gdrzfform40f042619.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, 2018                                             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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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. Such forward-looking statements include, without limitation, statements with respect to the collection of future payments under the Settlement Agreement and/or collection of the Award via the courts, including the impact of applicable U.S. and Canadian Sanctions, development plans for the Siembra Minera Project and our intention to complete the Return of Capital Transaction (collectively, as defined herein).

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:

·         continued delay or failure by the Bolivarian Republic of Venezuela ("Venezuela") to make payments or otherwise honor its commitments under the settlement agreement whereby Venezuela agreed to pay us damages pursuant to an International Centre for the Settlement of Investment Disputes ("ICSID") judgment totaling $713 million in damages, plus pre-award interest and legal costs and expenses (the "Award") and purchase our mining data, previously compiled in association with our development of the Brisas Project (the "Mining Data") for $792 million and $240 million, respectively, for a total of approximately $1.032 billion (as amended, the "Settlement Agreement");

·         risk that the Company may be unable to access current or future amounts 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") which have been blocked as a result of the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) designation of Bandes Bank as a Specially Designated National (“SDN”) pursuant to an Executive Order (“EO”). As a result of the Bandes Bank designation, the Company recorded an impairment loss on the current balance of the trust of approximately $21.5 million;

·         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") which holds certain gold, copper, silver and other strategic mineral rights within Venezuela's Bolivar State which includes the historical Brisas and Cristinas areas (referred to as the "Siembra Minera Project") including risks associated with the ability of the Company and Venezuela to (i) successfully overcome legal or regulatory obstacles to operate Siembra Minera for the purpose of developing the Siembra Minera Project, (ii) complete any additional definitive documentation and finalize any remaining governmental approvals and (iii) obtain financing to fund the capital costs of the Siembra Minera Project;

·         risks associated with the current or future sanctions by the U.S., Canada or other jurisdictions which generally prohibit the Company and its management or its employees from dealing with certain Venezuelan individuals and entities or entering into certain financial transactions (the "Sanctions") and which may negatively impact our ability to freely receive funds from Venezuela, either from the Trust Account or the remaining funds owed by Venezuela or our ability to do business in Venezuela;

·         risks that U.S. and Canadian government agencies that enforce Sanctions may not issue licenses that the Company may need to engage in certain Venezuela-related transactions;

·         risks that any future Venezuelan administration will void or otherwise fail to respect the agreements of the prior administration;

·         risks associated with the collection of the Award and concentration of our operations and assets in Venezuela which are and will be subject to risks specific to Venezuela, including the effects of political, economic and social developments, instability and unrest; international response to Venezuelan domestic and international policies; Sanctions by U.S., Canadian or other jurisdictions and potential invalidation, confiscation, expropriation or rescission of governmental orders, permits, agreements or property rights either by the existing or future regimes;

·         risks associated with our ability to resume our efforts to enforce and collect the Award, 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;

·         the risk that the conclusions of management and its qualified consultants contained in the Preliminary Economic Assessment of the Siembra Minera Gold Copper 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;

Form 40-F – Page 3

 


 

·         risks associated with the distribution of approximately $75 million in the aggregate to holders of Class A shares as a return of capital (the “Return of Capital Transaction”) that has been approved by our board of directors (the "Board") including risks related to our ability to receive required approvals from our shareholders, the Court and the TSXV and the risk that our Board may determine not to move forward with the Return of Capital Transaction if it determines it is no longer in the best interests of the Company and its shareholders;

·         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 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 or collection of the Award in the courts;

·         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., Canadian and/or other jurisdiction's tax laws to which we are or may be subject.

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, 2018 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.

 

Form 40-F – Page 4

 


 

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 0.7716 and 0.7705, respectively, and the exchange rate at the end of each such period equaled 0.7329 and 0.7989, respectively.

PrincipAl Canadian Documents

Annual Information Form. Our Annual Information Form for the fiscal year ended December 31, 2018, is included herein as Exhibit 99.1.

Audited Annual Financial Statements. Our audited consolidated financial statements as at December 31, 2018 and 2017, and for the fiscal years ended December 31, 2018 and 2017, including Management’s Annual Report on Internal Control over Financial Reporting and the report of our 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, 2018, 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 December 31, 2018 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.

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, 2018, 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, 2018, 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

In connection with the preparation of the Company’s unaudited interim consolidated financial statements for the three and nine months ended September 30, 2018, an error was identified in the income tax calculation for the three month period ended June 30, 2018, which impacted the Company’s previously filed unaudited interim financial statements for the three and six month periods ended June 30, 2018. Management did not recognize that income should have been allocated to a different taxing jurisdiction which resulted in a material error in the calculation of tax expense for the period ended June 30, 2018. In conjunction with this matter, the Company’s management determined it had a material weakness in the Company’s Internal Control over Financial Reporting ("ICFR") and Disclosure Controls and Procedures ("DC&P"), and as such, its internal control over financial reporting as of September 30, 2018 was not effective. Management remediated this control deficiency by the implementation of additional review and oversight procedures with respect to the preparation and review of the tax amounts included in the financial statements. As stated in Management's Annual Report on Internal Controls over Financial Reporting, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. Based on this assessment, management concluded that the Company's ICFR and DC&P were effective as of December 31, 2018.

Form 40-F – Page 5

 


 

AUDIT COMMITTEE

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. Bachelor of Science 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. 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 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 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. Mr. Johnston has been a member of the Audit Committee since 2017.

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.

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.

Form 40-F – Page 6

 


 

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 2018 and 2017 were $162,756 and $134,745, 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 2018 and 2017 were $74,307 and $111,340, respectively.

Audit Related Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by PwC for audit related services for 2018 and 2017 were $41,084 and $66,038, respectively.

All Other Fees. The aggregate fees billed in each of the last two fiscal years for all other professional services rendered by PwC for 2018 and 2017 were nil and $3,455, respectively.

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 and expenses, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

 

We had no material contractual obligation payments as of December 31, 2018.

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.

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.

Form 40-F – Page 7

 


 

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, 2019

 

Form 40-F – Page 8

 


 

EXHIBIT INDEX

 

Exhibit                                                                                                                                                                                             

Number         Exhibit                                                                                                                                                                     

99.1                Annual Information Form for the fiscal year ended December 31, 2018

 

99.2                Audited Consolidated Financial Statements as at December 31, 2018 and 2017 and for the fiscal years ended December 31, 2018 and 2017

 

99.3                Management’s Discussion and Analysis for the fiscal year ended December 31, 2018

 

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 9

 

gdrzfform40fexhibit991042619.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, 2018

As filed on April 26, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.1   Annual Information Form - Page 1

 


 

TABLE OF CONTENTS

 

The Company.......................................................................................................................................................................................... 3

General Development of the Business................................................................................................................................................. 4

Description of the Business.................................................................................................................................................................... 5

Cautionary Statement Regarding Forward-Looking Statements and Information.................................................................... 9

Properties................................................................................................................................................................................................. 11

Dividends and Distributions................................................................................................................................................................. 36

Description of Capital Structure......................................................................................................................................................... 37

Directors and Officers .......................................................................................................................................................................... 38

Audit Committee Information ........................................................................................................................................................... 42

Conflicts of Interest.............................................................................................................................................................................. 44

Legal Proceedings and Regulatory Actions...................................................................................................................................... 44

Interest of Management and Others in Material Transactions..................................................................................................... 44

Transfer Agents and Registrars........................................................................................................................................................... 45

Material Contracts................................................................................................................................................................................ 45

Interests of Experts............................................................................................................................................................................... 45

 

 

 

 

 

 

 

 

 

Exhibit 99.1   Annual Information Form - Page 2

 


 

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

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 the Bolivarian Republic of Venezuela ("Venezuela") pursuant to the Settlement Agreement (as defined herein). 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 (as defined herein) or other future investments and/or transactions if any, cannot be determined at this time and are subject to available cash, future payments under the Settlement Agreement or future financings.

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.

We 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.

100%

Barbados

GR Mining Group (Barbados) Inc.

100%

Barbados

 

In October 2016, together with Venezuela, we established Siembra Minera of which we own 45%, to develop the Siembra Minera Project. Our investment in Siembra Minera is accounted for as an equity investment.

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, 2018 and 2017 and for the years ended December 31, 2018 and 2017 are available for review at www.sedar.com and www.sec.gov. All information in this Annual Information Form is as of April 26, 2019, unless otherwise noted.

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 0.7716 and 0.7705, respectively, and the exchange rate at the end of each such period equaled 0.7329 and 0.7989, respectively.

 

Exhibit 99.1   Annual Information Form - Page 3

 


 

General Development of the Business

Venezuela's political, economic and social conditions

During the past several years Venezuela has experienced a substantial increase in violent and property related crime. The country's overall infrastructure (including transportation, utilities, government services, food supplies, law enforcement and medical assistance and benefits) has generally collapsed. Venezuela's annual inflation rate has surged dramatically and its GDP has contracted significantly. More than half of the population is reported to be living under conditions of extreme poverty and millions of Venezuelans have emigrated because of the economic crisis and general unrest. In the past year Venezuela has made late payments or defaulted on certain debt and the nation's central bank is reported to have limited funds in reserve. These issues, among others, have hindered our ability to develop certain gold, copper, silver and other strategic mineral rights contained within Bolivar State comprising what is known as the Siembra Minera Project (the “Siembra Minera Project”) and are expected to continue in the future. In early 2019, amid mass protests against the current government, Venezuelan opposition leader Juan Guaido declared himself the interim president of Venezuela promising to lead a transitional government and hold free elections. The U.S., Canada and a number of Latin American countries have announced their support of Guaido's efforts. As of the date of this Annual Information Form, there has been no change of government in Venezuela.

