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FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
GOLD RESERVE INC.
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada
(Jurisdiction of incorporation)
1-8372
(Commission File Number)
926 West Sprague Avenue
Suite 200
Spokane, Washington 99201
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A common shares, no par value per share
(Title of each class)
The Toronto Stock Exchange ("TSE")
U.S. Over the Counter Market ("OTC")
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
The total number of the registrant's shares outstanding as of December 31, 1999:
Class A common shares, no par value per share 21,987,672
Equity Units, no par value per share 1,584,966
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
Registrant elected to follow financial statement Item 17.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Glossary of Significant Terms
PART I
ITEM 1. Description of Business
Overview
Corporate Reorganization
Risk Factors
ITEM 2. Description of Property
The Brisas Property
Venezuelan Mining, Environment and Other Matters
ITEM 3. Legal Proceedings
ITEM 4. Control of Registrant
ITEM 5. Nature of Trading Market
ITEM 6. Exchange Controls and Other Limitations Affecting Security Holders
ITEM 7. Taxation
Canadian Federal Income Tax Considerations
U.S. Federal Income Tax Consequences
ITEM 8. Selected Financial Data
ITEM 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Formation of Canadian Parent
Overview
Liquidity and Capital Resources
Results of Operations
ITEM 9a. Quantitative and Qualitative Disclosures about Market Risk
ITEM 10. Directors and Officers of the Company
ITEM 11. Compensation of Directors and Officers
Executive Compensation
Director Compensation
ITEM 12. Options to Purchase Securities From the Registrant or
Subsidiaries
ITEM 13. Interest of Management in Certain Transactions
PART II
ITEM 14. Description of Securities to be Registered
PART III
ITEM 15. Defaults Upon Senior Securities
ITEM 16. Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds
PART IV
ITEM 17. Financial Statements
Management's Report
Auditors' Report
ITEM 18. Financial Statements
Not Applicable
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Exhibit Table and Index to Exhibits
Signatures
FORWARD-LOOKING STATEMENTS
The information presented in or incorporated by reference in this report
includes both historical information and "forward-looking statements" (within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) relating to the future results of Gold Reserve
Inc. (the "Company") (including projections and business trends), which involve
risks and uncertainties. Except where the context indicates otherwise, "Company"
means Gold Reserve Inc., its predecessor Gold Reserve Corporation and
subsidiaries.
Numerous factors could cause actual results to differ materially from those in
the forward-looking statements, including without limitation the risk that
actual reserves may vary considerably from estimates presently made, the impact
of metals prices and metal production volatility, the Company's concentration of
operations and assets in Venezuela, regulatory, political and economic risks
associated with Venezuelan operations, the Company's ability to obtain
additional funding for future development of the Brisas property, dependence
upon the abilities and continued participation of certain key employees of the
Company, and the risks normally incident to the operation and development of
mining properties.
Investors are cautioned not to put undue reliance on forward-looking
statements, and should not infer that there has been no change in the affairs
of the Company since the date of this report that would warrant any
modification of any forward-looking statement made in this document or other
documents filed periodically with securities regulators. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this notice.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
RESERVE ESTIMATES
The reserve and resource estimates set forth in this document have been
prepared in accordance with applicable Canadian requirements. Such
mineralization may not qualify as a commercially mineable ore body under
standards promulgated by the U.S. Securities and Exchange Commission until the
economic viability of the project is established and documented in a final
feasibility study.
CURRENCY
All currency is in U.S. Dollars unless otherwise noted.
Glossary of Significant Terms
Certain terms used throughout this report are defined below.
alluvial... 1) Used to identify unconsolidated or clay-like materials
deposited over time by moving water. 2) Used to describe
a strata of material that constitutes a concession, i.e.
relating to the Brisas alluvial concession.
andesite... A volcanic rock of intermediate composition. It is
fine-grained and contains 55% to 60% silica.
assay... An analysis performed on a rock sample to determine its
metal content.
ball mill... A steel cylinder partially filled with steel balls into
which crushed ore is fed. The ball mill is rotated,
causing the balls to cascade and grind the ore.
batholith... A mass of igneous rock with a surface area greater than
100 square kilometers.
