officer was acting in the capacity as director, chief executive officer or chief financial officer of the relevant company; or
    (ii)      was subject to a cease trade order, an order or similar to a cease trade order or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days, that was issued after the director or officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.

    Penalties or Sanctions

         At the date of this Annual Information Form, none of our directors or executive officers or any shareholder holding a significant number of our securities to materially affect control of us, is or has been subject to:

    (i)      any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
    (ii)      any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

    Bankruptcies

         None of our directors or executive officers, or a shareholder holding a sufficient number of our securities to materially affect control of us:

    (i)      Other than as disclosed below, no proposed director of the Company or any personal holding company of such person has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director.
      Mr. Coleman served as a director of Petrowest Corporation ("Petrowest") until May 18, 2017. On August 15, 2017 the banking syndicate of Petrowest obtained an order from the Alberta Court of Queen's Bench to place Petrowest into receivership. or
    (ii)      has, within ten years prior to the date of the Annual Information Form become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or shareholder.

    Audit Committee Information

    Audit Committee Charter

         The Board has a separately-designated standing Audit Committee for the purpose of overseeing our accounting and financial reporting processes and audits of our annual financial statements. The Audit Committee of the Board operates within a written mandate (the "Audit Committee Charter"), as approved by the Board, which describes the Committee’s objectives and responsibilities. The full text of the Audit Committee Charter is attached as Exhibit A to our proxy circular for our 2018 annual meeting of shareholders (the "2018 Proxy Circular") which is available for review under our profile at www.sedar.com and www.sec.gov or is available at www.goldreserveinc.com under the Investor Relations page.

    Composition of the Audit Committee

    The Audit Committee is composed of the following three directors:

    Jean Charles Potvin (Chair)

    James P. Geyer

    Michael Johnston

         The Board has determined each member of the Audit Committee to be "independent" and "financially literate" as such terms are defined under Canadian securities laws. In addition, the Chair of the Committee, Mr. Potvin, is considered by the Board to qualify as an "audit committee financial expert" as defined by the SEC. The Board has made these determinations based on the education and experience of each member of the Committee, as outlined below.

    Relevant Education and Experience

         The following is a description of the education and experience of each member of the Audit Committee that is relevant to the performance of his responsibilities as a member of the Audit Committee:

    Exhibit 99.1 Annual Information Form - Page 38


     

         Mr. Potvin holds a Hon. BSc. in geology as well as an MBA and has been a director of the Company for almost 25 years and is also a director of Murchison Minerals Ltd. (formerly Flemish Gold Corp.) and a director and Chairman of the Audit Committee of Azimut Exploration Ltd. a publicly listed mineral exploration company. He is also a director and member of the Audit Committee of Canadian Zinc Corporation. Mr. Potvin also has nearly 14 years experience as a top-ranked mining investment analyst a Burns Fry Ltd. (now BMO Nesbitt Burns Inc.). Mr. Potvin has been a member of the Audit Committee since August 2003.

         Mr. Geyer has a Bachelor of Science in Mining Engineering from the Colorado School of Mines, has 41 years of experience in underground and open pit mining and has held engineering and operations positions with a number of companies including AMAX and ASARCO. Mr. Geyer was the Senior Vice President of the company responsible for the development of the Brisas Project and also led the analysis of the Brisas Cristinas Project on behalf of the Company. Mr. Geyer is a former Director of Thompson Creek Metals Inc. where he was previously a member of the Audit Committee. Mr. Geyer has been a member of the Audit Committee since March 19, 2015.

         Mr. Johnston co-founded Steelhead in late 1996 to form and manage the Steelhead Navigator Fund. Prior thereto, as senior vice president and senior portfolio manager at Loews Corporation, Mr. Johnston co-managed over $5 billion in corporate bonds and also managed an equity portfolio. He began his investment career at Prudential Insurance as a high yield and investment-grade credit analyst. Mr. Johnston was promoted to co-portfolio manager of an $11 billion fixed income portfolio in 1991. He graduated with honors from Texas Christian University with a degree in finance and completed his MBA at the Johnson Graduate School of Business at Cornell University.

    External Registered Public Accounting Firm Service Fees

         Fees paid or payable to our independent external registered public accounting firm, PricewaterhouseCoopers LLP, are detailed in the following table:

    Fee category   (U.S.$)   (U.S.$)
        Year Ended 2017   Year Ended 2016
    Audit $ 204,238 $ 140,130
    Tax   111,340   116,620
    All other fees   -   -
    Total $ 315,578 $ 256,750

     

         The nature of the services provided by PricewaterhouseCoopers LLP under each of the categories indicated in the table is described below.

    Audit Fees

         Audit fees were for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements, the reviews of our quarterly financial statements and services provided in respect of other regulatory-required auditor attest functions associated with government audit reports, registration statements, prospectuses, periodic reports and other documents filed with securities regulatory authorities or other documents issued in connection with securities offerings.

    Tax Fees

         Tax fees were for services outside of the audit scope and represented tax return preparation, consultations for tax compliance and advisory services relating to common forms of domestic and international taxation.

    All Other Fees

    All Other Fees represent costs not included above.

    Exhibit 99.1 Annual Information Form - Page 39


     

    Pre-approval Policies and Procedures

         Our Audit Committee has adopted policies and procedures for the pre-approval of services performed by our external auditors, with the objective of maintaining the independence of the external auditors. Our policy requires that the Audit Committee pre-approve all audit, audit-related, tax and other permissible non-audit services to be performed by the external auditors, including all engagements of the external auditors with respect to our subsidiaries. Prior approval of engagements for services other than the annual audit may, as required, be approved by the Chair of the Audit Committee with the provision that such approvals be brought before the full Audit Committee at its next regular meeting. Our policy sets out the details of the permissible non-audit services consistent with the independence requirements of the United States Sarbanes-Oxley Act of 2002 and the Canadian independence standards for auditors. The Chief Financial Officer presents the details of any proposed assignments of the external auditor for consideration by the Audit Committee. The procedures do not include delegation of the Audit Committee’s responsibilities to our management.

    Conflicts of Interest

         Our directors and officers may serve as directors or officers of other companies or have significant shareholdings in other resource companies and, to the extent that such other companies may participate in ventures in which we may participate, such individuals may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. In the event that such a conflict of interest arises the individual is required to abstain from participating in the deliberation or approval of such participation or such terms. In accordance with the laws of Alberta, Canada, the directors and officers are required to act honestly, in good faith and in our best interests.

         Our directors and officers are aware of the existence of laws governing the accountability of directors and officers for corporate opportunity and requiring disclosures of conflicts of interest. All such conflicts will be disclosed by such directors and/or officers in accordance with the Business Corporations Act (Alberta) and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law. Our directors and officers are not aware of any such conflicts of interests.

    Legal Proceedings and Regulatory Actions

    See “General Development and Description of the Business- Brisas Arbitral Award Settlement and Mining Data Sale” for a discussion of legal proceedings related to the Award. Except for the proceedings related to the Award, there were no legal proceedings, to which we are aware of or of which any of our property was the subject, since the beginning of the most recently completed financial year, nor were there any proceedings known by us to be contemplated, that involve a claim for damages exceeding 10% of our current assets. In addition, to the best of our knowledge, there were no:

    (i)      penalties or sanctions imposed against us by a court relating to securities legislation or by a securities regulatory authority during the year ended December 31, 2017;
    (ii)      penalties or sanctions imposed by a court or regulatory body against us that would likely be considered important to a reasonable investor in making an investment decision; or
    (iii)      settlement agreements entered into by us before a court relating to securities legislation or with a securities regulatory authority during the year ended December 31, 2017.

    Interest of Management and Others in Material Transactions

         In the third quarter of 2017, the Company settled all of its outstanding 2018 Notes. Prior to settlement, the Company had a total of $59.1 million face value of 2018 Notes outstanding. Of these notes, $15.4 million and $26.0 million were held by funds managed by Steelhead and Greywolf Capital Management L.P. ("Greywolf"), respectively. Both Steelhead and Greywolf exercised control or direction over more than 10% of our Class A common shares prior to the transaction. (See Note 11 to the audited consolidated financial statements).

         Other than as disclosed herein, we are not aware of any material interest, direct or indirect, of any director, executive officer, or shareholder that beneficially owns, or controls or directs, directly or indirectly more than 10% of our voting securities, or any associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year, that has materially affected us, or is reasonably expected to materially affect us.

    Exhibit 99.1 Annual Information Form - Page 40


     

    Transfer Agents and Registrars

         Our registrar and transfer agent is Computershare Trust Company, Inc. ("Computershare"). Computershare maintains the Company’s register for our Class A common shares in Highlands Ranch, CO.

    8742 Lucent Blvd, Suite 225
    Highlands Ranch, CO 80129

    8th Flr, 100 University Avenue
    Toronto, Ontario Canada M5J 2Y1

    Material Contracts

         Except as set forth below, the Company did not enter into any contract during the most recently completed financial year, and has not entered into any contract since January 1, 2002 that is still in effect, that may be considered material to the Company, other than material contracts entered into in the ordinary course of business not required to be filed under National Instrument 51-102-Continuous Disclosure Obligations.

    Settlement Agreement

         In July 2016, we signed the Settlement Agreement, as amended whereby Venezuela agreed to pay us the Award (including interest) and purchase our mining data, previously compiled in association with our development of the Brisas Project (the "Mining Data"). Under the terms of the Agreement, Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data for a total of approximately $1.032 billion in monthly installments. The first $240 million to be received by Gold Reserve Corporation from Venezuela was related to the sale of the Mining Data. See "General Development and Description of the Business – Brisas Arbitral Award Settlement and Mining Data Sale." Mixed Company Agreement In August 2016, we executed an agreement with the government of Venezuela to form a jointly owned company and in October 2016, together with an affiliate of the government of Venezuela, we established Siembra Minera, the entity whose purpose is to develop the Siembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation and 45% by Gold Reserve. See "Exploration Prospects- Siembra Minera Project- Empresa Mixta Ecosocialista Siembra Minera, S.A".

    Interests of Experts

         There is no person or company who is named as having prepared or certified a report, valuation, statement or opinion described or included in a filing, or referred to in a filing, made under Canadian National Instrument 51-102 Continuous Disclosure Obligations, by us during, or related to, our most recently completed financial year and whose profession or business gives authority to the report, valuation, statement or opinion made by the person or company, other than PricewaterhouseCoopers LLP, Richard J. Lambert, P.E., P.Eng., José Texidor Carlsson, P.Geo., Grant A. Malensek, P.Eng., Hugo Miranda, C.P. and Kathleen A. Altman, Ph.D., P.E. each of whom is independent of the Company.