 U.S. and Canadian Sanctions

Since 2015, the U.S. and Canadian governments have issued various sanctions (See "Description of the Business– U.S. and Canadian Sanctions") which generally prohibit the Company and its management or its employees from dealing with certain Venezuelan individuals and entities or entering into certain financial transactions and which may negatively impact our ability to do business in Venezuela (the “Sanctions”). While the Sanctions generally do not prohibit our ability to receive transfers of funds from Venezuela or fund our activities related to the Siembra Minera Project, such Sanctions have historically complicated the transfer of funds associated with the Settlement Agreement from Venezuela to our North American bank account and impaired our ability to participate in any funding of Siembra Minera (as defined below) or otherwise make further investments in Siembra Minera (See “Empresa Mixta Ecosocialista Siembra Minera, S.A”).

In March 2019, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) designated Banco de Desarrollo Económico y Social de Venezuela ("Bandes Bank") as a Specially Designated National (“SDN”) pursuant to a November 1, 2018 Executive Order (an “EO”). As a result of this designation, the Company’s access to the funds held in a trust account at Bandes Bank (the “Trust Account”) has been blocked and, as a result, the Company has recorded an impairment loss of $21.5 million representing the balance of the funds remaining in the Trust Account. The Trust Account and funds will remain blocked until OFAC delists Bandes Bank as an SDN or OFAC issues a specific license to the Company to unblock this property.

On April 15, 2019, the Government of Canada imposed Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act. The imposition of such additional Sanctions on certain individuals within the Venezuelan government poses a significant impediment to the Company’s ability to work with officials who oversee the development of the Company’s interest in the Siembra Minera Project and those responsible for the payment and transfer of funds associated with the Settlement Agreement.

Settlement of Arbitration Award

In July 2016, we signed a Settlement Agreement with Venezuela pursuant to which Venezuela agreed to pay us damages related to a judgement of the International Centre for the Settlement of Investment Disputes (“ICSID”) totaling $713 million in damages, plus pre-award interest and legal costs and expenses (the “Award”) and purchase mining data compiled in association with our development of the Brisas Project (the “Mining Data”) (See "Description of the Business –Brisas Arbitral Award Settlement and Mining Data Sale").

As of the date of this Annual Information Form, Venezuela has transferred approximately $165.2 million in cash and approximately $88.5 million of Venezuelan government bonds (representing the market value at the time of the agreement) which were later sold for approximately $74.3 million and the Company realized a $14.2 million loss on the sale during the year ended December 31, 2018. On a cumulative basis Venezuela has reduced its obligation to the Company by approximately $254 million. Venezuela continues to be in arrears from March 2018 through the date of this Annual Information Form totaling approximately $413 million, not including the balance in the Trust Account.

Exhibit 99.1   Annual Information Form - Page 4

 


 

Given the current political, economic and social conditions in Venezuela, as well as the effects of Sanctions, it is unclear when or if Venezuela will pay the remaining obligations contained in the Settlement Agreement totaling approximately $778 million or when or if the Company will decide to re-commence its efforts to collect the remaining amount of the Award including interest (See "U.S. and Canadian Sanctions" and "Cautionary Statement Regarding Forward-Looking Statements and Information").

 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”), which is a "mixed company," beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government-controlled corporation, and 45% by Gold Reserve (See “Properties – Siembra Minera Project”). Siembra Minera holds certain gold, copper, silver and other strategic mineral rights contained within Bolivar State comprising the Siembra Minera Project and is, among other things, authorized to carry on its business via existing or pending Presidential Decrees and Ministerial resolutions. A number of the authorizations, which still have not been provided by the current administration, are critical to the future operation and economics of the Siembra Minera Project and, as a result, management of Gold Reserve continues its efforts to secure them on behalf of Siembra Minera.

In March 2018, the Company announced the completion of a preliminary economic assessment (the “PEA”) for the Siembra Minera Project in accordance with National Instrument 43-101 ̶ Standards of Disclosure for Mineral Projects ("NI 43-101") which included, among other information, resource estimates, pit design, mine plan, flowsheet design, design criteria, project layout, infrastructure requirements, capital and operating estimates (See "Properties  ̶ Siembra Minera Project ̶ Preliminary Economic Assessment").

Overall the Company has directly incurred the costs of the Siembra Minera Project, which beginning in 2016 through December 31, 2018 amounted to a total of approximately $14.1 million. These expenditures primarily include costs associated with the completion of the PEA, costs associated with preliminary design and cost estimates on the Small Plant and a Large Plant, an early works program (all as defined in the PEA), preliminary assessments and preparations related to the completion of an international and Venezuelan environmental and social impact assessment and a number of social works programs in the vicinity of the Siembra Minera Project. The Sanctions severely restrict our ability to develop the Siembra Minera Project and, until such time as Sanctions are lifted, we expect our ability to develop the Siembra Minera Project will continue to be limited. Further, it is unclear to management if a new Venezuelan administration in the future will respect the agreements of the prior administration.

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 Shares (See “General Description of the Business – Obligations Due Upon Collection of the Award and Sale of Mining Data”).

Description of the Business

Brisas Arbitral Award Settlement and Mining Data Sale

Currently our primary business activities are the collection of the amounts due to us pursuant to the July 2016 Settlement Agreement with Venezuela (as amended) in regards to the payment of the Award and the sale of our Mining Data (as more fully discussed below) and the advancement of the Siembra Minera Project (See “Properties  ̶  Siembra Minera Project”).

In October 2009, we initiated a claim (the "Brisas Arbitration") under the Additional Facility Rules of ICSID 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 granted us the Award, which consists of (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 $792 million.

Exhibit 99.1   Annual Information Form - Page 5

 


 

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 received by Gold Reserve from Venezuela was 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.

All Settlement Agreement payments made by Venezuela, excluding the Venezuelan government bonds transferred to the Company in August 2018, were initially deposited into the Trust Account. Pursuant to the terms of a trust agreement (the "Trust Agreement"), the Company has the right to direct the transfer of the funds to its bank accounts outside of Venezuela. With the designation of Bandes Bank as an SDN in March 2019, the Company is treating the Trust Account as blocked property and as a result, the Company recorded an impairment loss of $21.5 million, representing the balance of the funds remaining in the Trust Account. The Trust Account and the funds therein will remain blocked property until the U.S. government delists Bandes Bank as an SDN or issues a specific license to the Company to unblock this property (See “U.S. and Canadian Sanctions”).

As of the date of this Annual Information Form, Venezuela has made payments pursuant to the Settlement Agreement of approximately $254 million including $165.5 million transferred from the Trust Account for the benefit of the Company and $88.5 million in Venezuelan government bonds. In August 2018, the Company received Venezuelan government bonds which were exempt from U.S. Sanctions pursuant to then-applicable General License 3 issued by OFAC with a market value, at the time of entering into a bond transfer agreement (the "Bond Agreement"), of approximately $88.5 million representing the December 2017 and January and February 2018 monthly installments due under the Settlement Agreement (as described elsewhere in this document, General License 3 has since been amended several times, with more restrictions applying to transactions related to Venezuelan government bonds under General Licenses 3E and 9D). The bonds were subsequently sold for approximately $74.3 million. The monthly payments pursuant to the Settlement Agreement from March 2018 through April 2019 totaling approximately $413 million, not including the balance in the Trust Account, remain unpaid.

Given the current political, economic and social conditions in Venezuela, it is unclear when or if Venezuela will pay the remaining obligations contained in the Settlement Agreement, which total approximately $778 million, or when or if the Company will decide to re-commence efforts to collect the remaining amount of the Award including interest. As discussed herein, Sanctions continue to impede the transfer of funds from Venezuela to our North American bank account.

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 Annual Information Form, the collateral has not yet been provided to the escrow agent and it is unclear when or if Venezuela will comply with this particular obligation of the Settlement Agreement (See “U.S. and Canadian Sanctions”).

U.S. and Canadian Sanctions

In August 2017, the U.S. government issued an EO imposing Sanctions targeting Venezuela which prohibit 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 certain subsidiaries of the state oil company, these restrictions prohibit financings of greater than 90 days). In addition, U.S. persons are prohibited from dealing in, among other things, bonds (unless otherwise exempt from U.S. Sanctions pursuant to General Licenses 3E or 9D issued by OFAC) or equity issued by the Venezuelan government after the U.S. financial Sanctions were imposed. Prior to January 2019, certain Venezuelan government bonds identified in General License 3 had been largely exempt from U.S. Sanctions.

Exhibit 99.1   Annual Information Form - Page 6

 


 

U.S. financial Sanctions have built on Sanctions imposed by the U.S. government starting in March 2015 that designated Venezuelan government officials as SDNs, which prohibits them from traveling to the U.S., freezes any assets they may have in the U.S. and generally prohibits U.S. persons from doing business with them and any entity they own 50% or more. Since August 2017, the U.S. government has designated several additional individuals as SDNs and has prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. In September and November 2017, and again in May 2018, Canada imposed its own Sanctions requiring asset freezes and imposing prohibitions on dealings with named Venezuelan officials. In May 2018, the U.S. government issued an EO that prohibits U.S. persons from engaging in transactions relating to: (i) the purchase of any debt owed to the Venezuelan government, including accounts receivable, (ii) any debt owed to the Venezuelan government that is pledged as collateral after May 21, 2018, including accounts receivable, and (iii) the sale, transfer, assignment, or pledging as collateral by the Venezuelan government of any equity interest in any entity in which the Venezuelan government has a 50% or greater ownership interest.