Bolivar... The basic monetary unit of the Republic of Venezuela. As
of March 31, 2000, approximately 670 Bolivares equaled
one U.S. Dollar.
breccia... A clastic rock in which angular fragments are surrounded
by a fine-grained matrix or minerals cement.
Brisas... Compania Aurifera Brisas del Cuyuni, C.A., a Venezuelan
corporation and the subsidiary of the Company that owns
the Brisas property.
Brisas alluvial
concession... The mining title granted to Brisas in 1988 by the
Ministry of Energy and Mines to explore and
commercially develop and exploit gold contained in
alluvial material on the Brisas property.
Brisas hardrock
concession... The mining title granted to Brisas in 1998 by the MEM to
commercially develop and mine gold, copper and molybdenum
contained in the veta or vein material on the Brisas
property.
Brisas property... The Brisas alluvial concession, the Brisas hardrock
concession, applications for other mineralization
contained within the concessions (primarily nominal values
of copper and silver) and mineralization (primarily gold,
copper and molybdenum) on small land parcels contiguous
to the existing alluvial and hardrock concessions.
commercially mineable
ore body... A mineral deposit that contains ore reserves that may
be mined economically.
concentrate... A finely ground product of the milling process, containing
a high percentage of valuable metal, which is typically
sent to a smelter for further processing.
concession... A privilege, license or mining title granted by the
Ministry of Energy and Mines, to explore and, if
warranted, produce minerals from a specified property.
Corporacion
Venezolana de
Guayana (CVG)... A Venezuelan government-owned entity formed to foster
industrial development and to explore and develop mineral
resources in the Guayana region of Venezuela, including
the State of Bolivar.
cyanidation... A method of extracting gold or silver from a crushed or
ground ore by dissolving it in a weak cyanide solution.
dilution... Waste rock that is, by necessity, removed along with the
ore in the mining process, subsequently lowering the
average grade of the ore processed.
dip... The angle at which a vein, structure or rock bed is
inclined from the horizontal as measured at right angles
to the strike.
environmental impact
statement (EIS)... A report, compiled prior to a production decision, that
examines the effects of proposed mining activities on the
natural surroundings.
feasibility study... An analysis and compilation of technical and economic
data with the objective of proving the economic and
technical feasibility of the project. Prepared to support
a production decision on a proposed mining and milling
operation.
flotation... A process for concentrating minerals based on the
selective adhesion of certain minerals to air bubbles
in a mixture of water and ground up ore. When the right
chemicals are added to a frothy water bath of ore that
has been ground to the consistency of talcum powder,
the minerals will float to the surface. The metal rich
flotation concentrate is then skimmed off the surface.
gold equivalent... Gross value of copper at a stated value per pound divided
by the gross price of gold at a stated value per ounce.
Gold Reserve de
Venezuela C.A.,
(GLDRV)... A Venezuelan corporation and a foreign subsidiary of the
Company. GLDRV was organized in September 1992 to manage
the exploration and development activities on the Brisas
property.
grade... The relative quantity or the percentage of ore-mineral
content in a mineralized body, i.e. grams of gold per
tonne or percent of copper per tonne.
gravity separation... Recovery of gold from crushed rock or gravel using gold's
high specific gravity to separate it from the lighter
material.
hardrock... Solid rock underlying an alluvial deposit. Also referred
to as bedrock.
hectare... A metric measurement of area equivalent to 10,000 square
meters or 2.4711 acres.
igneous... Rocks formed by the cooling and solidifying of magma.
Imataca Forest
Reserve... A 3.6 million hectare area of tropical forest located in
the State of Bolivar in southeastern Venezuela that was
set aside as a region for forest exploitation by the
Venezuelan government in the 1960's. The Company's Brisas
property is located in an area within the reserve, which
was previously designated for mining activities.
indicated resource... The estimated quantity and grade of that part of a deposit
for which the continuity of grade, together with the
extent and shape, are so well established that a reliable
grade and tonnage estimate can be made.
inferred resource... The estimated quantity and grade of a deposit, or a part
thereof, that is determined on the basis of limited
sampling, but for which there is sufficient geological
information and a reasonable understanding of the
continuity and distribution of metal values to outline a
deposit of potential economic merit.
intrusive.... Rock which while molten penetrated into or between other
rocks, but solidified before reaching the surface.
