---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

 

§  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;

• Completed the preliminary design and engineering on the small scale Phase I oxide saprolite process plant and the Phase 2 larger hard rock process plant;
• Completed the preliminary design work for a Phase 1 and Phase 2 Tailings Dam design;
• Completed a Venezuelan Environmental Impact Statement (“V-EIS”) to support the new environmental permit from the Ministry of Environment for the construction of the early works (or preliminary works) of the Phase I small saprolite mining and plant;
• Transported 282 samples of saprolite ore weighing a total of 5.4 metric tons taken during the last quarter of 2017 to McClelland Laboratories in Nevada where it is being stored until receiving instructions to complete metallurgical testing for both gravity and cyanidation gold recovery;
• Obtained approval from the Ministry of Environment of the V-EIS (developed in 2018) and the environmental permit to affect the Area for the early works (the "Permit to Affect") which includes: construction and conditioning of 31.5 km of roads, including new and existing access roads to the property, a new access road to the quarry, man-camp and mill site, new access road to the pit area, a new conveyor corridor, and construction of a road along the perimeter of the project’s tailings dam. Also approved is the construction of warehouses, service shops and services patios; the drilling of over 80 exploration and development drill holes and 90 drill holes for pit dewatering and the opening of the quarry, the construction of sedimentation ponds and the construction of the man-camp;
• Validated, with the assistance of Empresa Nacional Forestal (a state owned company affiliated with the Ministry of Environment), the forest inventory for the project area; 
• Prepared and submitted the 2019 budget for the mixed company according to parameters set forth by the Venezuelan budgeting agency;
• Obtained, the "Initiation Act", which is a requirement of the Permit to Affect, from the Ministry of Environment in December 2018 allowing Siembra Minera to initiate the authorized preliminary/early works on the Siembra Minera Project;
• Completed in March 2019 the Environmental Supervision Plan for the permitted (early or preliminary) works;
• Hosted two major community events for the granting of the Environmental Permit and the granting of the Initiation Act which were attended by several thousand local residents and, to the knowledge of the Company, were well received by the local communities;
• Worked with Mission Piar (Small Miner Program affiliated with the Ministry of Mines) to complete an initial survey and census of small miners located in the project area, which included cataloging identities, locations, infrastructure, and health status;
• Continued anti-malarial mitigation efforts in local communities in cooperation with the Ministry of Health and continued logistical support of the initiatives of the NGO “Doctors without Borders” who are working on health impacts in the KM 88 project area;
• Maintained offices in Caracas and Puerto Ordaz and completed preliminary planning and design work to ready these offices for additional operational work as the project advances;
• Initiated a $5 million works program in September 2018 to build new facilities and rehabilitate existing ones at the 4 largest schools currently attending nearly 3,000 elementary and high school students, the church and recreational and sport facilities for the students and the community as well as a musical arts program under the auspices of Foundation Corazon Llanero that works under the well-known Orchestra System (El Sistema). The Company is also establishing a radio station at one school to improve local communications as well as remodeling the Company’s operations center in Las Claritas;
• Completed a feasibility study for the quarry in March 2019 as part of the opening of the quarry needed for the “early works” and during both Phases I and II of the project;
• Participated in two government project fairs, at the request of the Minister of Mines, to highlight developments in the country;
• Assisted small miner alliances, with the support of the Ministry of Mines, to obtain mining rights to property north of the Siembra Minera Project – with the purpose of relocating small miners from the Siembra Minera Project area; and
• continued to advance the $5 million social program in the first quarter of 2019.

---

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.

---

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.

---

 

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.

---

·         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.

---

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. 

---

·         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.

---

·         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

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.

---

·         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

 

---

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

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

---

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. 

 

---

Figure 1-1   Mine vs. Mill Production

 

 

 

Figure 1-2   Mill Production Profile by Plant

 

 

 

Figure 1-3   Project Pre-tax Metrics Summary

 

---

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

 

---

 

 

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

 

---

 

 

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

 

---

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.

 

---

Table 1-6   Pre-tax Sensitivity Analysis

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

 

 

 

---

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

 

 

 

Figure 1-6   Pre-tax IRR Sensitivity Analysis

 

 

---

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

 

 

 

---

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.

---

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

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.

---

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.

---

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.

---

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

 

Note:

1.        Upfront working capital of $195 million during Yrs 1 to 4.  Recaptured at end of mine life.

---

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

 

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.

---

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.

---

 

 

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.

---

---

 

---

 

*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.

---

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.

---

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:

 

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

Audit Fees

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

---

Tax Fees

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

All Other Fees

All Other Fees represent costs not included above.

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).

---

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                                                            8^th 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.

---

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.

 

---

---

---

---

---

---

---

---

---

---

---

---

---

---

 

---