In November 2018, the U.S. government issued an EO authorizing OFAC to designate as an SDN any person determined to: (i) “operate in the gold sector of the Venezuelan economy” or any other sector deemed sanctionable by the U.S. government, (ii) be responsible for transactions involving deceptive practices or corruption involving the Venezuelan government, or (iii) have supported deceptive or corrupt transactions or to be owned or controlled by a person meeting the foregoing criteria. OFAC issued guidance that it “expects to use its discretion to target in particular those who operate corruptly in the gold or other identified sectors of the Venezuela economy, and not those who are operating legitimately in such sectors.”

In January 2019, the U.S. government designated the Venezuelan state oil company as an SDN under the November 2018 EO. U.S. persons are generally prohibited from doing business with the state oil company and its subsidiaries unless authorized by OFAC. In conjunction with that action, OFAC also changed existing general licenses, such as General License 3 mentioned above, and issued additional general licenses to authorize certain transactions involving certain subsidiaries of the state oil company.

In March 2019, pursuant to EO 13850, OFAC designated CVG Compania General de Minera de Venezuela CA and its president as SDNs in connection with the Venezuelan gold sector and also designated Bandes Bank as an SDN with the same effects as those described above with respect to the Venezuelan state oil company. In conjunction with that designation, OFAC issued several general licenses, although none that authorize the Company's dealings with Bandes Bank. Due to the deteriorating economic conditions in Venezuela and as a result of the Bandes Bank designation which blocked the Company’s access to the funds held in the Trust Account at Bandes Bank, the Company has recorded an impairment loss on the balance in the Trust Account of approximately $21.5 million. The Trust Account and funds will remain blocked until OFAC delists Bandes Bank as an SDN or OFAC issues a specific license to the Company to unblock this property.

On April 15, 2019, the Government of Canada imposed Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act. The imposition of such additional Sanctions poses a significant impediment to the Company’s ability to work with government officials related to the development of the Siembra Minera Project and those responsible for the payment and transfer of funds associated with the Settlement Agreement. To the extent required, the Company will apply for a license from OFAC to allow the Company to pursue payments under the Settlement Agreement and allow international financial institutions to facilitate such transactions without violating US Sanctions. The Company may also pursue similar relief from Sanctions imposed under Canadian law.

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 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.

Exhibit 99.1   Annual Information Form - Page 7

 


 

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 interest 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 CVR holders are entitled to the value of 5.466% of that interest. For a variety of reasons, the board of directors of the Company (the "Board") 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 continue discussions with the CVR holder on this subject and it is not possible at this time to know the outcome of this matter. As of December 31, 2018, the total cumulative estimated obligation due pursuant to the terms of the CVR from the sale of the Mining Data and collection of the Award was approximately $9.7 million, which has been distributed in full to CVR holders.

The Board 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, as originally structured, was 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. In June 2018, the Board modified the Bonus Plan to increase the percentage participation of certain individuals who in the Board's opinion were not adequately recognized for their current contribution to efforts associated with the conclusion of the Settlement Agreement and the collection of the amounts contemplated thereunder. The effect of the Board's modification to the Bonus Plan was to increase the after tax percentage allocation for the first $200 million up to a maximum of 1.28% and the percentage allocation thereafter up to a maximum of 6.4%. The Bonus Plan is administered by a committee of independent directors who 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. Participants who reach age 65 and retire are fully vested and continue to participate in future distributions under the Plan. As of December 31, 2018, the total cumulative estimated obligation pursuant to the terms of the Bonus Plan from the sale of the Mining Data and collection of the Award was approximately $4.1 million, which has been distributed in full to Bonus Plan participants.

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

On March 27, 2019, the Company announced that the Board had approved the distribution of between approximately $90 million and $100 million in the aggregate, to holders of Class A Shares as a return of capital. On April 16, 2019, following the Government of Canada’s decision on April 15, 2019 to impose Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act, the Board determined that it was in the best interests of the Company and its Shareholders to reduce the aggregate amount of capital to be returned to Shareholders pursuant to the Return of Capital transaction to approximately US$75 million, or approximately US$0.76 per Class A Share.

The Return of Capital Transaction is to be completed pursuant to a court-approved plan of arrangement transaction under the Business Corporations Act (Alberta) (the "Act") and requires approval by the Alberta Court of Queen’s Bench (the “Court”) and at least two-thirds of the votes cast by Shareholders in respect of a special resolution. The Return of Capital Transaction will be affected pursuant to an arrangement transaction (the “Arrangement”) in accordance with a plan of arrangement (the “Plan of Arrangement”) pursuant to section 193 of the Act.

Generally, the Arrangement consists of a cash distribution, an amendment of the Company's articles of incorporation and an exchange of shares in a manner that results in a Shareholder having the same ownership after the transaction as immediately before and is intended to occur on a tax-efficient basis for Canadian income tax purposes (See “Dividends and Distributions”).

Full details of the Return of Capital Transaction are described in the Company’s management proxy circular and other related materials filed with applicable Canadian securities regulatory authorities and made available at www.sedar.com or www.sec.gov, and posted on the Company’s website at www.goldreserveinc.com. Subject to obtaining the requisite Shareholder approval, obtaining the Final Order from the Court, obtaining TSXV approval, and filing of articles of arrangement, the Arrangement will become effective on or about June 13, 2019.

Exhibit 99.1   Annual Information Form - Page 8

 


 

Following the receipt, if any, of additional funds pursuant to the Settlement Agreement 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 future collection of the remaining amounts related to the Award.

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 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 of 1934, as amended) 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. Such forward-looking statements include, without limitation, statements with respect to the collection of future payments under the Settlement Agreement and/or collection of the Award via the courts, including the impact of applicable U.S. and Canadian Sanctions, development plans for the Siembra Minera Project and our intention to complete the Return of Capital Transaction.

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:

·         continued delay or failure by Venezuela to make payments or otherwise honor its commitments under the Settlement Agreement and in connection with the Award;

·         risk that the Company may be unable to access current or future amounts deposited into the Trust Account with Bandes Bank which have been blocked as a result of OFAC's designation of Bandes Bank as a SDN. As a result of the Bandes Bank designation, the Company recorded an impairment loss on the current balance of the trust of approximately $21.5 million;

·         delay or failure by Venezuela to honor its commitments associated with the formation and operation of Siembra Minera which holds certain gold, copper, silver and other strategic mineral rights at the Siembra Minera Project, including risks associated with the ability of the Company and Venezuela to (i) successfully overcome legal or regulatory obstacles to operate Siembra Minera for the purpose of developing the Siembra Minera Project, (ii) complete any additional definitive documentation and finalize any remaining governmental approvals and (iii) obtain financing to fund the capital costs of the Siembra Minera Project;

·         risks associated with the current or future Sanctions by the U.S., Canada or other jurisdictions which generally prohibit the Company and its management or its employees from dealing with certain Venezuelan individuals and entities or entering into certain financial transactions and which may negatively impact our ability to freely receive funds from Venezuela, either from the Trust Account or the remaining funds owed by Venezuela or our ability to do business in Venezuela;

·         risks that U.S. and Canadian government agencies that enforce Sanctions may not issue licenses that the Company may need to engage in certain Venezuela-related transactions;

·         risks that any future Venezuelan administration will void or otherwise fail to respect the agreements of the prior administration;

Exhibit 99.1   Annual Information Form - Page 9

 


 

·         risks associated with the collection of the Award and concentration of our operations and assets in Venezuela which are and will be subject to risks specific to Venezuela, including the effects of political, economic and social developments, instability and unrest; international response to Venezuelan domestic and international policies; Sanctions by U.S., Canadian or other jurisdictions and potential invalidation, confiscation, expropriation or rescission of governmental orders, permits, agreements or property rights either by the existing or future regimes;

·         risks associated with our ability to resume our efforts to enforce and collect the Award, 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;

·         the risk that the conclusions of management and its qualified consultants contained in the PEA may not be realized in the future;

·         risks associated with the distribution of approximately $75 million in the aggregate to Shareholders pursuant to the Return of Capital Transaction, including risks related to our ability to receive required approvals from our Shareholders, the Court and the TSXV, and the risk that our Board may determine not to move forward with the Return of Capital Transaction if it determines it is no longer in the best interests of the Company and its Shareholders;

·         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 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., Canadian and/or other jurisdiction's tax laws to which we are or may be subject.

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, 2018 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 SEC. 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 99.1   Annual Information Form - Page 10

 


 
 

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.

Properties

Siembra Minera Project

In August 2016, we executed the Contract for the Incorporation and Administration of the Mixed Company with the government of Venezuela (the "Mixed Company Formation Document") 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. In the event Venezuela defaults on its obligations outlined in the Settlement Agreement the parties will retain their respective interest in Siembra Minera.

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 and referred to as the Siembra Minera Project. The mineral rights held by Siembra Minera have a 20 year term with two 10 year extensions.

Gold Reserve, under a yet to be completed Technical Services Agreement pursuant to the Settlement 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. Venezuela is obligated 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 and is obligated to indemnify us and our affiliates against any future legal actions related to property ownership associated with the Siembra Minera Project.

Significant provisions related to the formation of Siembra Minera and the development and operation of the Siembra Minera Project as provided in the Mixed Company Formation Document include the following, some of which have been completed and some are still pending completion. A number of the authorizations, which still have not been provided by the current administration, are critical to the future operation and economics of the Siembra Minera Project and, as a result, management continues its efforts to secure them on behalf of Siembra Minera.