         PricewaterhouseCoopers LLP, our independent registered accounting firm, has advised us that they are independent with respect to us within the meaning of the Code of Professional Conduct of the Chartered Professional Accountants of British Columbia, the meaning of the Securities Acts administered by the SEC and relevant legislation and the requirements of the Public Company Accounting Oversight Board (PCAOB).

         In March 2018, a technical report with respect to the PEA of the Siembra Minera Gold Copper Project in accordance with NI 43-101 was filed by the Company. The Qualified Persons (as defined in NI 43-101) in respect of the PEA who have reviewed, verified and approved such information are Richard J. Lambert, P.E., P.Eng., José Texidor Carlsson, P.Geo., Grant A. Malensek, P.Eng., Hugo Miranda, C.P., and Kathleen A. Altman, Ph.D., P.E. To the best of our knowledge as of the date hereof, the aforementioned persons own, directly or indirectly, less than 1% of our securities. In addition, none of the aforementioned persons is or is expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company.

         Additional information relating to the Company may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Additional financial information is provided in our audited consolidated financial statements for the year ended December 31, 2017, together with the report of the independent registered accounting firm thereon, and managements’ discussion and analysis for the most recently completed financial year, both of which are also available, on the aforementioned websites. Information, including information relating to directors' and officers' remuneration and indebtedness, principal holders of our securities, securities authorized for issuance under equity compensation plans and interests of insiders in material transactions, where applicable, is contained in the proxy circular for our 2018 annual general meeting.

    Exhibit 99.1 Annual Information Form - Page 41

    gdrzfform40fexhibit992042618.htm - Generated by SEC Publisher for SEC Filing

    Exhibit 99.2 – Audited Consolidated Financial Statements

     

    Management’s Annual Report on Internal Control over Financial Reporting

    The accompanying audited consolidated financial statements of Gold Reserve Inc. were prepared by management in accordance with accounting principles generally accepted in the United States, consistently applied and within the framework of the summary of significant accounting policies contained therein. Management is responsible for all information in the accompanying audited consolidated financial statements.

    Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S.  Internal control over financial reporting includes:

    ·         maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

    ·         providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles;

    ·         providing reasonable assurance that receipts and expenditures are made in accordance with authorizations of our executive officers; and

    ·         providing reasonable assurance that unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. 

    Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

    Management, including the Chief Executive Officer  and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 

    Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2017.

    The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

    /s/ Rockne J. Timm

    /s/ Robert A. McGuinness

         Chief Executive Officer

         Vice President-Finance and Chief Financial Officer

         April 26, 2018

         April 26, 2018

                                                                                 

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 1

     


     

    April 26, 2018

     

     

    Report of Independent Registered Public Accounting Firm

     

    To the Shareholders and Board of Directors of Gold Reserve Inc.

     

    Opinions on the Financial Statements and Internal Control over Financial Reporting

    We have audited the accompanying consolidated balance sheets of Gold Reserve Inc. and its subsidiaries, (together, the Company) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

    In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and their results of operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America (US GAAP). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

    Basis for Opinions

    The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

    We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

    Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

    Definition and limitations of internal control over financial reporting

    A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 2

     


     

    Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     

    s/PricewaterhouseCoopers LLP

    Chartered Professional Accountants

    Vancouver, Canada

    April 26, 2018

    We have served as the Company's auditor since 2001.

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 3

     


     

    GOLD RESERVE INC.

    CONSOLIDATED BALANCE SHEETS

    (Expressed in U.S. dollars)

     

     

     

    December 31,

     2017

     

     

    December 31, 2016

    ASSETS

     

     

     

     

     

    Current Assets:

     

     

     

     

     

    Cash and cash equivalents (Note 4)

    $

    137,672,718

     

    $

    35,747,049

    Marketable securities (Notes 5 and 6)

     

    239,232

     

     

    541,216

    Deposits, advances and other

     

    156,050

     

     

    153,916

    Total current assets

     

    138,068,000

     

     

    36,442,181

    Property, plant and equipment, net (Note 7)

     

    12,632,534

     

     

    12,046,496

    Total assets

    $

    150,700,534

     

    $

    48,488,677

    LIABILITIES

     

     

     

     

     

    Current Liabilities:

     

     

     

     

     

    Accounts payable and accrued expenses (Note 3)

    $

    2,167,171

     

    $

    691,409

    Accrued interest

     

     

     

    2,379

    Income tax payable

     

    1,263,438

     

     

    Deferred income tax (Note 12)

     

    18,402,483

     

     

    Contingent value rights (Note 3)

     

    3,097,193

     

     

    Total current liabilities

     

    24,930,285

     

     

    693,788

     

     

     

     

     

     

    Convertible notes and interest notes (Note 11)

     

     

     

    43,968,020

    Contingent value rights (Note 3)

     

     

     

    1,012,491

    Total liabilities

     

    24,930,285

     

     

    45,674,299

     

     

     

     

     

     

     

     

     

     

     

     

    SHAREHOLDERS' EQUITY

     

     

     

     

     

    Serial preferred stock, without par value

     

     

     

     

     

     Authorized:

    Unlimited

     

     

     

     

     

     

     Issued:

    None

     

     

     

     

     

     

    Common shares

     

    378,009,884

     

     

    342,190,645

     Class A common shares, without par value

     

     

     

     

     

      Authorized:

    Unlimited

     

     

     

     

     

     

      Issued and outstanding:

    2017…99,395,048

    2016…89,710,604

     

     

     

     

     

    Contributed surplus (Note 11)

     

    20,625,372

     

     

    25,723,900

    Stock options (Note 10)

     

    20,409,643

     

     

    17,353,725

    Accumulated deficit

     

    (293,386,189)

     

     

    (382,897,065)

    Accumulated other comprehensive income

     

    111,539

     

     

    443,173

    Total shareholders' equity

     

    125,770,249

     

     

    2,814,378

    Total liabilities and shareholders' equity

    $

    150,700,534

     

    $

    48,488,677

     

     

    Contingencies (Note 3)

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

    Approved by the Board of Directors:

                /s/ Jean Charles Potvin                                                                /s/ James P. Geyer

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 4

     


     

    GOLD RESERVE INC.

    CONSOLIDATED STATEMENTS OF OPERATIONS

     (Expressed in U.S. dollars)

     

    For the Years Ended

     

    December 31,

            

     

    2017

     

    2016

    INCOME (LOSS)

     

     

     

     

    Gain on sale of mining data (Note 3)

    $

    187,500,000

    $

    Interest income

     

    48,323

     

    47,691

    Gain on disposition of marketable securities

     

     

    48,360

    Loss on settlement of debt (Note 11)

     

    (16,637,379)

     

    (70,221)

    Write-down of property, plant and equipment (Note 7)

     

     

    (556,558)

    Loss on impairment of marketable securities (Note 5)

     

     

    (13,769)

    Foreign currency gain (loss)

     

    (213,016)

     

    51,142

     

     

    170,697,928

     

    (493,355)

    EXPENSES

     

     

     

     

    Corporate general and administrative

     

    16,715,792

     

    4,111,563

    Retention units costs

     

    7,694,200

     

    Contingent value rights

     

    3,901,159

     

    Siembra Minera Project (Note 8)

     

    7,510,588

     

    1,648,043

    Exploration costs

     

    83,859

     

    320,611

    Legal and accounting

     

    1,012,768

     

    867,965

    Arbitration and settlement (Note 3)

     

    2,435,645

     

    2,785,817

    Equipment holding costs

     

    661,798

     

    796,680

    Interest expense (Note 11)

     

    6,098,069

     

    10,521,658

     

     

    46,113,878

     

    21,052,337

     

     

     

     

     

    Net income (loss) before income tax expense

     

    124,584,050

     

    (21,545,692)

    Income tax expense

     

    (35,073,174)

     

     

     

     

     

     

    Net income (loss) for the year

    $

    89,510,876

    $

    (21,545,692)

     

     

     

     

     

    Net income (loss) per share, basic and diluted

    $

    0.96

    $

    (0.26)

     

     

     

     

     

    Weighted average common shares outstanding

     

     

     

     

      Basic

     

    93,649,587

     

    84,456,074

      Diluted

     

    94,162,693

     

    84,456,074

     

    GOLD RESERVE INC.

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

     (Expressed in U.S. dollars)

     

    For the Years Ended

     

    December 31,

     

     

    2017

     

    2016

     

     

     

     

     

    Net income (loss) for the year

    $

    89,510,876

    $

    (21,545,692)

    Other comprehensive income (loss), net of tax:

     

     

     

     

    Items that may be reclassified subsequently to the

     consolidated statement of operations:

     

     

     

     

       Unrealized gain (loss) on marketable securities, net of tax of nil (Note 5)

     

    (301,984)

     

    360,386

    Revaluation of deferred tax liability

     

    (29,650)

     

     

    Realized gain on marketable securities, net of tax of nil

     

     

    (60)

    Impairment loss on marketable securities, net of tax of nil

     

     

    13,769

    Other comprehensive income (loss) for the year

     

    (331,634)

     

    374,095

    Comprehensive income (loss) for the year

    $

    89,179,242

    $

    (21,171,597)

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

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 5

     


     

    GOLD RESERVE INC.

    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

    For the Years Ended December 31, 2017 and 2016

    (Expressed in U.S. dollars)

     

     

     

     

    Contributed Surplus

    Stock Options

    Accumulated Deficit

    Accumulated Other

    Comprehensive Income

     

     

    Common Shares

    Number

    Amount

    Balance, December 31, 2015

    76,447,147

     $ 290,467,418

    $ 30,435,625

    $ 20,523,325

     $ (361,351,373)

    $ 69,078

    Net loss

    (21,545,692)

    Other comprehensive income

    374,095

    Stock option compensation (Note 10)

    14,907

    Fair value of options exercised

    3,184,507

    (3,184,507)

    Common shares issued for:

     Private placement, net of costs

    8,562,500

    34,108,113

     Option exercises (Note 10)

    2,286,500

    4,175,875

     Note conversions (Note 11)

    2,414,457

    10,254,732

    (4,711,725)

    Balance, December 31, 2016

    89,710,604

     342,190,645

    25,723,900

    17,353,725

     (382,897,065)

    443,173

    Net income

    89,510,876

    Other comprehensive loss

    (331,634)

    Stock option compensation (Note10)

    5,108,493

    Fair value of options exercised

    2,052,575

    (2,052,575)

    Common shares issued for:

     Option exercises (Note 10)

    2,073,435

    5,973,474

     Note conversions (Note 11)

    7,611,009

    27,793,190

    (5,098,528)

    Balance, December 31, 2017

    99,395,048

    $ 378,009,884

    $ 20,625,372

    $ 20,409,643

    $(293,386,189)

    $ 111,539

                   

     

     

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

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 6

     


     

    GOLD RESERVE INC.