Kilometer 88
mining district
(KM 88)... An area in the State of Bolivar in southeastern Venezuela
containing significant alluvial and hardrock deposits. The
Company's Brisas property is located in this district.
Las Cristinas... Gold and copper property which is north of and contiguous
to the Brisas property is are held by MINCA, a
Venezuelan company 30% owned by CVG and 70% owned by
Placer Dome Inc.
measured resource... The estimated quantity and grade of that part of a
deposit for which size, configuration and grade have
been very well-established by observation and sampling
of outcrops, drill holes, trenches and mine workings.
metamorphism... Rock of sedimentary or igneous origin that has been
altered by high temperature and/or pressure.
mill... A processing plant where ore is crushed and ground,
usually to fine powder, and the metals are extracted by
physical and/or chemical means. Output from a mill
usually requires further processing in a smelter or
refining to produce pure metal.
mineral resource... A deposit or concentration of natural, solid, inorganic
or fossilized organic substance in such quantity and at
such grade or quality that extraction of the material
at a profit is currently or potentially possible.
mineral... A naturally occurring homogeneous substance having fixed
physical properties and chemical composition and, if
formed under favorable conditions, a defined crystal
form.
mineralization... The presence of economic minerals in a specific area or
geological formation.
Ministry of the
Environment and
Natural Resources
(MARN)... Venezuelan governmental entity which exercises supervisory
jurisdiction over the environment.
Ministry of Energy
and Mines
(MEM)... Venezuelan governmental entity which exercises supervisory
jurisdiction over the Brisas property and the Company's
activities thereon.
molybdenum... An element (Mo), usually in the form of molybdenite,
primarily used in alloys and lubricants.
open pit... A mine that is entirely on surface. Also referred to as an
open-cut or open-cast mine.
Precambrian... All geologic time before 570 million years ago.
pre-feasibility
report... A preliminary analysis and compilation of technical and
economic data conducted to determine if all or part of the
resources of a deposit may be classified as reserves..
The Company's pre-feasibility report was originally
completed in early 1998 and subsequently revised (most
recently in early 2,000) to reflect the results of ongoing
exploration and development data.
probable reserve... The estimated quantity and grade of that part of an
indicated resource for which the economic viability has
been demonstrated by adequate information on
engineering, operating and legal factors, at a
confidence level that will allow positive decisions on
major expenditures.
Proterozoic... That part of the Precambrian time represented by rocks in
which traces of life appear or the younger part of
Precambrian time.
proven reserve... The estimated quantity and grade of that part of a
measured resource for which the size, grade and
distribution of values, together with technical and
economic factors, are so well-established that there is
the highest degree of confidence in the estimate. The
term should be restricted to that part of a deposit being
mined, or being developed and for which there is a
mining plan.
reclamation... The restoration of a site after mining or exploration
activity is completed.
recovery... The percentage of valuable metal in the ore that is
recovered by metallurgical treatment.
reserve... That part of a resource, which can be legally mined, and
at a profit under economic conditions that are
specified and are generally accepted as reasonable.
Economic viability must be demonstrated by at least a
preliminary feasibility report based on indicated and
measured resources.
resource... The calculated amount of material in a mineral deposit,
based on limited drill information.
stock... An igneous body smaller than a batholith with a
subcircular section.
stratabound... Used to describe mineral deposits that are restricted to a
single stratagraphic unit.
strataform... Mineral deposits whose geometry is similar to that of its
host rock.
strike... The direction, or bearing from true north, of a vein or
rock formation measured along a horizontal line on the
surface of the vein or rock.
strip ratio... The tonnage of non-mineralized waste material removed to
allow the mining of one tonne of ore in an open pit. Also
referred to as waste-to-ore ratio.
tailings... The material removed from the milling circuit after
separation of the valuable metals.
troy ounce... Unit of weight measurement used for all precious metals.