§  Venezuela agreed to advance $110.2 million to Siembra Minera to facilitate the early startup of the pre-operation and construction activities, but has not yet taken steps to provide such funding;

§  Siembra Minera is obligated to undertake initiatives to secure financing(s) to fund the anticipated capital costs of the Siembra Minera Project, which is estimated to be in excess of $2 billion. To date no verifiable financing alternatives have been identified;

§  Venezuela agreed to certain 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), that 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;

§  The parties agreed to participate in the price of gold in accordance with a 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;

Exhibit 99.1   Annual Information Form - Page 11

 


 

§  Siembra Minera is obligated to pay to the government a special advantage of 3% of gross sales and a net smelter return royalty (“NSR”) 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, however, as of the date of this report, Venezuela has not yet taken steps to formally provide such authorizations via Presidential Decree or otherwise;

§  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, however, as of the date of this report, Venezuela has not yet taken steps to formally provide such authorizations via Presidential Decree or otherwise;

§  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, however, as of the date of this report, Venezuela has not yet taken steps to formally provide such authorizations via Presidential Decree or otherwise; and

§  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, however, as of the date of this report, Venezuela has not yet taken steps to formally provide such authorizations via Presidential Decree or otherwise.

In March 2018, the Company announced the completion of a technical report for the PEA which included, among other information, resource estimates, pit design, mine plan, flowsheet design, design criteria, project layout, infrastructure requirements, capital and operating estimates. 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 (See "Preliminary Economic Assessment").

Siembra Minera Project Completed Activities

During 2018 and the first quarter of 2019, the Company accomplished the following activities:

·         Published the results of a PEA;

Exhibit 99.1   Annual Information Form - Page 12

 


 

Overall the Company has directly incurred the costs of the Siembra Minera Project, which beginning in 2016 through December 31, 2018 amounted to a total of approximately $14.1 million. These activities, summarized above, primarily include costs associated with the completion of the PEA, costs associated with preliminary design and cost estimates on the Small Plant and a Large Plant, an Early Works Program (all as defined in the PEA), preliminary assessments and preparations related to the completion of an international and Venezuelan environmental and social impact assessment and a number of social works programs in the vicinity of the Siembra Minera Project which are expensed as incurred and classified within “Siembra Minera Project Costs” in the Consolidated Statements of Operations.

 

Siembra Minera Project Development

With the previous issuance of the permit to effect the environment and the more recent issuance of the Initiation Act we have considered initial plans for various on-site activities such as site clearing, construction of a temporary camp and warehouse facilities, drilling of dewatering and development drill holes, access roads on the property, opening of the quarry for construction aggregates and initial construction activities. We have evaluated initial proposals for a drilling program in support of the overall project development activities, water management wells, and test areas where additional resource potential is evident. Various geotechnical studies as well as environmental and social studies to augment and update previous work on the property have been considered which could 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. In addition, the social programs in the area (as described above) are expected to continue. The next phase of the Siembra Minera Project’s development is envisioned to include 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. Given the current economic, social and political turmoil in Venezuela, as well as current and future Sanctions, the timing and extent of future development on the Siembra Minera Project remains unclear at this time.

Exhibit 99.1   Annual Information Form - Page 13

 


 

The Sanctions severely restrict our ability to develop the Siembra Minera Project and, until such time as Sanctions are lifted, we expect our ability to develop the Siembra Minera Project will continue to be limited. Further, it is unclear to management if a new Venezuelan administration in the future will respect the agreements of the prior administration (See “U.S. and Canadian Sanctions”).

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.

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.

Exhibit 99.1   Annual Information Form - Page 14

 


 

 

Summary of March 16, 2018 PEA on the Siembra Minera Project

Executive Summary

Roscoe Postle Associates Inc. (“RPA”) was retained by Gold Reserve, and its wholly owned subsidiary GR Engineering Barbados, Inc. (“GRE”) to prepare an independent Technical Report on the Siembra Minera Project, located in Bolivar State, Venezuela.  The operating company, 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 Corporación Venezolana de Minería (“CVM”), and 45% by GR Mining Barbados, Inc. (“GRM”), a wholly-owned subsidiary of Gold Reserve.  GRE has been set up to perform engineering, procurement, construction, and operation of the Siembra Minera 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 Gold Reserve 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 Siembra Minera 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, Gold Reserve 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 Gold Reserve 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 Gold Reserve 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 Gold Reserve 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” as defined in NI 43-101.  The mine plan and economic analysis contained in the PEA 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 the PEA is based will be realized.

 

Conclusions

RPA offers the following conclusions by area.

Geology and Mineral Resources

·         A number of exploration programs completed by Placer and Gold Reserve were successful in locating and defining the extents of the various mineralized zones on each of their respective property holdings.  The recently established Siembra Minera Economic Zone has unified the land tenure.

·         The geology of the deposit is well understood in general.  RPA is of the opinion that the distribution of high grade areas in the Main Zone should be studied in more detail. In the southern two-thirds of the Cristinas concessions and the entirety of the Brisas concessions, the mineralization occurs in a large tabular body, which strikes approximately north-south and dips moderately to the west.  In the northern third of the Cristinas concessions, the mineralization can occur as pipe-shaped forms and as thinner tabular forms with sub-vertical dips and strikes to the southeast.

·         The large tabular, strataform mineralized zone (referred to herein as the Main Zone) forms most of the Mineral Resource.  The Main Zone has a minimum thickness of 10 m at the south end and reaches a maximum thickness of 350 m.  The average thickness is approximately 200 m.  While the southern limits of the Main Zone have been outlined by the existing drilling pattern with a reasonable degree of confidence, the down-dip limits have not been defined by drilling.  The northern limits of the Main Zone are also reasonably well defined by the existing drilling pattern.

Exhibit 99.1   Annual Information Form - Page 15

 


 

·         The drill hole information collected by Placer and Gold Reserve was merged into one master database that was then used to prepare the Mineral Resource estimate.  Additional drill hole information collected by Crystallex International Corporation (Crystallex) on the Cristinas concessions could not be used to prepare the current estimate of the Mineral Resources, as the detailed information required was not available.  The drill hole data from Placer contained drilling information and analytical results up to 1997 while the drill hole data from Gold Reserve included information up to 2006.

·         In RPA’s opinion, the drill hole data is adequate for use in the preparation of Mineral Resource estimates.

·         The outline of the gold mineralization was created by drawing wireframes using approximately a 0.20 g/t Au cut-off grade and the copper mineralization was outlined using broad wireframes based on approximately a 0.04% Cu cut-off grade.  A total of 24 wireframes were constructed to represent the gold mineralization zones and six wireframes to represent the copper mineralization zones.  RPA also prepared wireframe surfaces to represent the three main weathering profiles for the mineralized zones: oxide saprolite, sulphide saprolite, and hard rock.

·         RPA applied variable capping values for gold and copper grades for each of the mineralized wireframe domains.  The capped assay values were composited into three metre lengths.  The composites were then used to estimate the gold and copper grades into a grade-block model that used block sizes of 10 m by 10 m by 6 m.  Gold and copper grades were estimated into blocks using inverse distance squared and dynamic anisotropy with the Surpac v.6.8 software package.  The estimated gold and copper grades were used to calculate Net Smelter Return (NSR) values for each mineralized block.

·         Mineral Resources were prepared using an NSR cut-off value of US$7.20/t for the oxide saprolite and US$5.00/t for the sulphide saprolite and fresh rock.  An open pit shell was created using the Whittle software package to constrain reporting of the Mineral Resources.

·         The Mineral Resource estimate conforms to Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards for Mineral Resources and Mineral Reserves dated May 10, 2014.

·         The Mineral Resources are estimated at 10 million tonnes at an average grade of 1.02 g/t Au and 0.18% Cu containing 318,000 ounces of gold and 17,000 tonnes of copper in the Measured category, 1.17 billion tonnes at an average grade of 0.70 g/t Au and 0.10% Cu containing 26.5 million ounces of gold and 1.2 million tonnes of copper in the Indicated category.  Mineral Resources in the Inferred category are estimated at 1.30 billion tonnes at an average grade of 0.61 g/t Au and 0.08% Cu containing 25.4 million ounces of gold and 1.0 million tonnes of copper.

Mining

·         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 Life of Mine (“LoM”) plan

·         A separate equipment fleet of smaller excavators and articulated dump trucks is included in the mining capital for saprolite mining in the first 10 years.  Typically, undisturbed saprolite material can be difficult to mine as the moisture creates operation problems.  As the Siembra Minera Project area has essentially been disturbed, RPA has assumed most saprolite is handled by the larger equipment fleet.  The larger mine fleet is more productive and prior experience at Cristinas shows that rigid frame trucks can operate in the saprolite.

·         Stockpiles are required for blending the process feed to achieve sufficient copper grades in flotation to produce a copper concentrate above 20%.  Stockpiles fluctuate year to year, but achieve maximum capacity of just over 70 million tonnes.

Mineral Processing

·         Both Brisas and Cristinas were developed to the feasibility-level stage and beyond in 2006 to 2007 so the quantity of information available is greater than would typically be available at the PEA stage of a project.

·         The material to be mined from Siembra Minera is demonstrated to be amenable to both cyanide leaching and to sulphide flotation.  For materials that contain lower concentrations of copper, cyanide leaching is more cost effective and for material that contains higher concentrations of copper, sulphide flotation is more cost effective.