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (Expressed in U.S. dollars)

     

     

     

    For the Years Ended

     

     

    December 31,

     

     

    2017

     

    2016

    Cash Flows from Operating Activities:

     

     

     

     

    Net income (loss) for the year

    $

    89,510,876

    $

    (21,545,692)

    Adjustments to reconcile net income (loss) to net cash

     used in operating activities:

     

     

     

     

    Stock option compensation

     

    5,108,493

     

    14,907

    Depreciation

     

    6,491

     

    5,545

    Gain on sale of mining data

     

    (187,500,000)

     

    Loss on settlement of debt

     

    16,637,379

     

    70,221

    ·         Write-down of property, plant and equipment

     

     

    556,558

    Accretion of convertible notes

     

    6,051,444

     

    10,463,666

    Gain on disposition of marketable securities

     

     

    (48,360)

    Deferred income tax

     

    18,402,483

     

        Impairment loss on marketable securities

     

     

    13,769

    Changes in non-cash working capital:

     

     

     

     

    Net (increase) decrease in deposits and advances

     

    (2,134)

     

    436,334

    ·         Net increase (decrease) in accounts payable and accrued expenses

     

    4,791,873

     

    (858,505)

    Net cash used in operating activities

     

    (46,993,095)

     

    (10,891,557)

    Cash Flows from Investing Activities:

     

     

     

     

    Proceeds from sale of mining data

     

    187,500,000

     

    Proceeds from disposition of marketable securities

     

     

    48,456

    Purchase of property, plant and equipment

     

    (592,529)

     

    (350,000)

    Net cash provided by (used in) investing activities

     

    186,907,471

     

    (301,544)

    Cash Flows from Financing Activities:

     

     

     

     

    Proceeds from the issuance of common shares

     

    5,973,474

     

    38,425,875

    Settlement of debt

     

    (43,962,181)

     

    (694,730)

    Financing fees

     

     

    (141,887)

    Net cash provided by (used in) financing activities

     

    (37,988,707)

     

    37,589,258

    Change in Cash and Cash Equivalents:

     

     

     

     

    Net increase in cash and cash equivalents

     

    101,925,669

     

    26,396,157

    Cash and cash equivalents - beginning of year

     

    35,747,049

     

    9,350,892

    Cash and cash equivalents - end of year

    $

    137,672,718

    $

    35,747,049

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Supplemental Cash Flow Information:

     

     

     

     

     

     

     

     

     

    Cash paid for interest

    $

    9,589,281

    $

    749,311

    Cash paid for income taxes

    $

    15,436,903

    $

     

                                                                                                                                                         

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

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 7

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Note 1.      The Company and Significant Accounting Policies:

    Gold Reserve Inc. ("Gold Reserve", the "Company", "we", "us", or "our") is engaged in the business of acquiring, exploring and developing mining projects and was incorporated in 1998 under the laws of the Yukon Territory, Canada and continued to Alberta, Canada in September 2014.

    Gold Reserve Inc. is the successor issuer to Gold Reserve Corporation which was incorporated in 1956. A significant portion of our recent activities relate to the advancement of the Siembra Minera Project, the execution of the July 2016 settlement agreement, ( as amended, the "Settlement Agreement") with the Bolivarian Republic of Venezuela ("Venezuela") in regards to the payment of the Award (See Note 3, Arbitral Award Settlement and Associated Mining Data Sale) and the acquisition of our Mining Data by Venezuela (See Note 8, Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera")).

    Basis of Presentation and Principles of Consolidation. These audited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The statements principally include the accounts of the Company, Gold Reserve Corporation and two Barbadian subsidiaries formed to hold our equity interest in Siembra Minera which is beneficially owned 55% by Venezuela and 45% by Gold Reserve. Our investment in Siembra Minera is accounted for as an equity investment. All other subsidiaries are wholly owned. All intercompany accounts and transactions have been eliminated on consolidation. Our policy is to consolidate those subsidiaries where control exists. We have only one operating segment, the exploration and development of mineral properties.

    Cash and Cash Equivalents. We consider short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. The cost of these investments approximates fair value.  We manage the exposure of our cash and cash equivalents to credit risk by diversifying our holdings into major Canadian and U.S. financial institutions.

    Exploration and Development Costs. Exploration costs incurred in locating areas of potential mineralization or evaluating properties or working interests with specific areas of potential mineralization are expensed as incurred. Development costs of proven mining properties not yet producing are capitalized at cost and classified as capitalized exploration costs under property, plant and equipment. Mineral property holding costs are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs would be amortized based on the estimated proven and probable reserves benefited. Mineral properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values.

    Property, Plant and Equipment. Included in property, plant and equipment is certain equipment, the carrying value of which has been adjusted, as a result of impairment tests, to its estimated fair value of $11.7 million and which is not being depreciated as it is not yet available for its intended use. The ultimate recoverable value of this equipment may be different than management’s current estimate. We have additional property, plant and equipment which are recorded at cost less impairment charges and accumulated depreciation. Replacement costs and major improvements are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Furniture, office equipment and leasehold improvements are depreciated using the straight-line method over 5 to 10 years. The remaining property, plant and equipment are fully depreciated.

    Impairment of Long Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future net cash flows to be generated from the use or eventual disposition of a long-lived asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on a determination of the asset’s fair value. Fair value is generally determined by discounting estimated cash flows based on market participant expectations of those future cash flows, or applying a market approach that uses market prices and other relevant information generated by market transactions involving comparable assets.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 8

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Foreign Currency. The U.S. dollar is our (and our foreign subsidiaries’) functional currency. Monetary assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates and revenue and expense items are translated at average exchange rates during the reporting period, except for depreciation which is translated at historical rates. Translation gains and losses are included in the statement of operations.

    Stock Based Compensation. We maintain the 2012 Equity Incentive Plan (the "2012 Plan") which provides for the grant of stock options to purchase our Class A common shares. We use the fair value method of accounting for stock options. The fair value of options granted to employees is computed using the Black-Scholes method as described in Note 10 and is expensed over the vesting period of the option. For non-employees, the fair value of stock based compensation is recorded as an expense over the vesting period or upon completion of performance. Consideration paid for shares on exercise of share options, in addition to the fair value attributable to stock options granted, is credited to capital stock. Stock options granted under the plan become fully vested and exercisable upon a change of control.

    Income Taxes. We use the liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between the tax basis of assets and liabilities and those amounts reported in the financial statements. The deferred tax assets or liabilities are calculated using the enacted tax rates expected to apply in the periods in which the differences are expected to be settled. Deferred tax assets are recognized to the extent that they are considered more likely than not to be realized.

    Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

    Net Income (Loss) Per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of Class A common shares outstanding during each period. Diluted net income per share reflects the potentially dilutive effects of outstanding stock options and convertible notes. In periods in which a loss is incurred, the effect of potential issuances of shares under stock options and convertible notes would be anti-dilutive, and therefore basic and diluted losses per share are the same in those periods.

    Convertible Notes. Convertible notes are initially recorded at estimated fair value and subsequently measured at amortized cost. The fair value is allocated between the equity and debt component parts based on their respective fair values at the time of issuance and recorded net of transaction costs. The equity portion of the convertible notes is estimated using the residual value method. The fair value of the debt component is accreted to the face value of the convertible notes using the effective interest rate method over the contractual life of the convertible notes, with the resulting charge recorded as interest expense

     Investments. We determine the appropriate classification of investments in equity securities at acquisition and reevaluate such classifications at each reporting date. Investments in incorporated entities in which the Company has the ability to exercise significant influence over the investee and the Company’s ownership is between 20% and 50% are accounted for by the equity method.

    Financial Instruments. Marketable equity securities are classified as available for sale with any unrealized gain or loss recorded in other comprehensive income. If a decline in fair value of a security is determined to be other than temporary, an impairment loss is recognized. Cash and cash equivalents, deposits, advances and receivables are accounted for at cost which approximates fair value. Accounts payable, convertible notes, interest notes and contingent value rights are recorded at amortized cost. Amortized cost of accounts payable approximates fair value.

     

    Note 2.      New Accounting Policies:

    Adopted in the year

    In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation. The objective of this update is to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update was effective for us commencing January 1, 2017 and did not have an impact on our financial statements.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 9

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Recently issued accounting pronouncements

    In January 2017, the FASB issued ASU 2017-01, Business Combinations. This update clarifies the definition of a business and adds guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update is effective for us commencing with the annual period beginning after December 15, 2017 and interim periods within that annual period. We do not expect the adoption of this standard will have a significant impact on our financial statements.

    In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows – Restricted Cash. This update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This update is effective for us commencing with the annual period beginning after December 15, 2017 and interim periods within that annual period. We do not expect the adoption of this standard will have a significant impact on our financial statements.

    In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. This update is intended to reduce the existing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for us commencing with the annual period beginning after December 15, 2017 and interim periods within that annual period. We do not expect the adoption of this standard will have a significant impact on our financial statements.

    In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This update is effective for the Company commencing with the annual period beginning after December 15, 2017.  The Company expects the updated guidance to result in a reclassification of unrealized holding gains and losses related to investments in marketable equity securities from Accumulated other comprehensive income to Retained earnings in the Balance Sheet upon adoption. Subsequent to adoption of this standard, changes in the value of the Company’s marketable equity securities will be recorded as income (loss) instead of other comprehensive income (loss).

    In May 2014, the FASB issued ASU 2014-09, Revenue from contracts with customers. This standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services.  This update is effective for us commencing with the annual period beginning after December 15, 2017. As we currently do not generate revenue from operations, the adoption of this standard will not have a significant impact on our financial statements.

    In February 2016, the FASB issued ASU 2016-02, Leases. This update is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for us commencing with the annual period beginning after December 15, 2018, including interim periods within that year. We are still in the process of evaluating the impact of this standard.

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 10

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Note 3.      Arbitral Award Settlement and Associated Mining Data Sale:

    In October 2009, we initiated a claim (the "Brisas Arbitration") under the additional facility rules of the International Centre for the Settlement of Investment Disputes ("ICSID") of the World Bank to obtain compensation for the losses caused by the actions of Venezuela that terminated our previous mining project in Venezuela known as the “Brisas Project". In September 2014, the ICSID Tribunal granted us an Arbitral Award (the “Award”) totaling (i) $713 million in damages, plus (ii) pre-award interest from April 2008 through the date of the Award based on the U.S. Government Treasury Bill Rate, compounded annually totaling, as of the date of the Award, approximately $22.3 million and (iii) $5 million for legal costs and expenses, for a total, as of September 22, 2014, of $740.3 million. The Award (less legal costs and expenses) accrues post-award interest at a rate of LIBOR plus 2%, compounded annually, which, as a result of the Settlement Agreement, has been temporarily stayed.