The familiar 16 ounce avoirdupois pound equals 14.583
troy ounces. One troy ounce is equivalent to 31.1034
grams.
vein... A sheet-like or tabular discordant mineralized body
formed by complete or partial infilling of a fracture or
fault within a rock.
veta... 1) Used to describe veins of mineralization and/or deeper,
hardrock mineralization, 2) used to describe a strata of
material that constitutes a concession, i.e. relating
to the Brisas hardrock concession.
CONVERSION FACTORS: 1 Troy ounce = 31.1034 Grams
1 Tonne = 1.1023 Short tons
1 Tonne = 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
SYMBOLS: Au = Gold
Cu = Copper
gpt = Grams per tonne
kt = Thousand tonnes
Au Eq = Gold equivalent
PART I
ITEM 1. Description of Business
Overview
Gold Reserve Inc. (the "Company") is a mining company incorporated in 1998
under the laws of the Yukon Territory, Canada; and is the successor issuer to
Gold Reserve Corporation, a Montana corporation formed in 1956. The Company's
primary mining asset, the Brisas property, is a late development-stage gold and
copper deposit located in the KM 88 mining district of the State of Bolivar in
southeastern Venezuela. Approximately $66 million has been spent related to
exploration and development activities on the Brisas property since its
acquisition. The Company has no revenue producing mining operations at this
time.
Proven and probable reserves on the Brisas property, last reported upon in
October, 1999, total approximately 6 million ounces of gold and 706 million
pounds of copper using US $300 per ounce gold and US $0.80 per pound copper.
The total mineral resource on the property approximates 9.9 million ounces of
gold and 1.13 billion pounds of copper.
Extensive independent analysis of the Brisas property reserve data has been
completed, including audits by Behre Dolbear & Company Inc. ("Behre Dolbear")
of Denver, Colorado, which confirmed the reliability of the Company's reserve
estimate calculations and methodologies. The proven and probable reserves noted
above are based on the results of previously audited data and collection
procedures.
The overall focus of management in the upcoming eighteen months will be
activities related to permitting, securing additional sites required for
process facility, infrastructure, waste disposition and the completion of a
final feasibility study. A period of 18 months is anticipated in the overall
project schedule for permitting as well as completion of a final feasibility
study, but there can be no assurance that these items will be completed as
planned. In addition, completion of metallurgical testing, geotechnical and
hydrological investigations, electrical power supply and concentrate sales
agreements, and development and condemnation drilling, will occur prior to
completion of a final feasibility study.
Cash and short and long-term investments held by the Company at March 31, 2000,
approximate $19 million. The Company presently has no long-term debt. Management
anticipates that current cash and investment balances will be sufficient to
cover estimated operating and capital expenditures (excluding construction
costs, if any) beyond 2001.
As of March 31, 2000, the Company employed 9 people in its Spokane, Washington,
office and approximately 39 people in Venezuela, of which approximately 23 are
located at the Brisas property. The day-to-day activities of the Company's
Venezuelan operations are managed from its offices in Caracas and Puerto Ordaz.
References to the "Brisas property" throughout this report include the Brisas
alluvial concession, the Brisas hardrock concession and applications for other
mineralization within and contiguous to the existing concessions.
References to the "Company" throughout this report refer primarily to Gold
Reserve, Inc., Gold Reserve Corporation, Compania Aurifera Brisas del Cuyuni,
C.A. ("Brisas"), Gold Reserve de Venezuela, C.A. ("GLDRV") Great Basin
Energies, Inc. ("Great Basin") and MegaGold Corporation ("MegaGold"). The
consolidated group also consists of seven Aruban subsidiaries and five
Venezuelan subsidiaries formed to hold the Company's current or future mining
properties. The Company wholly owns all subsidiaries except for Great Basin and
MegaGold of which it owns 58% and 63%, respectively.
Corporate Reorganization
In February 1999, the shareholders of Gold Reserve Corporation approved a plan
of reorganization whereby Gold Reserve Corporation became a subsidiary of Gold
Reserve Inc., the successor issuer (the "Reorganization"). Gold Reserve
Corporation previously made filings with the U.S. Securities and Exchange
Commission.