·         The prior metallurgical test work met industry standards at the time the studies were completed, however, technology has progressed in the subsequent ten plus years and industry standards have evolved.  Current standards include testing of a large number of variability samples and development of geometallurgical models, as opposed to testing composite samples to represent “average” material to be processed, which was the emphasis for the Brisas test program.

Exhibit 99.1   Annual Information Form - Page 16

 


 

Environment

·         GRE is in the process of preparing environmental reports and programs to meet municipal, provincial, and national regulatory requirements, as well as generally accepted international standards.

·         Two separate but parallel Environmental and Social Impact Assessments (ESIA) are being prepared for the Siembra Minera Project, one that meets Venezuelan regulatory requirements and one that meets international standards and guidelines.

·         A conceptual plan for small-scale mining management is in place.  The conceptual plan includes relocation of the artisanal miners away from the active, large scale mining operations and establishment of an oxide saprolite processing and stockpile area with concrete tailings ponds that collect and transport tailings from the artisanal mining operations to the Siembra Minera Project tailings management facility (TMF).

Recommendations

Given the positive economic results presented in this report, RPA recommends that the Siembra Minera 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.

·         Acquire three or four matrix-matched certified reference materials that approximate the cut-off grade, average grade, and high grades and insert them in all future drill programs at the Siembra Minera Project at a rate of approximately 1 in 25.

·         Implement external laboratory check assays at a rate of approximately 1 in 20.

Mining

·         RPA is of the opinion that one of the most important factors influencing mining will be the amount of water entering the pit.  RPA recommends contracting a groundwater hydrologist to evaluate the combined Project based on past work. 

Exhibit 99.1   Annual Information Form - Page 17

 


 

·         A LoM schedule should be generated for the mining and processing of the Siembra Minera mineralized material.  This study should include optimization and blending of the materials to achieve a sufficiently high copper grade to produce a copper concentrate grade above 20%.

·         A trade-off study should be completed for the backfilling of the open pit with waste rock and/or neutralized tailings.

·         A geotechnical investigation program should be carried out to confirm the subsurface conditions under the proposed new open pit, waste dump locations, and stability analysis undertaken to verify design recommendations.

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 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

·         Design of the TMF for the combined Project is preliminary.  Further detailed geotechnical work is required to complete a design for the final tailings.  Preliminary plans are to use the feasibility level design from the SNC-Lavalin 2007 study as Stage 1 of construction with the final tailings inundating the Stage 1 structure. 

Environment

·         Gold Reserve has held discussions with the small miners, indigenous groups, and local people. RPA recommends continuing discussions with these groups. 

·         Due to the increase in mineral resources, additional work is required for the increased waste rock dump (“WRD”) and TMF, and redesign/update of the acid rock drainage (“ARD”) mitigation measures.

Exhibit 99.1   Annual Information Form - Page 18

 


 

·         A new ESIA will be required for the combined project with an updated project plan and in conjunction with detail design and feasibility study.

Costs and Economics

·         After the designs are complete for the Siembra Minera Project, a new capital and operating cost estimate should be completed.

·         An updated copper concentrate marketing study should be completed.  Recent changes in the world copper concentrate supply have reduced treatment and refining charges for copper and reduced participation charges.

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

 

Description

Cost

(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

·         The LoM production plan assumes that leach plant detailed engineering/early earthworks will commence in Q1 of Year -2.

·         The LoM production plan assumes concentrator plant detailed engineering will commence in Q1 of Year -2.

·         A 2-year pre-production period for the leach plant, 2 additional years for completion of the flotation concentrator, and a 45 year overall mine life.

·         The leach plant has nameplate capacity of 15,000 tpd from year 1 through year 10, which increases in year 11 to 35,000 tpd through year 45 “EoM” (5.8 Mtpa to 12.25 Mtpa, respectively).

·         The concentrator plant has nameplate capacity of 140,000 tpd from year 3 through year 10, which decreases in year 11 to 105,000 tpd through year 45 EoM (58 Mtpa to 36.75 Mtpa, respectively).

·         Total combined leach and concentrator production is 2.0 billion tonnes, at a grade of 0.70 g/t Au, 0.50 g/t Ag, and 0.090% Cu.

·         The copper head grades in the mine plan are 302 Mt at 0.017% Cu and 1,703 Mt at 0.106% Cu for the leach and concentrator plants, respectively.  However, the leach plant does not recover copper, thus the overall average copper head grade in the total mill feed is 2,005 Mt at 0.090% Cu.

·         Average overall metal recovery of 84% Au, 53% Ag, and 84% Cu.

·         Total recovered metal of 38.1 Moz Au, 17.1 Moz Ag, and 3.3 billion lb Cu.

·         Average LoM annual recovered metal production of 847 koz Au, 380 koz Ag, and 78 million lb Cu.

Exhibit 99.1   Annual Information Form - Page 19

 


 

·         Average annual recovered metal production in Years 3 through 18 of 1,229 koz Au, 469 koz Ag, and 77 million lb Cu.

·         Average annual recovered metal production in Years 19 through 45 EoM of 674 koz Au, 353 koz Ag, and 78 million lb Cu.

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 Siemba Minera 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 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

 

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 are assumed to be waived for the Siembra Minera 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 Siembra Minera 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%

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

Exhibit 99.1   Annual Information Form - Page 21

 


 

As a result of large stockpiles of mill feed being generated during the life of the mine, the Siembra Minera 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 Siembra Minera 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 22

 


 

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 23

 


 

Table 1-4 shows the LoM total metrics for the Siembra Minera 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 24

 


 

 

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 25

 


 

 

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

Phase 2:                 Years 3 through 18 (mining highest grades) - 1,191 koz/yr Au at $411/oz.

Phase 3:                 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 26

 


 

Sensitivity Analysis

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

·                     Head grade

·                     Gold recovery

·                     Gold price

·                     Operating costs

·                     Capital costs

·                     Discount rates

 

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 27

 


 

Table 1-6   Pre-tax Sensitivity Analysis

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

 

Factor Change

Head Grade (g/t Au)

NPV at 10%

(US$ M)

IRR

(%)

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

(% Au)

NPV at 10%

(US$ M)

IRR

(%)

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

(US$/oz Au)

NPV at 10%

(US$ M)

IRR

(%)

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

(US$/t milled)

NPV at 10%

(US$ M)

IRR

(%)

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

(US$ M)

NPV at 10%

(US$ M)

IRR

(%)

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 28

 


 

Figure 1-5   Pre-tax NPV 10% Sensitivity Analysis

 

 

 

Figure 1-6   Pre-tax IRR Sensitivity Analysis

 

 

Exhibit 99.1   Annual Information Form - Page 29

 


 

A sensitivity analysis of discount rates is presented in Figure 1-7 and 1-8 and shows that the Siemba Minera 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 30

 


 

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 Siembra Minera 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 Siembra Minera 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 Gold Reserve 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 31

 


 

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 Gold Reserve 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 Siembra Minera 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 Siembra Minera 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

(Mt)

Grade

(g/t Au)

Grade

(% Cu)

Contained Gold

(koz Au)

Contained Copper

(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 32

 


 

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 Siembra Minera 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 33

 


 

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 Siembra Minera 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 Siembra Minera 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 Siembra Minera 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 Siembra Minera 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 Siembra Minera 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 Siembra Minera Project area and adequate management of small-scale mining is critical to the success of the Siembra Minera 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 Siembra Minera 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 34

 


 

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 35

 


 

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 Siembra Minera 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.

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 an NSR 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 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

On March 27, 2019, the Company announced that the Board had approved the distribution of between approximately $90 million and $100 million in the aggregate, to holders of Class A Shares as a return of capital. On April 16, 2019, following the Government of Canada’s decision on April 15, 2019 to impose Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act, the Board determined that it was in the best interests of the Company and its Shareholders to reduce the aggregate amount of capital to be returned to Shareholders pursuant to the Return of Capital transaction to approximately US$75 million, or approximately US$0.76 per Class A Share (See “U.S. and Canadian Sanctions”). We have not previously declared or paid any dividend since 1984.

The Return of Capital Transaction is intended to occur on a tax-efficient basis for income tax purposes and is to be completed pursuant to a court-approved plan of arrangement transaction under the Act, and requires approval by the Court and at least two-thirds of the votes cast by Shareholders in respect of a special resolution. Generally, the Arrangement consists of a cash distribution, an amendment of the Company's articles of incorporation and an exchange of shares in a manner that results in a Shareholder having the same ownership after the transaction as immediately before. Full details of the Return of Capital Transaction are described in the Company’s management proxy circular and other related materials filed with applicable Canadian securities regulatory authorities and made available at www.sedar.com or www.sec.gov, and posted on the Company’s website at www.goldreserveinc.com. Subject to obtaining the requisite Shareholder approval, obtaining the Final Order from the Court, obtaining TSXV approval, and filing of articles of arrangement, the Arrangement will become effective on or about June 13, 2019.

Exhibit 99.1   Annual Information Form - Page 36

 


 

Following the receipt, if any, of additional funds pursuant to the Settlement Agreement 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 future collection of the remaining amounts related to the Award.

Description of Capital Structure

Class A Shares

We are authorized to issue an unlimited number of Class A Shares without par value of which 99,395,048 Class A 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 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 (the "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 non­cumulative; 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 8.75 million of the Class A Shares. As of December 31, 2018, there were 4.6 million options outstanding and 2.1 million 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 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

The Class A Shares are traded in Canada on the TSXV under the symbol "GRZ" 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 the Class A Shares as reported on the TSXV and the OTCQX during 2018.