    In July 2016, we signed the Settlement Agreement, as subsequently amended whereby Venezuela agreed to pay us the Award (including interest) and purchase our mining data related to the Brisas Project (the "Mining Data"). Under the terms of the Agreement, Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data for a total of approximately $1.032 billion in monthly installments. The first $240 million to be received by Gold Reserve from Venezuela is related to the sale of the Mining Data.

    In addition, the Company agreed to suspend the legal enforcement of the Award until final payment is made by Venezuela and Venezuela irrevocably waived its right to appeal the February 2017 judgment issued by the Cour d'appel de Paris dismissing the annulment applications filed by Venezuela in respect of the Award and agreed to terminate all other proceedings seeking annulment of the Award. Pursuant to the Settlement Agreement, Venezuela agreed to make a payment of $40 million (the "Initial Payment") followed by 23 monthly payments of $29.5 million on or before the 15th day (previously the 10th day) of each month starting in July 2017, with a final payment of approximately $313.3 million scheduled to be paid on or before June 15, 2019.

    Payments made by Venezuela associated with the Settlement Agreement are initially deposited into the Trust Account with Bandes Bank. From June through December 2017, Venezuela deposited a total of $187.5 million to the Trust Account. Of this amount, approximately $99 million had been transferred to the Company's bank account outside of Venezuela with the balance of approximately $88.5 million remaining in the Trust Account as of December 31, 2017. In August 2017, the U.S. government imposed financial sanctions targeting the Venezuelan government which, in addition to the economic and financial condition of the country, have complicated the monthly transfer of funds from the Trust Account to our bank accounts (See Note 4, Cash and Cash Equivalents).

    Due to the uncertainties associated with the funds still on deposit in the Trust Account, the Board of Directors has only considered those funds actually received by the Company in its bank account as funds available for purposes of calculating the CVR and Bonus Plan cash distributions, however, the full amount due based on total payments to the Trust Account has been accrued as a payable in the Consolidated Balance Sheets and recorded as an expense in the Consolidated Statements of Operations.

    Pursuant to a 2012 restructuring of convertible notes, we issued Contingent Value Rights ("CVRs") that entitle the holders to an aggregate of 5.466% of proceeds associated with the collection of the Award, sale of mining data or an enterprise sale (the "Proceeds"), less amounts sufficient to pay or reserve for taxes payable, certain associated professional fees and expenses not to exceed $10 million, any accrued operating expenses as of the date of the receipt of proceeds not to exceed $1 million and the balance of any remaining Notes and accrued interests thereon (the  "Net Proceeds"). The total estimated amount due pursuant to the terms of the CVRs as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data was approximately $3.1 million. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $1.8 million.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 11

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    The Board of Directors approved a bonus plan (the "Bonus Plan") in May 2012, which was intended to compensate the participants, including executive officers, employees, directors and consultants for their contributions related to: the development of the Brisas Project; the manner in which the development effort was carried out allowing the Company to present a strong defense of its arbitration claim; the support of the Company’s execution of the Brisas Arbitration; and the on-going efforts to assist with positioning the Company in the collection of an award, sale of the Mining Data or enterprise sale. The bonus pool under the Bonus Plan is comprised of the gross proceeds collected or the fair value of any consideration realized related to such transactions less applicable taxes multiplied by 1% of the first $200 million and 5% thereafter. The Bonus Plan is administered by a committee of independent directors. The Committee selected the individual participants in the Bonus Plan and fixed the relative percentage of the total pool to be distributed to each participant. Participation in the Bonus Plan by existing participants is fully vested, subject to voluntary termination of employment or termination for cause. The total estimated amount due pursuant to the terms of the Bonus Plan as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data is approximately $0.6 million which is included in corporate general and administrative expense in the Consolidated Statements of Operations for the year ended December 31, 2017. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $0.8 million.

    Our Intent to Distribute Collection of the Award or Sale of Mining Data to Shareholders

    Following receipt of funds transferred from the Trust Account (See Note 4, Cash and Cash Equivalents) to our bank account and after applicable payments of Net Proceeds (as defined in the CVRs) to holders of our CVRs and participants under our Bonus Plan, we expect to distribute to our shareholders, in the most cost efficient manner, a substantial majority of any remaining proceeds, subject to applicable regulatory requirements regarding capital and reserves for operating expenses, accounts payable and income taxes, and any obligations arising as a result of the collection of the Award and/or sale of the Mining Data.

    Note 4.      Cash and Cash Equivalents:

     

     

     

     

     

     

    December 31,

     

    December 31,

     

     

     

     

     

     

    2017

     

    2016

    Bank deposits

     

     

     

     

    $

    39,649,888

    $

    1,122,542

    Cash held in trust

     

     

     

     

     

    88,500,000

     

    Money market funds

     

     

     

     

     

    9,522,830

     

    34,624,507

    Total

     

     

     

     

    $

    137,672,718

    $

    35,747,049

    Payments made by Venezuela associated with the Settlement Agreement are initially deposited into a trust account for the benefit of the Company at Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") (the "Trust Account"), a Venezuelan state-owned development bank. Under the trust agreement, the Company has the right to direct transfer of the funds to its bank accounts outside of Venezuela. Deposits held in the Trust Account as of the balance sheet date are recorded as cash and cash equivalents. Deposits made to the Trust Account subsequent to the balance sheet date but prior to the date of issuance of the consolidated financial statements are recorded as a receivable as of the balance sheet date, arising from the sale of the Mining Data to Venezuela.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 12

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    In August 2017, the U.S. government imposed financial sanctions targeting the Venezuelan government by issuing an executive order that prohibits U.S. persons from dealing in financing of greater than 30 days for the Venezuelan government, including any entity owned or controlled by the Venezuelan government (with respect to the state oil company and its subsidiaries, these restrictions prohibit financings of greater than 90 days).  In addition, U.S. persons are prohibited from dealing in, among other things, bonds or equity issued by the Venezuelan government after the U.S. financial sanctions were imposed on August 25, 2017.  These U.S. financial sanctions built on sanctions imposed by the U.S. government starting in March 2015 that prohibit various Venezuelan officials from traveling to the U.S., freeze any assets they may have in the U.S. and generally prohibit U.S. persons from doing business with them and any entity they own 50% or more. Subsequent to the U.S. actions, Canada imposed its own sanctions. Recently the U.S. government added several additional individuals to the sanctions list and prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. The U.S. and Canadian governments have been reported to be considering further sanctions (collectively, the “Sanctions”). The Sanctions, in addition to the economic and financial condition of Venezuela, have complicated the monthly transfer of funds from the Trust Account to our bank accounts.

    As of April 26, 2018, Venezuela has transferred a total of $128.5 million to our bank account with $59 million remaining in the Trust Account. The monthly payments pursuant to the Settlement Agreement from December 2017 and January, February, March and April 2018 totaling approximately $147.5 million remain unpaid. (See Note 3, Arbitral Award Settlement and Associated Mining Data Sale).

    Note 5.      Marketable Securities:                                          

               

     

     

     

     

     

    December 31,

     

    December 31,

     

     

     

     

     

     

    2017

     

    2016

    Fair value at beginning of year

     

     

     

     

    $

    541,216

    $

    180,986

    Dispositions, at cost

     

     

     

     

     

     

    (96)

    Realized gain

     

     

     

     

     

     

    (60)

    Impairment loss

     

     

     

     

     

     

    (13,769)

    Increase (decrease) in fair market value

     

     

     

     

     

    (301,984)

     

    374,155

    Fair value at balance sheet date

     

     

     

     

    $

    239,232

    $

    541,216

     

    The Company’s marketable securities are classified as available-for-sale and are recorded at quoted market value with gains and losses recorded within other comprehensive income (loss) until realized or impaired. Realized gains and losses are based on the average cost of the shares held at the date of disposition. As of December 31, 2017 and 2016, marketable securities had a cost basis of $98,043.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 13

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

     

    Note 6.      Fair Value Measurements:

    Accounting Standards Codification ("ASC") 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability and Level 3 inputs are unobservable inputs for the asset or liability that reflect the entity’s own assumptions.

     

     

     

    Fair value

    December 31, 2017

     

    Level 1

     

    Level 2

    Marketable securities

    $

    239,232

    $

    239,232

    $

     

     

     

     

     

     

     

     

     

    Fair value

    December 31, 2016

     

    Level 1

     

    Level 2

    Marketable securities

    $

    541,216

    $

    541,216

    $

    Convertible notes and interest notes

    $

    77,164,724

    $

    $

    77,164,724

     

      

     

    Note 7.      Property, Plant and Equipment:

                   

     

     

     

    Accumulated

     

     

     

     

    Cost

     

    Depreciation

     

    Net

    December 31, 2017

     

     

     

     

     

     

    Machinery and equipment

    $

    11,677,534

    $

    $

    11,677,534

    Furniture and office equipment

     

    587,126

     

    (503,216)

     

    83,910

    Transportation equipment

     

    489,560

     

     

    489,560

    Leasehold improvements

     

    39,185

     

    (7,655)

     

    31,530

    Mineral property

     

    350,000

     

     

    350,000

     

    $

    13,143,405

    $

    (510,871)

    $

    12,632,534

     

     

     

     

     

     

     

     

     

     

     

    Accumulated

     

     

     

     

    Cost

     

    Depreciation

     

    Net

    December 31, 2016

     

     

     

     

     

     

    Machinery and equipment

    $

    11,677,534

    $

    $

    11,677,534

    Furniture and office equipment

     

    519,832

     

    (500,870)

     

    18,962

    Leasehold improvements

     

    41,190

     

    (41,190)

     

    Mineral property

     

    350,000

     

     

    350,000

     

    $

    12,588,556

    $

    (542,060)

    $

    12,046,496

     

    During 2017, the Company purchased approximately $0.5 million of transportation equipment that is intended to be used in the development of the Siembra Minera project. On March 1, 2016, we completed the acquisition of certain wholly-owned mining claims known as the LMS Gold Project (the "Property"), together with certain personal property for $0.4 million, pursuant to a Purchase and Sale Agreement with Raven Gold Alaska Inc. ("Raven"), a wholly-owned subsidiary of Corvus Gold Inc. which was recorded as mineral property. 

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 14

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Raven retains a royalty interest with respect to (i) precious metals produced and recovered from the Property equal to 3% of net smelter returns on such metals (the "Precious Metals Royalty") and (ii) base metals produced and recovered from the Property equal to 1% of net smelter returns on such metals. We have the option, for a period of 20 years from the date of closing of the acquisition, to buy back a one-third interest
    (i.e. 1%) in the Precious Metals Royalty at a price of $4 million.