In addition to expanding the group's profile among Canadian investors who
generally are significant investors in resource companies, the Reorganization
resulted in a deemed disposition, providing the majority of our Canadian
shareholders a tax benefit in the form of a taxable loss on their 1999 tax
return without the need to dispose of the shares held.
Generally, each shareholder of Gold Reserve Corporation received one Gold
Reserve Inc. Class A common share for each common share owned of Gold Reserve
Corporation. After the Reorganization, a shareholder of Gold Reserve Inc.
continued to own an interest in the business that in aggregate was essentially
the same as before the Reorganization.
As part of the Reorganization, U.S. holders of Gold Reserve Corporation could
elect to receive equity units in lieu of Gold Reserve Inc. Class A common
shares. An equity unit is comprised of one Gold Reserve Inc. Class B common
share and one Gold Reserve Corporation Class B common share. Equity units were
provided to U.S. holders who would have had a substantial taxable gain upon
receipt of Gold Reserve Inc. Class A common shares so they might defer a
significant portion of such gain. The equity units are substantially equivalent
to a Class A common share and are immediately convertible into Gold Reserve Inc.
Class A common shares upon compliance with certain procedures. Equity units are
not listed for trading on any stock exchange, but, subject to compliance with
applicable federal, provincial and state securities laws, may be transferred.
Unless otherwise noted, general references to common shares of the Company
include Class A common shares and Class B common shares as a combined group.
The consolidated financial statements that are presented in this report are
those of Gold Reserve Inc. as of and for the year ended December 31, 1999 and
Gold Reserve Corporation as of December 31, 1998 and for the years ended
December 31, 1998 and 1997. The financial position of the consolidated group
subsequent to the Reorganization was substantially the same as prior to the
Reorganization. The primary difference was the exchange at the time of the
transaction of approximately 2.3 million Gold Reserve Corporation common shares
for an equal number of equity units in lieu of Gold Reserve Inc. Class A common
shares.
Risk Factors
Potential investors should carefully evaluate all of the information contained
and incorporated by reference in this report and, in particular, the following:
RESERVE AND MINERAL RESOURCE ESTIMATES
The reserve and resource estimates set forth in this document have been
prepared in accordance with the disclosure requirements of applicable Canadian
Securities Commissions. Such mineralization may not qualify as a commercially
mineable ore body under standards promulgated by the U.S. Securities and
Exchange Commission until the economic viability of the project is established
and documented in a final feasibility study.
Reserve estimation is an interpretive process based on drilling results and
experience as well as estimates of mineralization characteristics and mining
dilution, metal prices, costs of mining and processing, capital expenditures
and many other factors. Grades of mineralization processed at any time also may
vary from reserve estimates due to geologic variations within areas mined.
Production may vary from estimates because of changes in reserves, variations
in mineralization mined from estimated grade and metallurgical characteristics,
unexpected ground conditions, mining dilution, labor actions and government
restrictions. Cash costs may differ due to variations in reserves and
production estimates, unexpected mining conditions and changes in estimated
costs of equipment, supplies, utilities and labor and exchange rates. Noncash
estimates, based on total capital costs and reserve estimates, could change
based on actual amounts of capital incurred. Actual quality and characteristics
of deposits cannot be fully assessed until mineralization is actually mined and
as a result, reserves change over time to reflect actual experience.
RISKS INHERENT IN THE MINING INDUSTRY
Development of the Brisas property is subject to all of the risks inherent in
the mining industry, including environmental hazards, industrial accidents,
labor disputes, unusual or unexpected geologic formations, cave-ins, flooding
and periodic interruptions due to inclement weather. Such risks could result in
damage to, or destruction of, mineral properties and production facilities,
personal injury, environmental damage, delays, monetary losses and legal
liability. Insurance covering environmental or other catastrophic liabilities
is not currently maintained, and is not expected to be maintained in the future
unless it is economically feasible. Insurance against environmental risks
(including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not generally
available, on an economic basis, to companies in the mining industry at present.
Were the Company subjected to environmental or other liabilities, the payment of
such liabilities would reduce available funds and in the event the Company was
unable to fund the cost of remedying an environmental problem, it might be
required to suspend operations or enter interim compliance measures pending
completion of remedial activities.