 
 

 

TSXV

(Cdn $)

OTCQX

(U.S. $)

 

High

Low

Volume

High

Low

Volume

January

4.04

2.98

239,300

3.51

2.37

686,900

February

3.44

2.65

197,400

2.73

2.13

1,223,500

March

3.57

3.05

170,200

2.74

2.37

982,800

April

3.46

3.17

56,600

2.68

2.40

197,200

May

3.23

2.50

159,700

2.51

2.07

224,500

June

3.87

2.57

122,000

3.02

2.05

266,600

July

3.43

3.00

89,400

2.66

2.25

541,100

August

3.79

3.10

125,200

2.90

2.30

205,600

September

3.65

3.11

173,800

2.80

2.29

180,700

October

3.44

3.10

67,500

2.63

2.32

418,300

November

3.37

2.65

258,300

2.55

1.84

1,079,400

December

3.12

2.74

84,100

2.40

2.01

279,100

 

On April 25, 2019, the closing price for the Class A Shares was Cdn $3.29 per share on the TSXV and U.S. $2.51 per share on the OTCQX. As of the date hereof, there were a total of 99,395,048 Class A 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 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, 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 Shares beneficially owned, or controlled or directed, directly or indirectly, by each such director or executive officer.

Exhibit 99.1   Annual Information Form - Page 38

 


 

Name, Residence and Position

Principal Occupation

during the last five years

Director
and/or Officer Since

Number
of Common Shares Beneficially Owned as of March 31, 2018

Percent
of
Class

Committee Member-ship

James H. Coleman, Q.C. (2) (3)

Alberta, Canada

Executive Chairman
and Director

Mr. Coleman is the Executive Chairman of the Company since 2016 and prior thereto was the non-Executive Chairman since 2004. 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 25 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,

February 1994

780,588

*

A,B,E,F

Rockne J. Timm (2) (3)

Washington, USA

Chief Executive Officer
and Director

Mr. Timm has been a director of the Company for over 30 years and the Chief Executive Officer of the Company and its predecessor Gold Reserve Corporation for 30 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.

March

1984

1,530,040

1.5%

A, B

A. Douglas Belanger (2) (3)

Washington, USA

President and Director

Mr. Belanger is a geologist with significant industry experience who has been a director of the Company for 30 years and the president of the Company for 14 years. Mr. Belanger also served as executive vice president from 1988 through 2004. He is also the executive vice president and director of Gold Reserve Corporation since 1988, 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, (the “Barbados Subsidiaries”). He has been executive vice president and director of Great Basin Energies Inc. since 1984 and MGC Ventures, Inc. since 1997.

August 1988

1,700,940

1.7%

A,C,D,E

Exhibit 99.1   Annual Information Form - Page 39

 


 

 

James P. Geyer

Washington, USA

Independent Director

Mr. Geyer, who has a Bachelor of Science in Mining Engineering, has been a director of the Company for 21 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.

June

1997

407,473

*

 

C,H,G

Jean Charles Potvin

Ontario, Canada

Independent Director

Mr. Potvin holds a Hon. BSc. in geology as well as an MBA and has been a director of 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. Mr. Potvin has been a key member of the Company's Audit Committee for almost 16 years. Mr. Potvin also has nearly 15 years of 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.

November 1993

316,672

*

C,D,F,G,H

Robert A. Cohen

Massachusetts, USA

Independent Director

Mr. Cohen retired as of October 1, 2016 from his position as a litigation partner in the international law firm Dechert LLP, and its predecessor firms, in the New York office.

August 2017

-

*

B,F

Exhibit 99.1   Annual Information Form - Page 40

 


 

 

James Michael Johnston(1)

Washington, USA

Independent Director

Mr. Johnston co-founded Steelhead Partners LLC in late 1996 to form and manage the Steelhead Navigator Fund. Prior, 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.

August 2017

10,499,924

10.6%

G,H

Robert A. McGuinness (2) (3)

Washington, USA

Vice President Finance and CFO

Mr. McGuinness’ principal occupation has been as Vice President of Finance of the Company since March 1993 and Chief 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.

March

1993

208,004

*

 

Directors and officers
as a group

 

 

15,443,641

15.5%

 

*Indicates less than 1%

 

(1)   Mr. Johnston is a member and portfolio manager 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, and McGuinness are directors and/or officers of Great Basin Energies, Inc.
(OTC: GBEI), which owns 491,192 Class A Shares, or 0.5% of the outstanding Class A Shares. The foregoing individuals beneficially own 17.6%, 11.2%, 4.2% and 1.3%, 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, and McGuinness 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% and 1.9%, 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 Shares beneficially owned, or controlled or directed, directly or indirectly, is based on information provided to us by our directors and executive officers.

Exhibit 99.1   Annual Information Form - Page 41

 


 

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:

(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 2019 annual general and special meeting of Shareholders (the "2019 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.

Exhibit 99.1   Annual Information Form - Page 42

 


 

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:

Mr. Potvin holds a Hon. BSc. in geology as well as an MBA and has been a director of the Company for over 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. Mr. Potvin also has nearly 15 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 42 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 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.

Independent Registered Public Accounting Firm Service Fees

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

 

Fee category

(U.S.$)
Year Ended 2018

(U.S.$)
Year Ended 2017

Audit Fee

$ 162,756

$ 134,745

Audit Related Fees

41,084

66,038

Tax Fees

 74,307

111,340

All Other Fees

nil

3,455

Total

$ 278,147

$ 315,578

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.

Exhibit 99.1   Annual Information Form - Page 43

 


 

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.

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 Act 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, 2018;

(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, 2018.

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 the Class A Shares prior to the transaction (See Note 10 to the audited consolidated financial statements).

Exhibit 99.1   Annual Information Form - Page 44

 


 

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.

Transfer Agents and Registrars

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

8742 Lucent Blvd, Suite 225                                                            8th Flr, 100 University Avenue

Highlands Ranch, CO 80129                                                            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 pursuant to which Venezuela agreed to pay us the Award  and purchase the 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 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 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 NI 51-102, 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 public 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.

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.

Exhibit 99.1   Annual Information Form - Page 45

 


 

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, 2018 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 2019 annual general and special meeting.

 

Exhibit 99.1   Annual Information Form - Page 46

 

gdrzfform40fexhibit992042619.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 U.S. 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, 2018 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, 2018.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 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, 2019

     April 26, 2019

                                                                             

 

 

Exhibit 99.2    Audited Consolidated Financial Statements - Page 1

 


 

 

 

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, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, 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, 2018, 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, 2018 and 2017, 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, 2018, 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, 2019

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,

 2018

 

 

December 31, 2017

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents (Note 4)

$

147,646,353

 

$

137,672,718

Marketable securities (Note 5)

 

287,638

 

 

239,232

Income tax receivable

 

6,450,384

 

 

Deposits, advances and other (Note 7)

 

1,608,698

 

 

156,050

Total current assets

 

155,993,073

 

 

138,068,000

Property, plant and equipment, net (Note 6)

 

12,660,273

 

 

12,632,534

Total assets

$

168,653,346

 

$

150,700,534

LIABILITIES

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses (Note 3)

$

712,520

 

$

2,167,171

Income tax payable

 

 

 

1,263,438

Contingent value rights (Note 3)

 

 

 

3,097,193

Total current liabilities

 

712,520

 

 

6,527,802

 

 

 

 

 

 

Deferred income tax (Note 11)

 

 

 

18,402,483

Total liabilities

 

712,520

 

 

24,930,285

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

Serial preferred stock, without par value

 

 

 

 

 

 Authorized:

Unlimited

 

 

 

 

 

 

 Issued:

None

 

 

 

 

 

 

Common shares

 

378,009,884

 

 

378,009,884

 Class A common shares, without par value

 

 

 

 

 

  Authorized:

Unlimited

 

 

 

 

 

 

  Issued and outstanding:

2018…99,395,048

2017…99,395,048

 

 

 

 

 

Contributed surplus (Note 10)

 

20,625,372

 

 

20,625,372

Stock options (Note 9)

 

20,721,850

 

 

20,409,643

Accumulated deficit

 

(251,416,280)

 

 

(293,386,189)

Accumulated other comprehensive income

 

 

 

111,539

Total shareholders' equity

 

167,940,826

 

 

125,770,249

Total liabilities and shareholders' equity

$

168,653,346

 

$

150,700,534

 

 

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,

        

 

2018

 

2017

INCOME (LOSS)

 

 

 

 

Gain on sale of mining data (Note 3)

$

52,500,000

$

187,500,000

Arbitration award (Note 3)

 

36,000,000

 

Interest income

 

325,183

 

48,323

Loss on impairment of trust account (Note 4)

 

(21,456,881)

 

Loss on settlement of debt (Note 10)

 

 

(16,637,379)

Loss on marketable debt securities (Note 5)

 

(14,188,651)

 

Gain on marketable equity securities

 

48,405

 

Foreign currency loss

 

(1,658,881)

 

(213,016)

 

 

51,569,175

 

170,697,928

EXPENSES

 

 

 

 

Corporate general and administrative

 

7,468,553

 

16,715,792

Retention units

 

 

7,694,200

Contingent value rights

 

4,799,114

 

3,901,159

Siembra Minera Project (Note 7)

 

5,125,815

 

7,510,588

Exploration costs

 

27,980

 

83,859

Legal and accounting

 

1,140,436

 

1,012,768

Arbitration and settlement (Note 3)