    Machinery and equipment consists of infrastructure and milling equipment intended for use on the Brisas Project. We continually evaluate our equipment to determine whether events or changes in circumstances have occurred that may indicate impairment has occurred. We review comparable market data for evidence that fair value less cost to sell is in excess of the carrying amount.  In December 2016, based on market valuations for mining equipment which included the review of transactions involving comparable assets, we recorded a write-down of $0.6 million to an estimated fair value. We did not record any write-downs of property, plant and equipment in 2017.

    Note 8.      Empresa Mixta Ecosocialista Siembra Minera, S.A.:

    In October 2016, together with an affiliate of the government of Venezuela, we established Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera"). The primary purpose of this entity is to develop the Siembra Minera Project.

    Siembra Minera is beneficially owned 55% by Corporacion Venezolana De Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve. Siembra Minera holds certain gold, copper, silver and other strategic mineral rights contained within Bolivar State comprising the Siembra Minera Project (which has a 20 year term with two 10 year extensions) and is, among other things authorized, via Presidential Decrees and Ministerial resolutions, to carry on its business, pay a net smelter return royalty to Venezuela on the sale of gold, copper, silver and any other strategic minerals over the life of the project and provide net profits participation based on the sales price of gold per ounce. Pursuant to the Settlement Agreement, both parties will retain their respective interest in Siembra Minera in the event the settlement payments are not made by Venezuela.

    The Company's cumulative expenditures associated with Siembra Minera through December 31, 2017 amounted to approximately $9.2 million. These expenditures primarily include costs associated with consultants working on the Siembra Minera Project, which have been recognized in the Consolidated Statements of Operations.

    Note 9.            KSOP Plan:

    The KSOP Plan, adopted in 1990 for retirement benefits of employees, is comprised of two parts, (1) a salary reduction component, and a 401(k) which includes provisions for discretionary contributions by us, and (2) an employee share ownership component, or ESOP. Allocation of Class A common shares or cash to participants’ accounts, subject to certain limitations, is at the discretion of the Board. There have been no Class A common shares allocated to the KSOP Plan since 2011. Cash contributions for the KSOP Plan years 2017 and 2016 were approximately $234,000 and $163,000, respectively.

    Note 10.    Stock Based Compensation Plans:

    Equity Incentive Plans

    On June 27, 2012, our shareholders approved the 2012 Equity Incentive Plan (the "2012 Plan") to replace our previous equity incentive plans. On September 19, 2016, the Board approved an amendment and restatement of the 2012 Plan to increase the maximum number of shares issuable thereunder to 8,750,000, representing less than 10% of the issued and outstanding Class A Common Shares of the Company at such date. Such amendment was approved by the TSX Venture Exchange ("TSXV") on October 6, 2016.

    As of December 31, 2017, there were 1,585,000 options available for grant. Grants are made for terms of up to ten years with vesting periods as required by the TSXV and as may be determined by a committee of the Board established pursuant to the 2012 Plan.

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 15

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Share option transactions for the years ended December 31, 2017 and 2016 are as follows:

     

    2017

     

    2016

     

     

    Shares

    Weighted Average Exercise Price

     

    Shares

    Weighted Average Exercise Price

     

    Options outstanding - beginning of period

    3,357,000

    $ 2.84

     

    5,643,500

    $ 2.43

     

    Options granted

    5,277,500

    3.15

     

    -

    -

     

    Options exercised

    (2,073,435)

    2.88

     

    (2,286,500)

    1.83

     

    Options expired

    (1,469,500)

    2.89

     

    -

    -

     

    Options outstanding - end of period

    5,091,565

    $ 3.13

     

    3,357,000

    $ 2.84

     

     

     

     

     

     

     

     

    Options exercisable - end of period

    4,004,067

    $ 3.13

     

    3,357,000

    $ 2.84

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    The following table relates to stock options at December 31, 2017:

     

     

    Outstanding Options

     

    Exercisable Options

    Exercise Price

    Number

    Weighted Average Exercise Price

    Aggregate Intrinsic Value

    Weighted Average Remaining Contractual Term (Years)

     

    Number

    Weighted Average Exercise Price

    Aggregate Intrinsic Value

    Weighted Average Remaining Contractual Term (Years)

    $1.92

    444,922

    $1.92

    $609,543

    3.44

     

    444,922

    $1.92

    $609,543

    3.44

    $2.69

    125,000

    $2.69

    75,000

    9.33

     

    62,500

    $2.69

    37,500

    9.33

    $3.00

    250,000

    $3.00

    72,500

    0.44

     

    250,000

    $3.00

    72,500

    0.44

    $3.15

    3,544,643

    $3.15

    496,250

    9.13

     

    2,519,645

    $3.15

    352,750

    9.13

    $3.45

    102,000

    $3.45

    -

    0.05

     

    102,000

    $3.45

    -

    0.05

    $3.89

    100,000

    $3.89

    -

    0.05

     

    100,000

    $3.89

    -

    0.05

    $3.91

    215,000

    $3.91

    -

    6.28

     

    215,000

    $3.91

    -

    6.28

    $4.02

    310,000

    $4.02

    -

    6.56

     

    310,000

    $4.02

    -

    6.56

    $1.92 - $4.02

    5,091,565

    $3.13

    $1,253,293

    7.57

     

    4,004,067

    $3.13

    $1,072,293

    7.15

     

    During the years ended December 31, 2017 and 2016, the Company granted 5,277,500 and NIL stock options, respectively. In 2017 and 2016, approximately 2.1 million and 2.3 million outstanding options were exercised, respectively, for net proceeds to the Company of approximately $6.0 million and $4.1 million, respectively. The Company recorded non-cash compensation expense during 2017 and 2016 of $5.1 million and $0.02 million, respectively. Subsequent to December 31, 2017, 237,000 options expired unexercised.

    The weighted average fair value of the options granted in 2017 was calculated as $1.04. The fair value of options granted was determined using the Black-Scholes model based on the following weighted average assumptions:

     

     

     

    2017

    Risk free interest rate

     

     

    1.22%

    Expected term

     

     

    2.0 years

    Expected volatility

     

     

    59%

    Dividend yield

     

     

    nil

    The risk free interest rate is based on the US Treasury rate on the date of grant for a period equal to the expected term of the option. The expected term is based on historical exercise experience and projected post-vesting behavior. The expected volatility is based on historical volatility of our common stock over a period equal to the expected term of the option.

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 16

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Retention Plan and Change of Control Agreements

    The Company maintains the Gold Reserve Director and Employee Retention Plan.  Each unit (a "Retention Unit") granted to a participant entitles such person to receive a cash payment equal to the fair market value of one Gold Reserve Class A common share on the date the Retention Unit is granted or on the date any such participant becomes entitled to payment, whichever is greater. Units previously granted under the plan became fully vested upon the collection of proceeds from sale of the Mining Data and the Board of Director's agreement to distribute a substantial majority of the remaining proceeds to our shareholders.  In June 2017, as a result of the collection of proceeds related to the sale of the Mining Data, the Retention Units vested and in the third quarter of 2017 the Company paid $7.7 million to plan participants. As of December 31, 2017 there were no Retention Units outstanding.

    The Company also maintains change of control agreements with certain officers and employees. A Change of Control is generally defined as one or more of the following: the acquisition by any individual, entity or group, of beneficial ownership of the Company of 25 percent of the voting power of the outstanding Common Shares; a change in the composition of the Board that causes less than a majority of the current directors of the Board to be members of the incoming board; reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company; liquidation or dissolution of the Company; or any other event the Board reasonably determines constitutes a Change of Control. As of December 31, 2017, in the event of a change of control, the amount payable under these agreements was approximately $16.2 million. None of this amount has currently been recognized as a change of control is not considered probable at this time.

    Note 11.    Convertible Notes and Interest Notes:

    In the third quarter of 2017, the Company settled all of its outstanding11% Senior Secured Convertible Notes and Interest Notes due December 31, 2018 (the "2018 Notes"). Prior to settlement, the Company had a total of $59.1 million face value of 2018 Notes outstanding.  Of these notes, $36.3 million were redeemed for cash and the Company paid an additional $6.4 million related to a 20% premium due on the redeemed notes and $0.2 million in interest to the redemption date. The remaining $22.8 million 2018 Notes were converted to approximately 7.6 million Class A common shares. As a result of the redemption or conversion of 2018 Notes, the Company recorded a $16.6 million loss on settlement of debt consisting of the $6.4 million premium paid and approximately $10.2 million of remaining unamortized discount. In October 2017, the Company redeemed for cash its remaining debt, which consisted of approximately $1.0 million face value of 5.5% Senior Subordinated Convertible Notes due June 15, 2022 (the "2022 Convertible Notes").

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 17

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    Note 12.    Income Tax:

            On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") which makes broad and complex changes to the U.S. tax code. The Tax Act establishes new tax laws that will affect 2017 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% beginning in 2018. As a result of the reduction of the rate, we have revalued our net deferred tax liability as of December 31, 2017.  Based on this revaluation, we have reduced our U.S. deferred tax assets and liabilities and recorded a deferred income tax expense for the year ended December 31, 2017.

    Income tax expense (benefit) for the years ended December 31, 2017 and 2016 differs from the amount that would result from applying Canadian tax rates to net income (loss) before taxes. These differences result from the items noted below:

     

    2017

    2016

     

    Amount

    %

    Amount

    %

    Income tax expense (benefit) based on Canadian tax rates

    $  31,146,013

    25

    $  (5,386,423)

    25

    Increase (decrease) due to:

     

     

     

     

     Different tax rates on foreign subsidiaries

    16,872,781

    14

    (248,385)

    1

     Non-deductible expenses

    3,581,209

    3

    1,040,629

    (5)

     Withholding tax

    2,000,265

    1

     

     Change in valuation allowance and other

    (18,527,094)

    (15)

    4,594,179

    (21)

     

    $  35,073,174 

    27

    $                   –

                                                                                                                                   

    The Company recorded income tax expense of $35.1 million and NIL for the years ended December 31, 2017 and 2016, respectively. We have recorded a valuation allowance to reflect the estimated amount of the deferred tax assets which may not be realized, principally due to the uncertainty of utilization of net operating losses and other carry forwards prior to expiration. The valuation allowance for deferred tax assets may be reduced in the near term if our estimate of future taxable income changes. The components of the Canadian and U.S. deferred income tax assets as of December 31, 2017 and 2016 were as follows:

     

     

    December 31,

     

     

    2017

     

    2016

    Deferred income tax assets

     

     

     

     

    Net operating loss carry forwards

    $

    35,964,366

    $

    46,962,497

    Property, Plant and Equipment

     

    3,227,745

     

    3,227,610

    Capital loss carry forwards

     

    1,478,385

     

    15,411

    Other

     

    204,209

     

    330,882

     

     

    40,874,705

     

    50,536,400

    Valuation allowance

     

    (40,662,538)

     

    (50,536,400)

     

    $

        212,167

    $

     

     

     

     

     

    Deferred income tax liabilities

     

     

     

     

    Cash held in trust

     

    (18,614,650)

     

    Net deferred income tax liability

    $

    (18,402,483)

    $

     

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 18

     


     

    GOLD RESERVE INC.

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Expressed in U.S. dollars)

     

    At December 31, 2017, we had the following Canadian tax loss carry forwards:

     

     

     

     

    Expires

     

    $

    2,087,825

    2026

     

     

    3,874,732

    2027

     

     

    14,768,712

    2028

     

     

    13,996,418

    2029

     

     

    17,291,796

    2030

     

     

    19,362,808

    2031

     

     

    5,617,369

    2032

     

     

    7,223,755

    2033

     

     

    10,407,364

    2034

     

     

    13,507,936

    2035

     

     

    16,060,511

    2036

     

     

    19,658,239

    2037

     

    $

    143,857,465

     

     

    At December 31, 2017, the Company has approximately $52.4 million in U.S tax loss carryforwards which have been fully utilized in the calculation of current income tax expense.

     

     

     

    Exhibit 99.2    Audited Consolidated Financial Statements - Page 19

     

    gdrzfform40fexhibit993042618.htm - Generated by SEC Publisher for SEC Filing

     

    Exhibit 99.3          Management’s Discussion and Analysis

    The following Management’s Discussion and Analysis ("MD&A") of Gold Reserve Inc. and its subsidiaries (collectively "Gold Reserve", the "Company", "we", "us", or "our") should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2017 and 2016, the related notes contained therein as well as the 2016 MD&A. This MD&A has been approved by our Board of Directors (the "Board") and is dated April 26, 2018.

    CURRENCY

     

    Unless otherwise indicated, all references to "$", "U.S. $" or "U.S. dollars" in this MD&A refer to U.S. dollars and references to "Cdn$" or "Canadian dollars" refer to Canadian dollars. The 12 month average rate of exchange for one Canadian dollar, expressed in U.S. dollars, for each of the last two calendar years equaled 0.7705 and 0.7544, respectively, and the exchange rate at the end of each such period equaled 0.7989 and 0.7448, respectively.

     

    CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

     

    The information presented or incorporated by reference in this MD&A contains both historical information and "forward looking information" (within the meaning of applicable Canadian securities laws) or "forward-looking statements" (within the meaning of Section 27A of the U.S.  Securities Act of 1933, as amended, and Section 21E of U.S. Securities Exchange Act, as amended) (collectively referred to herein as "forward looking statements") that may state our intentions, hopes, beliefs, expectations or predictions for the future. Such forward-looking statements include, without limitation, statements with respect to the collection of future payments under the Settlement Agreement and/or the Award and development plans for the Siembra Minera Project.

    Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies that may cause our actual financial results, performance or achievements to be materially different from those expressed or implied herein and many of which are outside our control. 

    Forward-looking statements involve risks and uncertainties, as well as assumptions, including those set out herein, that may never materialize, prove incorrect or materialize other than as currently contemplated which could cause our results to differ materially from those expressed or implied by such forward-looking statements.  The words "believe," "anticipate," "expect," "intend," "estimate," "plan," "may," "could" and other similar expressions that are predictions of or indicate future events and future trends, which do not relate to historical matters, identify forward-looking statements.  Any such forward-looking statements are not intended to provide any assurances as to future results.

    Numerous factors could cause actual results to differ materially from those described in the forward-looking statements, including without limitation:

    ·         delay or failure by the Bolivarian Republic of Venezuela ("Venezuela") to continue to make payments or otherwise honor its commitments under the settlement agreement (as amended, the "Settlement Agreement") (as herein defined), including with respect to the transfer of the funds already deposited into a trust account for the benefit of the Company at Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") (the "Trust Account");

    ·         delay or failure by Venezuela to honor its commitments associated with the formation and operation of Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera");

    ·         the risk that the conclusions of management and its qualified consultants contained in the most recent Preliminary Economic Assessment of the Siembra Minera Gold Copper Project (the "Siembra Minera Project")  in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") may not be realized in the future;

    Exhibit 99.3    Management’s Discussion & Analysis - Page 1

     

     

     


     

    ·         risks associated with the current Sanctions or the imposition of further Sanctions (as defined herein) by the U.S., Canada or other jurisdictions that negatively impact our ability to freely transfer funds held in the Trust Account or our ability to do business in Venezuela;

    ·         risks associated with the ability of the Company and Venezuela to (i) successfully overcome any legal or regulatory obstacles to operate Siembra Minera for the purpose of developing the Siembra Minera Project, (ii) the completion of any additional definitive documentation and finalization of any remaining governmental approvals and (iii) obtain financing to fund the capital costs of the Siembra Minera Project;

    ·         risks associated with exploration, delineation of adequate reserves, regulatory and permitting obstacles and other risks associated with the development of the Siembra Minera Project;

    ·         risks associated with the concentration of our future operations and assets in Venezuela, including operational, security, regulatory, political and economic risks;

    ·         risks associated with the collection of the proceeds related to the sale of our mining data and our ability to resume our efforts to enforce and collect the International Centre for the Settlement of Investment Disputes ("ICSID") arbitral award (the "Award") granted in our favor, including the associated costs of such enforcement and collection effort and the timing and success of that effort, if Venezuela fails to make payments under the Settlement Agreement, it is terminated and further efforts related to the Settlement Agreement are abandoned;

    ·         risks associated with our continued ability to service outstanding obligations as they come due and access future additional funding, when required, for ongoing liquidity and capital resources, pending the receipt of payments under the Settlement Agreement;

    ·         risks associated with our prospects in general for the identification, exploration and development of mining projects and other risks normally incident to the exploration, development and operation of mining properties, including our ability to achieve revenue producing operations in the future;

    ·         shareholder dilution resulting from the future sale of additional equity, if required;

    ·         value realized from the disposition of the remaining assets related to our previous mining project in Venezuela known as the “Brisas Project", if any;

    ·         abilities of and continued participation by certain employees; and

    ·         impact of current or future U.S. and/or Canadian tax laws to which we are subject.

    This list is not exhaustive of the factors that may affect any of our forward-looking statements. 
    See "
    Risk Factors."

    Investors are cautioned not to put undue reliance on forward-looking statements, whether in this document, other documents periodically filed with the Ontario Securities Commission ("OSC") or the U.S. Securities and Exchange Commission (the "SEC") or other securities regulators or presented on our website.  Forward-looking statements speak only as of the date made. 

    All subsequent written and oral forward-looking statements attributable to Gold Reserve or persons acting on its behalf are expressly qualified in their entirety by this notice. Gold Reserve disclaims any intent or obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, subject to its disclosure obligations under applicable Canadian provincial and territorial securities laws or rules promulgated by the Securities and Exchange Commission. Investors are urged to read our filings with the Canadian and United States securities regulatory authorities, which can be viewed online at www.sedar.com and www.sec.gov, respectively.

    Exhibit 99.3    Management’s Discussion & Analysis - Page 2

     

     

     


     

    The terms "mineral resource," "measured mineral resource," "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101. However, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC.  Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases, and such estimates are not part of the SEC industry Guide 7.

    Gold Reserve, an exploration stage mining company, is engaged in the business of acquiring, exploring and developing mining projects. Management’s recent activities, as more fully discussed herein, have focused on:

    SETTLEMENT AGREEMENT

    §  Collection of the agreed upon payments pursuant to the settlement agreement, as amended (the "Settlement Agreement"), whereby the Bolivarian Republic of Venezuela ("Venezuela") agreed to pay us the amount of the International Centre for the Settlement of Investment Disputes ("ICSID") arbitral award (the "Award") granted in our favor, (including interest) and purchase our mining data, previously compiled in association with the development of the Brisas Project (the "Mining Data"). As of the date of this report, Venezuela had deposited approximately $187.5 million in a trust account for the benefit of the Company at Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") (the "Trust Account"); Bandes Bank has transferred a total of approximately $128.5 million to Gold Reserve with approximately $59 million remaining in the Trust Account.  Venezuela has not paid the Company, or deposited into the Trust Account, the required payments for the last five months (including April 2018) totaling approximately $147.5 million.

    MIXED COMPANY- Empresa Mixta Ecosocialista Siembra Minera, S.A. ("Siembra Minera")

    §  Completed a National Instrument 43-101- Standards of Disclosure for Mineral Projects ("NI 43-101") report for a Preliminary Economic Assessment ("PEA") which included updated resource estimates and cost estimates for the Siembra Minera Gold Copper Project ("Siembra Minera Project");

    §  Compiled preliminary design and cost estimates on a smaller 15,000 tonne per day ("tpd") cyanidation plant (the "Small Plant") and a larger 140,000 tpd flotation plant (the "Large Plant");

    §  Prepared an Early Works Program (including earthwork, timber clearing and road building) along with various permitting applications which have been submitted to the government and will be used to prepare Venezuelan Environmental Impact Statements ("VEIS") for both the saprolite and hard rock process plants;

    §  Preliminary assessments and preparations related to the completion of an International Environmental and Social Impact Assessment ("IESIA") for the Siembra Minera Project;

    §  Working with the Ministry of Health to provide medical assistance to the local communities, in the area of the Siembra Minera Project, to minimize and eradicate the impact of malaria, HIV and other tropical diseases; and

    §  Working with the Ministry of Ecological Mining Development, Mission Piar, the Bolivar State government, the Army and National Guard to coordinate the local communities and small miners regarding the development of the Siembra Minera Project.

    CONVERTIBLE NOTES AND INTEREST NOTES

    §  In the third and fourth quarters of 2017, the Company settled all of its outstanding 11% Senior Secured Convertible Notes due December 31, 2018 ("2018 Convertible Notes") and Interest Notes (approximately $59.1 million face value) (collectively, the "2018 Notes") and 5.5% Senior Subordinated Convertible Notes due June 15, 2022 (the "2022 Convertible Notes") (approximately $1.0 million face value) for cash and Class A common shares.

    Exhibit 99.3    Management’s Discussion & Analysis - Page 3

     

     

     


     

     

    EXPLORATION PROSPECTS

    Siembra Minera Project

    In August 2016, we executed an agreement with the government of Venezuela to form a jointly owned company and in October 2016, together with an affiliate of the government of Venezuela, we established Siembra Minera, the entity whose purpose is to develop the Siembra Minera Project. Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation and 45% by Gold Reserve.