 

217,974

 

2,435,645

Equipment holding costs

 

901,050

 

661,798

Interest expense (Note 10)

 

 

6,098,069

 

 

19,680,922

 

46,113,878

 

 

 

 

 

Net income before income tax expense

 

31,888,253

 

124,584,050

Income tax benefit (expense) (Note 11)

 

9,970,117

 

(35,073,174)

 

 

 

 

 

Net income for the year

$

41,858,370

$

89,510,876

 

 

 

 

 

Net income per share, basic and diluted

$

0.42

$

0.96

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

  Basic

 

99,395,048

 

93,649,587

  Diluted

 

99,497,860

 

94,162,693

 

GOLD RESERVE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (Expressed in U.S. dollars)

 

For the Years Ended

 

December 31,

 

 

2018

 

2017

 

 

 

 

 

Net income for the year

$

41,858,370

$

89,510,876

Other comprehensive loss, net of tax:

 

 

 

 

Items that may be reclassified subsequently to the

 consolidated statement of operations:

 

 

 

 

   Loss on marketable securities, net of tax of nil (Note 5)

 

 

(301,984)

Revaluation of deferred tax liability

 

 

(29,650)

Other comprehensive loss for the year

 

 

(331,634)

Comprehensive income for the year

$

41,858,370

$

89,179,242

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, 2018 and 2017

(Expressed in U.S. dollars)

 

 

 

 

Contributed Surplus

Stock Options

Accumulated Deficit

Accumulated Other

Comprehensive Income

 

 

Common Shares

Number

Amount

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 (Note 9)

5,108,493

Fair value of options exercised

2,052,575

(2,052,575)

Common shares issued for:

 Option exercises (Note 9)

2,073,435

5,973,474

 Note conversions (Note 10)

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

Cumulative effect of accounting

 

 

 

 

 

 

 change (Note 2)

111,539

(111,539)

Net income

41,858,370

Stock option compensation (Note 9)

312,207

Balance, December 31, 2018

99,395,048

$ 378,009,884

$ 20,625,372

$ 20,721,850

$(251,416,280)

$              –

               

 

 

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,

 

 

2018

 

2017

Cash Flows from Operating Activities:

 

 

 

 

Net income for the year

$

41,858,370

$

89,510,876

Adjustments to reconcile net income to net cash

 used in operating activities:

 

 

 

 

Stock option compensation

 

312,207

 

5,108,493

Depreciation

 

47,940

 

6,491

Gain on sale of mining data

 

(52,500,000)

 

(187,500,000)

Arbitration award

 

(36,000,000)

 

Loss on settlement of debt

 

 

16,637,379

·         Write-down of property, plant and equipment

 

14,000

 

Accretion of convertible notes

 

 

6,051,444

Loss on marketable securities

 

14,140,245

 

Income tax

 

(26,116,305)

 

18,402,483

Changes in non-cash working capital:

 

 

 

 

Net increase in deposits and advances

 

(1,452,648)

 

(2,134)

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

 

(4,551,844)

 

4,791,873

Net cash used in operating activities

 

(64,248,035)

 

(46,993,095)

Cash Flows from Investing Activities:

 

 

 

 

Proceeds from sale of mining data

 

 

187,500,000

Proceeds from disposition of marketable securities

 

74,311,349

 

Purchase of property, plant and equipment

 

(89,679)

 

(592,529)

Net cash provided by investing activities

 

74,221,670

 

186,907,471

Cash Flows from Financing Activities:

 

 

 

 

Proceeds from the issuance of common shares

 

 

5,973,474

Settlement of debt

 

 

(43,962,181)

Net cash used in financing activities

 

 

(37,988,707)

Change in Cash and Cash Equivalents:

 

 

 

 

Net increase in cash and cash equivalents

 

9,973,635

 

101,925,669

Cash and cash equivalents - beginning of year

 

137,672,718

 

35,747,049

Cash and cash equivalents - end of year

$

147,646,353

$

137,672,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

 

Cash paid for interest

$

$

9,589,281

Cash paid for income taxes

$

16,146,188

$

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 and 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 and the acquisition of our Mining Data by Venezuela (See Note 3, Arbitral Award Settlement and Associated Mining Data Sale and Note 7, 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 three 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 various major 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 an equity incentive plan which provides for the grant of stock options to purchase the 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 9 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 are accounted for by the equity method.

Financial Instruments. Gains or losses on marketable securities are recorded in the statement of operations. 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 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 was effective for us January 1, 2018. The updated guidance resulted in a reclassification of $0.1 million of unrealized holding gains and losses related to investments in marketable equity securities from accumulated other comprehensive income to accumulated deficit in the Balance Sheet upon adoption. Changes in the value of the Company’s marketable equity securities are now recorded as income (loss) instead of other comprehensive income (loss).

Exhibit 99.2    Audited Consolidated Financial Statements - Page 9

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

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 was effective for us January 1, 2018 and did not have an 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 was effective for us January 1, 2018 and did not have an 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 was effective for us January 1, 2018 and did not have an impact on our financial statements.

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 was effective for us January 1, 2018 and did not have an impact on our financial statements.

Recently issued accounting pronouncements

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 do not expect the adoption of this standard will have a significant impact on our financial statements.

 

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

In October 2009 we initiated the Brisas Arbitration to obtain compensation for the losses caused by the actions of Venezuela that terminated our Brisas Project. On September 22, 2014, we were granted an Arbitral Award (the “Award”) totaling $740.3 million. In July 2016, we signed the Settlement Agreement, subsequently amended, whereby Venezuela agreed to pay us $792 million to satisfy the Award (including interest) and $240 million for the purchase of our mining data related to the Brisas Project (the "Mining Data"). 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 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 first $240 million received by Gold Reserve from Venezuela has been recognized as proceeds from the sale of the Mining Data.

As of the date of this report, Venezuela had made payments pursuant to the Settlement Agreement of approximately $254 million including $165.5 million transferred from a Trust Account for the benefit of the Company (See Note 4, Cash and Cash Equivalents) and $88.5 million in Venezuelan government bonds. In August 2018, the Company received Venezuelan government bonds, which were exempt from U.S. Sanctions pursuant to then-applicable General License 3 issued by the U.S. Treasury Department's Office of Foreign Asset Control ("OFAC"), with a market value, at the time of the agreement, of approximately $88.5 million as payment of the December 2017 and January and February 2018 monthly installments due under the Settlement Agreement. The bonds were subsequently sold for approximately $74.3 million and the Company realized a $14.2 million loss on the sale during the year ended December 31, 2018. The monthly payments pursuant to the Settlement Agreement from March 2018 through April 2019 totaling approximately $413 million, not including the balance in the Trust Account, remain unpaid.

Exhibit 99.2    Audited Consolidated Financial Statements - Page 10

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

We have Contingent Value Rights ("CVRs") outstanding 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 for certain specified obligations, as well as a bonus plan as described below. Due to U.S. and Canadian Sanctions (See Note 4, Cash and Cash Equivalents) and the uncertainty of transferring the cash held in the Trust Account to bank accounts outside of Venezuela, management only considers those funds received by the Company into its North American bank account as funds available for purposes of the CVR and Bonus Plan cash distributions. The cumulative amount distributed to CVR holders in 2018 totaled approximately $7.9 million.

We maintain a bonus plan (the "Bonus Plan") which is intended to compensate the participants, including executive officers, employees, directors and consultants for their past and present contributions to the Company. The bonus pool under the Bonus Plan, as originally structured, was 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. In June 2018, the Board modified the Bonus Plan to increase the percentage participation of certain individuals who in the Board's opinion were not adequately recognized for their current contribution to efforts associated with the conclusion of the Settlement Agreement and the collection of the amounts contemplated thereunder. The effect of the Board's modification to the Bonus Plan was to increase the after tax percentage allocation for the first $200 million up to a maximum of 1.28% and the percentage allocation thereafter up to a maximum of 6.4%. The cumulative amount distributed to Bonus Plan participants in 2018 totaled approximately $3.3 million.

Following receipt, if any, of additional funds pursuant to the Settlement Agreement and after applicable payments to CVR holders and Bonus Plan participants, we expect to distribute to our shareholders a substantial majority of any remaining amounts, 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. (See Note 12, Subsequent Event).

Note 4.      Cash and Cash Equivalents:

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

2018

 

2017

Bank deposits

 

 

 

 

$

47,588,968

$

39,649,888

Cash held in trust

 

 

 

 

 

-

 

88,500,000

Short term investments

 

 

 

 

 

100,057,385

 

9,522,830

Total

 

 

 

 

$

147,646,353

$

137,672,718

Short term investments include money market funds and US treasury bills which mature in three months or less.

Payments made by Venezuela associated with the Settlement Agreement (excluding the recent transfer of Venezuelan bonds) have generally been 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 transfer the funds to its bank account outside of Venezuela. With the designation of Bandes Bank as an SDN on March 22, 2019, the Company is treating the Trust Account as blocked property. The Trust Account and the funds therein will remain blocked property until the U.S. government delists Bandes Bank as an SDN or issues a specific license to the Company to unblock this property. Cash deposited to the Trust Account and marketable debt securities transferred, subsequent to the balance sheet date but prior to the date of issuance of the consolidated financial statements are recognized as receivables as they represent amounts due from the sale of the Mining Data or the Arbitration Award as of the balance sheet date, for which collectability is certain.