    The significant negotiated terms related to the formation of Siembra Minera and its development and operation of the Siembra Minera Project include:

    §  Siembra Minera holds certain gold, copper, silver and other strategic mineral rights within Bolivar State comprising approximately 18,950 hectares in an area located in the Km 88 gold mining district of southeast Bolivar State which includes the historical Brisas and Cristinas areas. The mineral rights held by Siembra Minera have a 20 year term with two 10 year extensions;

    §  Gold Reserve, under a Technical Services Agreement, is expected to provide engineering, procurement and construction services to Siembra Minera for a fee of 5% over all costs of construction and development and, thereafter, for a fee of 5% over operating costs during operations;

    §  Presidential Decrees, within the legal framework of the "Orinoco Mining Arc" (created on February 24, 2016 under Presidential Decree No. 2.248 as an area for national strategic development Official Gazzette No. 40.855), will or have been issued to provide for tax and fiscal incentives for companies owned jointly with the government (”Mixed Companies”) operating in that area that include exemption from value added tax, stamp tax, municipal taxes and any taxes arising from the contribution of tangible or intangible assets, if any, to the mixed companies by the parties and the same cost of electricity, diesel and gasoline as that incurred by the government or related entities;

    §  Gold price participation, in accordance with an agreed upon formula resulting in specified respective percentages based on the sales price of gold per ounce. For sales up to $1,600 per ounce, net profits will be allocated 55% to Venezuela and 45% to us. For sales greater than $1,600 per ounce, the incremental amount will be allocated 70% to Venezuela and 30% to us. For example, with sales at $1,600 and $3,500 per ounce, net profits will be allocated 55.0%  ̶ 45.0% and 60.5%  ̶ 39.5%, respectively;

    §  Payment of a special advantage to Venezuela of 3% of gross sales;

    §  Net smelter return royalty (“NSR”) to Venezuela on the sale of gold, copper, silver and any other strategic minerals of 5% for the first ten years of commercial production, 6% for the next ten years;

    §  Income tax rate of 14% for years one to five, 19% for years 6 to 10, 24% for years 11 to 15, 29% for years 16 to 20 and 34% thereafter;

    §  Authorization to export and sell concentrate and doré containing gold, copper, silver and other strategic minerals outside of Venezuela and maintain foreign currency balances associated with sales proceeds;

    §  Siembra Minera is expected to undertake initiatives to secure financing(s) to fund the anticipated capital costs of the Siembra Minera Project, which is expected to be in excess of $2 billion. In order to facilitate the early startup of the pre-operation and construction activities, Venezuela agreed to advance $110.2 million to Siembra Minera, which is expected to be repaid from the financing proceeds;

    §  Funds associated with future capital cost financings and sale of gold, copper and silver will be held in offshore US dollar accounts and dividends and profit distributions, if any, will be directly paid to the shareholders of Siembra Minera;

    §  All funds will be converted into local currency at the most favorable exchange rate offered by Venezuela to other entities to pay, as required, Venezuela income taxes and annual operating and capital costs denominated in Bolivars for the Siembra Minera Project;

    Exhibit 99.3    Management’s Discussion & Analysis - Page 4

     

     

     


     

    §  Venezuela agreed to use its best efforts to grant to Siembra Minera similar terms that would apply to the Siembra Minera Project in the event Venezuela enters into an agreement with a third party for the incorporation of a mixed company to perform similar activities with terms and conditions that are more favorable than the above tax and fiscal incentives;

    §  Venezuela will indemnify us and our affiliates against any future legal actions related to property ownership associated with the Siembra Minera Project;

    §  The parties will retain their respective interest in Siembra Minera in the event the settlement payments are not made by Venezuela; and

    §  The board of directors is comprised of seven individuals, of which four are appointed by Venezuela and three by us.

    Preliminary Economic Assessment

    On April 6, 2018, the Company published the results of a technical report for the PEA of the Siembra Minera Gold Copper Project in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). The technical report in connection with the PEA (the "Siembra Minera Technical Report") prepared by Roscoe Postle Associates, Inc. ("RPA"), Samuel Engineering Inc. ("Samuel Engineering"), Tierra Group International, Ltd ("Tierra Group"), and AATA International, Inc. ("AATA") is available to the public at www.sedar.com and www.sec.gov, as well as, the Company’s website at www.goldreserveinc.com. The summary section of the March 16, 2018 PEA of the Siembra Minera Project Report prepared in compliance with NI 43-101 is included in the Company's annual information form.

    Siembra Minera Project Completed Activities

    The primary activities of Siembra Minera since its formation have included:

    ·         Prepared internally preliminary business plan and cash flow model for the Project, defined construction and operation plans, identified areas of optimization for Project detail design, defined and documented initial information required for the assessment of the Project by financial institutions for financing and outlined the foundation for establishing an administrative infrastructure to support the development of the Project;

    ·         The Siembra Minera Technical Report with respect to the PEA was completed as discussed above;

    ·         Samuel Engineering provided preliminary design and cost estimates for the Small Plant and also provided support to RPA on the Large Plant with design and related capital cost estimates. The small Plant is expected to complement the Large Plant for the early production of gold and generation of cash flow;

    ·         Tierra Group provided preliminary design and cost estimates for the Small Plant tailings dam facility and also provided support to RPA on the Large Plant tailings dam design and capital cost estimates;

    ·         Ingenieria Caura, S.A. ("Caura") outlined an Early Works Program (including earthwork, timber clearing and road building) along with various permitting applications which have been submitted to the government.  In addition, Caura is preparing the Venezuela Environment Impact Statements ("VEIS") for  both the Small and Large Plants;

    ·         AATA is preparing to complete an International Environmental and Social Impact Assessment ("IESIA") for the Project utilizing input from the above consultants. This report will be instrumental in project financing of the Large Plant. Prizma LLC is providing support and assistance to Caura and AATA for the social aspects of the VEIS and IESIA;

    ·         Global Resource Engineering is providing support and  assistance to Caura and AATA for the geochemistry and water quality aspects of the VEIS and IESIA;

    ·         Local contractors have provided support services working with the Gold Reserve and Siembra Minera by mobilizing certain equipment to the site and assisting with the anti-malaria program with smoker units going throughout the local communities to assist with the eradication of the source of the malaria;

    Exhibit 99.3    Management’s Discussion & Analysis - Page 5

     

     

     


     

    ·         As a result of the PEA produced by RPA the business model was modified according to the new findings and capital and operating cost update.  Also, a new Cash Flow Model was developed by RPA to represent separately both the Large and Small Plants;  

    ·         Siembra Minera prepared its initial annual budget according to Venezuelan regulations for public entities; secured office spaces in Caracas, Puerto Ordaz and at the Project site in addition to the acquisition of vehicles and the establishment of a security team;

    ·         Siembra Minera has made a number of presentations on the Project to potential buyers of the gold and gold-copper concentrate;

    ·         Initiated an initial draft of the engineering, procurement and construction management ("EPCM") contract between Gold Reserve and Siembra Minera;

    ·         Conducted initial meetings with CAMIMPEG, a Venezuelan Army construction company, to provide project information regarding the early works plan which include man-camp and certain access roads;

    ·         Provided CVG-Tecmin, a state corporation that provides technical services and information with regard to the development of mineral resources, with the project description and related technical information to produce and file the Environmental Questionnaire leading to the granting of the Authorization to Occupy the Territory (AOT);

    ·         Sponsored several meetings with Mission Piar to initiate surveys and follow up on the activities of small miners groups currently working in certain parts of the 18,950 hectare property. Mission Piar is a Government instituted Mission under the Ministry of Mines in charge of providing assistance and coordination of small mining activities;

    ·         Held fact finding meetings with the Ministry of Mines and members of the Guayana REDI to provide inputs and assist in the establishment of a General Plan of Security for the Project Area. The security of the project area falls under the responsibility of the Region of Integral Defense Guayana (REDI);

    ·         Initiated efforts to define the Relocation Plan with the help of Venezuelan officials and REDI and supported by a census that is underway by Mission Piar. Several meetings have taken place between the Ministry of Mines and small miners as part of the relocation plan;

    ·         Initiated development of a Small Miner Project with input from entities such as Ministry of Mines, REDI, Mission Piar and others to provide alternatives to some of the small miners that currently operate in the project area. This project is linked to the Relocation Plan and includes an Early Production Plan, training of miners in environmental protection and remediation, and in other disciplines so many of them can be incorporated in the project construction and operation; and

    ·         Completed a High Definition Multispectral Satellite image of the Project land position and its adjacent area to be used to document existing conditions and as an aid for documenting and census of existing small miner activity.

    The Company's cumulative expenditures associated with Siembra Minera through December 31, 2017 amounted to approximately $9.2 million. These expenditures primarily include costs associated with consultants working on the project, which have been recognized in the Consolidated Statements of Operations.

    Siembra Minera Project Development

    The next phase of the Project’s development is the detail design work for the Small Cyanidation Plant and related facilities along with the metallurgical testing to support the metallurgical process used in the Plant.  Subject to appropriate funding we expect to initiate the feasibility study on the Large Flotation Plant and concurrent detailed engineering.  

    Proposals are currently being evaluated for a drilling program which will support the overall project development activities, water management wells, and test areas where additional resource potential is evident. Siembra Minera has established local management offices in Caracas and Puerto Ordaz which will support its plan to complete various geotechnical studies as well as environmental and social studies to augment and update previous work on the property. This work will support the generation of a pre-feasibility study for the small and large plant and generate an International Environmental & Social Impact Assessment (IESIA) for the support of the various operating and environmental permits that will be required for the project.

    Exhibit 99.3    Management’s Discussion & Analysis - Page 6

     

     

     


     

    The Company and Venezuela are implementing several environmental and social impact studies and programs to improve the health, welfare and education of the local communities.  Improvements to the area schools, health center and implementation of recreational programs will be some of the activities contemplated.

    The Company continues activities associated with the drafting of an Engineering Procurement Construction Management ("EPCM") contract between the Gold Reserve and Siembra Minera and expects to continue discussions with various Venezuelan government agencies for the development of a small miner and relocation plan, development of a social development plan for the region and continue with its anti-malaria, HIV and tropical disease eradication programs.

    LMS Gold Project

    On March 1, 2016, we completed the acquisition of certain wholly-owned mining claims known as the LMS Gold Project (the "LMS Property"), together with certain personal property for $350,000, pursuant to a Purchase and Sale Agreement with Raven Gold Alaska Inc. ("Raven"), a wholly-owned subsidiary of Corvus Gold Inc. 