Exhibit 99.2    Audited Consolidated Financial Statements - Page 11

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

In August 2017, the U.S. government imposed financial sanctions (as defined herein "Sanctions") targeting Venezuela by issuing an Executive Order ("EO") 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 certain subsidiaries of the state oil company, these restrictions prohibit financings of greater than 90 days). In addition, U.S. persons are prohibited from dealing in, among other things, bonds (unless otherwise exempt from U.S. Sanctions pursuant to General Licenses 3E or 9D issued by the Department of the Treasury’s Office of Foreign Asset Control ("OFAC")) or equity issued by the Venezuelan government after the U.S. financial Sanctions were imposed in August 2017. Prior to January 2019, certain Venezuelan government bonds identified in General License 3 had been largely exempt from U.S. Sanctions.

U.S. financial sanctions have built on Sanctions imposed by the U.S. government starting in March 2015 that designated Venezuelan government officials as “Specially Designated Nationals” (“SDNs”), which prohibits them from traveling to the U.S., freezes any assets they may have in the U.S. and generally prohibits U.S. persons from doing business with them and any entity they own 50% or more. Since August 2017, the U.S. government has designated several additional individuals as SDNs and has prohibited U.S. persons from dealing in cryptocurrencies issued by the Venezuelan government. In September and November 2017, and again in May 21, 2018, Canada imposed its own Sanctions requiring asset freezes and imposing prohibitions on dealings with named Venezuelan officials. In May 2018, the U.S. government issued an EO that prohibits U.S. persons from engaging in transactions relating to: (i) the purchase of any debt owed to the Venezuelan government, including accounts receivable, (ii) any debt owed to the Venezuelan government that is pledged as collateral after May 2018, including accounts receivable, and (iii) the sale, transfer, assignment, or pledging as collateral by the Venezuelan government of any equity interest in any entity in which the Venezuelan government has a 50% or greater ownership interest.

In November 2018, the U.S. government issued an EO authorizing OFAC to designate as an SDN any person determined to: (i) “operate in the gold sector of the Venezuelan economy” or any other sector deemed sanctionable by the U.S. government, (ii) be responsible for transactions involving deceptive practices or corruption involving the Venezuelan government, or (iii) have supported deceptive or corrupt transactions or to be owned or controlled by a person meeting the foregoing criteria. OFAC issued guidance that it “expects to use its discretion to target in particular those who operate corruptly in the gold or other identified sectors of the Venezuela economy, and not those who are operating legitimately in such sectors.”

In January 2019, the U.S. government designated the Venezuelan state oil company as an SDN under the November 2018 EO. U.S. persons are generally prohibited from doing business with the state oil company and its subsidiaries unless authorized by OFAC. In conjunction with that action, OFAC also changed existing general licenses, such as General License 3 mentioned above, and issued additional general licenses to authorize certain transactions involving certain subsidiaries of the state oil company.

In March 2019, pursuant to EO 13850, OFAC designated CVG Compania General de Minera de Venezuela CA and its president as SDNs in connection with the Venezuelan gold sector and also designated Bandes Bank as an SDN with the same effects as those described above with respect to the Venezuelan state oil company. In conjunction with that designation, OFAC issued several general licenses, although none that authorize the Company's dealings with Bandes Bank. Due to the deteriorating economic conditions in Venezuela and as a result of the Bandes Bank designation which blocked the Company’s access to the funds held in the Trust Account at Bandes Bank, the Company has recorded an impairment loss on the balance in the Trust Account of approximately $21.5 million. The Trust Account and funds will remain blocked until OFAC delists Bandes Bank as an SDN or OFAC issues a specific license to the Company to unblock this property.

On April 15, 2019, the Government of Canada imposed Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act. The imposition of such additional Sanctions poses a significant impediment to the Company’s ability to work with government officials related to the development of the Siembra Minera Project and those responsible for the payment and transfer of funds associated with the Settlement Agreement. To the extent required, the Company will apply for a license from OFAC to allow the Company to pursue payments under the Settlement Agreement and allow international financial institutions to facilitate such transactions without violating US Sanctions. The Company may also pursue similar relief from Sanctions imposed under Canadian law.

 

Exhibit 99.2    Audited Consolidated Financial Statements - Page 12

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

 

Note 5.      Marketable Securities:   

           

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

2018

 

2017

Equity securities

 

 

 

 

 

 

 

 

Fair value at beginning of year

 

 

 

 

$

239,232

$

541,216

Increase (decrease) in fair value

 

 

 

 

 

48,406

 

(301,984)

Fair value at balance sheet date

 

 

 

 

$

287,638

$

239,232

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

Fair value at beginning of year

 

 

 

 

$

$

Acquisitions

 

 

 

 

 

88,500,000

 

Dispositions

 

 

 

 

 

(74,311,349)

 

Realized loss

 

 

 

 

 

(14,188,651)

 

Fair value at balance sheet date

 

 

 

 

$

$

Marketable securities are recorded at quoted market value with gains and losses recorded in the Consolidated Statements of Operations. Gains and losses on securities sold are based on the average cost of the shares held at the date of disposition. As of December 31, 2018 and 2017, marketable equity securities had a cost basis of $98,043. Marketable debt securities, which were sold during 2018, consisted of Venezuelan government bonds received under the Settlement Agreement (See Note 3, Arbitral Award Settlement and Associated Mining Data Sale).

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. The fair values of the Company’s marketable equity securities as at the balance sheet date are based on Level 1 inputs.

Note 6.      Property, Plant and Equipment:

               

 

 

 

Accumulated

 

 

 

 

Cost

 

Depreciation

 

Net

December 31, 2018

 

 

 

 

 

 

Machinery and equipment

$

11,677,534

$

$

11,677,534

Furniture and office equipment

 

469,569

 

(333,828)

 

135,741

Transportation equipment

 

491,025

 

(34,622)

 

456,403

Leasehold improvements

 

51,658

 

(11,063)

 

40,595

Mineral property

 

350,000

 

 

350,000

 

$

13,039,786

$

(379,513)

$

12,660,273

 

 

 

 

 

 

 

Exhibit 99.2    Audited Consolidated Financial Statements - Page 13

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

 

 

 

 

 

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

 

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. We recorded impairment write-downs of property, plant and equipment of $14,000 and NIL during the years ended December 31, 2018 and 2017. During 2017, the Company purchased approximately $0.5 million of transportation equipment for use in the development of the Siembra Minera project.

Note 7.      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 (pursuant to the agreement which governs the formation and operation of 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 current or future Presidential Decrees and Ministerial resolutions, to carry on its business, pay a net smelter return royalty to Venezuela on the future 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. A number of the authorizations, which still have not been provided by the current administration, are critical to the future operation and economics of the Siembra Minera Project and, as a result, management continues its efforts to secure them on behalf of Siembra Minera. Pursuant to the Settlement Agreement, both parties will retain their respective interest in Siembra Minera in the event all of the agreed upon settlement payments are not made by Venezuela.

Exhibit 99.2    Audited Consolidated Financial Statements - Page 14

 


 
 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

On March 16, 2018, the Company announced the completion of a technical report for the Preliminary Economic Assessment ("PEA") for the Siembra Minera Project in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects which included, among other information, resource estimates, pit design, mine plan, flowsheet design, design criteria, project layout, infrastructure requirements, capital and operating estimates. The Company has directly incurred the costs on the Siembra Minera Project, which beginning in 2016 through December 31, 2018 amounted to a total of approximately $14.1 million. Additionally, the Company had prepaid $0.9 million for project related activities ongoing into 2019. The Siembra Minera Project expenditures primarily include costs associated with the completion of the PEA that included a number of engineering, environmental and social third party advisors as well as costs associated with a number of social works programs in the vicinity of the Siembra Minera Project, which are expensed as incurred and classified within “Siembra Minera Project Costs” in the Consolidated Statements of Operations.

On April 15, 2019, the Government of Canada imposed Sanctions against 43 additional individuals under the Special Economic Measures (Venezuela) Regulations of the Special Economic Measures Act. The imposition of such additional Sanctions poses a significant impediment to the Company’s ability to work with government officials related to the development of the Siembra Minera Project. (See Note 4, Cash and Cash equivalents for additional information regarding Sanctions.

Note 8.            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 2018 and 2017 were approximately $212,000 and $234,000, respectively.

Note 9.      Stock Based Compensation Plans:

Equity Incentive Plans

The Company’s equity incentive plan provides for the grant of stock options to purchase up to a maximum of 8,750,000 of the Class A common shares. As of December 31, 2018, there were 2,122,000 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 equity incentive plan.

Share option transactions for the years ended December 31, 2018 and 2017 are as follows:

 

2018

 

2017

 

 

Shares

Weighted Average Exercise Price

 

Shares

Weighted Average Exercise Price

 

Options outstanding - beginning of period

5,091,565

$ 3.13

 

3,357,000

$ 2.84

 

Options granted

-

-  

 

5,277,500

3.15

 

Options exercised

-

-  

 

(2,073,435)

2.88

 

Options expired

(537,000)

3.32

 

(1,469,500)

2.89

 

Options outstanding - end of period

4,554,565

$ 3.11

 

5,091,565

$ 3.13

 

 

 

 

 

 

 

 

Options exercisable - end of period

4,092,068

$ 3.10

 

4,004,067

$ 3.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.2    Audited Consolidated Financial Statements - Page 15

 


 

GOLD RESERVE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

 

The following table relates to stock options at December 31, 2018:

 

 

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

$ 62,289

2.44

 

444,922

$1.92

$ 62,289

2.44

$2.69

125,000

$2.69

-

8.33

 

125,000

$2.69

-