    Raven retains a royalty interest with respect to (i) "Precious Metals" produced and recovered from the LMS Property equal to 3% of "Net Smelter Returns" on such metals (the "Precious Metals Royalty") and (ii)  "Base Metals" produced and recovered from the Property equal to 1% of  Net Smelter Returns on such metals, however we have the option, for a period of 20 years from the date of closing of the acquisition, to buy back a one-third interest (i.e. 1 %) in the Precious Metals Royalty at a price of $4 million. The LMS Property remains at an early stage of exploration and not material to the Company.

     

    BRISAS ARBITRAL AWARD SETTLEMENT AND MINING DATA SALE

    In October 2009, we initiated a claim (the "Brisas Arbitration") under the Additional Facility Rules of the ICSID of the World Bank to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project in violation of the terms of the Treaty between the Government of Canada and the Government of Venezuela for the Promotion and Protection of Investments.

    In September 2014, the ICSID Tribunal unanimously awarded us the Award totaling (i) $713 million in damages, plus (ii) pre-award interest from April 2008 through the date of the Award based on the U.S. Government Treasury Bill Rate, compounded annually totaling, as of the date of the Award, approximately $22.3 million and (iii) $5 million for legal costs and expenses, for a total, as of September 22, 2014, of $740.3 million. The Award (less legal costs and expenses) accrues post-award interest at a rate of LIBOR plus 2%, compounded annually for a total estimated Award as of the date of the Settlement Agreement of $770 million.

    In July 2016, we signed the Settlement Agreement, whereby Venezuela agreed to pay us the amount of the Award (including interest) and purchase our Mining Data. Under the terms of the Settlement Agreement, as amended, Venezuela agreed to pay the Company $792 million to satisfy the Award and $240 million for the purchase of the Mining Data for a total of approximately $1.032 billion in monthly installments. The first $240 million to be received by Gold Reserve from Venezuela is related to the sale of the Mining Data.

    In addition, the Company agreed to suspend the legal enforcement of the Award until final payment is made by Venezuela and Venezuela irrevocably waived its right to appeal the February 2017 judgment issued by the Cour d'appel de Paris dismissing the annulment applications filed by Venezuela in respect of the Award and agreed to terminate all other proceedings seeking annulment of the Award. Pursuant to the Settlement Agreement, Venezuela agreed to make a payment of $40 million (the "Initial Payment") followed by 23 monthly payments of $29.5 million on or before the 15th day (previously the 10th day) of each month starting in July 2017, with a final payment of approximately $313.3 million scheduled to be paid on or before June 15, 2019.

    The terms of the Settlement Agreement also included Venezuela's obligation to make available to an escrow agent negotiable financial instruments, with a face value of at least $350 million, partially guaranteeing the payment obligations to the Company.  As of the date of this report, the collateral has not yet been provided to the escrow agent.  The Company and Venezuela continue discussions regarding this matter.

    Exhibit 99.3    Management’s Discussion & Analysis - Page 7

     

     

     


     

    Payments made by Venezuela associated with the Settlement Agreement were initially deposited into the Trust Account with Bandes Bank, a Venezuelan state-owned development bank. Under the Trust Agreement, the Company has the right to direct the transfer of the funds to its bank accounts outside of Venezuela. For financial statement purposes, deposits held in the Trust Account as of the balance sheet date are recorded as cash and cash equivalents and deposits made to the Trust Account subsequent to the balance sheet date but prior to the date of issuance of the consolidated financial statements are recorded as a receivable from sale of Mining Data.

    On June 13, 2017, Venezuela deposited the Initial Payment of $40 million into the Trust Account and subsequently made additional monthly installment deposits of $29.5 million each from July through November, 2017 for a total of $187.5 million. Since June 30, 2017 and through the date of this report Venezuela has transferred a total of $128.5 million to our bank account in the U.S. with $59 million remaining in the Trust Account. The monthly payments pursuant to the Settlement Agreement from December 2017 and January, February, March and April 2018 totaling approximately $147.5 million remain unpaid.

    In August 2017, the U.S. government imposed financial sanctions targeting the Venezuelan government by issuing an executive order that prohibits U.S. persons from dealing in financing of greater than 30 days for the Venezuelan government, including any entity owned or controlled by the Venezuelan government (with respect to the state oil company and its subsidiaries, these restrictions prohibit financings of greater than 90 days).  In addition, U.S. persons are prohibited from dealing in, among other things, bonds or equity issued by the Venezuelan government after the U.S. financial sanctions were imposed on August 25, 2017.  These U.S. financial sanctions built on sanctions imposed by the U.S. government starting in March 2015 that prohibit various Venezuelan officials from traveling to the U.S., freeze any assets they may have in the U.S. and generally prohibit U.S. persons from doing business with them and any entity they own 50% or more. Subsequent to the U.S. actions, Canada imposed its own sanctions. Recently the U.S. government added several additional individuals to the sanctions list and prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. The U.S. and Canadian governments have been reported to be considering further sanctions (collectively, the “Sanctions”). The Sanctions, in addition to the economic and financial condition of Venezuela, have complicated the monthly transfer of funds from the Trust Account to our bank accounts.

    Obligations Due Upon Collection of the Award and Sale of Mining Data

    In the third quarter of 2017, the Company settled all of its outstanding 2018 Notes. Prior to settlement, the Company had a total of $59.1 million face value of 2018 Notes outstanding.  Of these notes, $36.3 million were redeemed for cash and the Company paid an additional $6.4 million related to a 20% premium due on the redeemed notes and $0.2 million in interest to the redemption date. The remaining $22.8 million 2018 Notes were converted to approximately 7.6 million Class A common shares. As a result of the redemption or conversion of 2018 Notes, the Company recorded a $16.6 million loss on settlement of debt consisting of the $6.4 million premium paid and approximately $10.2 million of remaining unamortized discount. In October 2017, the Company redeemed for cash its remaining debt, which consisted of approximately $1.0 million face value of 2022 Convertible Notes.

    Pursuant to a 2012 restructuring of convertible notes, we issued Contingent Value Rights ("CVRs") that entitle the holders to an aggregate of 5.466% of proceeds associated with the collection of the Award, sale of mining data or an enterprise sale (the "Proceeds"), less amounts sufficient to pay or reserve for taxes payable, certain associated professional fees and expenses not to exceed $10 million, any accrued operating expenses as of the date of the receipt of proceeds not to exceed $1 million and the balance of any remaining Notes and accrued interests thereon (the  "Net Proceeds"). We have been advised by a CVR holder that it believes that the Company’s 45% interest in Siembra Minera represents “Proceeds” for purposes of the CVRs and as such it believes it is entitled to the value of 5.466% of that interest. For a variety of reasons, the Board of Directors does not agree with that position and believes it is inconsistent with the CVRs and the terms and manner upon which we reached settlement as to the Award with the Venezuelan government. We are in discussions with the CVR holder on this subject, all of which are preliminary and it is not possible at this time to know the outcome of this matter.

    Exhibit 99.3    Management’s Discussion & Analysis - Page 8

     

     

     


     

    The Board of Directors approved a bonus plan (the "Bonus Plan") in May 2012, which was intended to compensate the participants, including executive officers, employees, directors and consultants for their contributions related to: the development of the Brisas Project; the manner in which the development effort was carried out allowing the Company to present a strong defense of its arbitration claim; the support of the Company’s execution of the Brisas Arbitration; and the ongoing efforts to assist with positioning the Company in the collection of an award, sale of the Mining Data or enterprise sale. The bonus pool under the Bonus Plan is comprised of the gross proceeds collected or the fair value of any consideration realized related to such transactions less applicable taxes multiplied by 1% of the first $200 million and 5% thereafter. The Bonus Plan is administered by a committee of independent directors. The committee selected the individual participants in the Bonus Plan and fixed the relative percentage of the total pool to be distributed to each participant. Participation in the Bonus Plan by existing participants is fully vested, subject to voluntary termination of employment or termination for cause.

    As noted elsewhere, as of December 31, 2017 Venezuela had deposited approximately $187.5 million to the Trust Account. Of this amount, approximately $99 million had been transferred to the Company's bank account outside of Venezuela with the balance of approximately $88.5 million remaining in the Trust Account. Due to the uncertainties associated with the funds still on deposit in the Trust account, the Board of Directors has only considered those funds actually received by the Company in its bank account as funds available for purposes of calculating the CVR and Bonus Plan distributions, however, the full amount due based on total payments to the Trust Account has been accrued as a payable in the Consolidated Balance Sheets and recorded as an expense in the Consolidated Statements of Operations.

    The total estimated amount due pursuant to the terms of the CVRs as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data was approximately $3.1 million. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $1.8 million.

    The total estimated amount due pursuant to the terms of the Bonus Plan as of December 31, 2017, based on the Net Proceeds (including those amounts remaining in the Trust Account) from the sale of the Mining Data is approximately $1.4 million which is included in corporate general and administrative expense in the Consolidated Statements of Operations for the year ended December 31, 2017. The amount distributed in 2017 based on proceeds actually received in our bank account was approximately $0.8 million.

    The Company maintains the Gold Reserve Director and Employee Retention Plan.  Each unit (a "Retention Unit") granted to a participant entitles such person to receive a cash payment equal to the fair market value of one Gold Reserve Class A common share on the date the Retention Unit is granted or on the date any such participant becomes entitled to payment, whichever is greater. Units previously granted under the plan became fully vested upon the collection of proceeds from sale of the Mining Data and the Board of Director's agreement to distribute a substantial majority of the remaining proceeds to our shareholders.  In June 2017, as a result of the collection of proceeds related to the sale of the Mining Data, the Retention Units vested and in the third quarter of 2017 the Company paid $7.7 million to plan participants. As of December 31, 2017 there were no Retention Units outstanding.

    Our Intent to Distribute Collection of the Award or Sale of Mining Data to Shareholders

    Following receipt of funds transferred from the Trust Account to our bank account and after applicable payments of Net Proceeds (as defined in the CVRs) to holders of our CVRs and participants under our Bonus Plan, we expect to distribute to our shareholders a substantial majority of any remaining proceeds, subject to applicable regulatory requirements and retaining sufficient reserves for operating expenses, contractual obligations, accounts payable and income taxes, and any obligations arising as a result of the collection of the Award and/or sale of the Mining Data.

    FINANCIAL OVERVIEW

    Our overall financial position is influenced by the Settlement Agreement and the proceeds received thereunder, the settlement in the third quarter of 2017 of all of our outstanding notes and the ongoing payment of amounts due pursuant to the CVRs, Retention and Bonus Plan. Recent operating results continue to be impacted by expenses associated with the formation and start-up activities related to Siembra Minera, costs associated with the Settlement Agreement, interest expense related to our debt and costs associated with maintaining our legal and regulatory obligations in good standing.

    Exhibit 99.3    Management’s Discussion & Analysis - Page