FOREIGN OPERATIONS
At December 31, 1999, approximately 69% of the Company's identifiable assets
were located in Venezuela. In the past, political and economic conditions in
Venezuela have, on occasion, resulted in political and social turmoil, but to
date, such conditions have not adversely affected the Company's operations.
Nonetheless, the Company's future operations and investments could be adversely
affected by exchange controls, currency fluctuations, taxation, judicial
decisions and laws or policies of Venezuela and the United States affecting
trade, investment, taxation and other factors. Development time schedules and
future reclamation and remediation cost estimates are based on existing and
expected legal requirements, past experience, cost estimates by management and
others, expectations regarding government action and time for government
agencies to act, all of which change over time and require periodic
re-evaluation. Whether and to what extent current or future economic,
regulatory or political conditions may affect future development cannot be
predicted.
ENVIRONMENTAL MATTERS
Venezuela maintains environmental laws and regulations for the mining industry
which impose significant obligations on companies doing business in the
country. The Company is currently obtaining the necessary permits to complete
its current activities related to a feasibility study on the Brisas property.
Management submitted a statement to the Ministry of the Environment and
Natural Resources ("MARN") and Ministry of Energy and Mines ("MEM") addressing
development and reclamation of the entire Brisas property and expects to submit
further data and obtain additional permits for future development of the Brisas
property.
The Brisas property is located within the Imataca Forest Reserve (the
"Imataca"), which is comprised of 3.6 million hectares in the State of Bolivar.
In 1986, an area (in which the Brisas property is located) in the southwestern
part of the Imataca was authorized, by presidential decree, for mining
exploration and exploitation activities. Subsequent legislation in 1997
identified additional uses and activities, including mining, within the
Imataca. The 1997 legislation and previously issued regulations allowing mining
activities within the Imataca were later challenged by several parties as
unconstitutional. In response to this challenge, the Venezuelan Supreme Court
(the "Court") issued an order prohibiting the MEM from granting new concessions
pursuant to the 1997 legislation, but excluded challenges to previous
legislation authorizing mining in certain regions of the Imataca. Management
has been advised by its Venezuelan attorneys that it is unlikely that future
rulings by the Court related to this issue will impact the Company's
concessions, but there can be no assurance that an adverse ruling that affects
the Company will not occur. This issue has not been acted upon by the
Venezuelan Supreme Court and it is not known when it will be in the future.
GOLD AND COPPER
The price of gold and copper has a significant influence on the market price of
the Company's shares and the Company's business activities. The price of gold is
affected by numerous factors beyond the Company's control, such as the level of
inflation, fluctuation of the United States dollar and foreign currencies,
global and regional demand, sale of gold by central banks and the political and
economic conditions of major gold producing countries throughout the world.
Recently the price of gold has been at a 20 year low. Copper prices also
fluctuate and are generally affected by global and regional demand and existing
inventories. As of March 31, 2000, the closing prices for gold and copper were:
Gold: $278.40 per ounce, Copper: $0.80 per pound. The following table sets
forth the average of the daily closing price for gold and copper for the
periods indicated as reported by the London Metal Exchange:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
5 Yr. Avg. 1999 1998 1997 1996 1995
---------- ----- ----- ----- ----- ------
Gold ($ per ounce) 337.00 279.00 294.00 340.00 388.00 384.00
Copper ($ per pound) 0.97 0.71 0.75 1.03 1.04 1.33
PROJECT DEVELOPMENT
Capital expenditures estimates for the Brisas property are based on currently
available information as outlined in the pre-feasibility report and, as it is
not unusual in new mining operations to experience unexpected problems during
development, costs could increase depending upon a number of factors within and
beyond the Company's control. The capital cost estimates contained in the
pre-feasibility report are based on operating experience, expected production,
estimates by and contract terms with third-party suppliers, expected legal
requirements, feasibility reports by Company personnel and independent
contractors and other factors. Factors involved in estimated time for
completion of projects include management's experience in completing capital
projects, estimates by and contract terms with contractors, engineers,
suppliers and others involved in design and construction of projects, and
estimated time for government entities to process applications, issue permits
and take other actions. Changes in any of these factors may cause costs and
time for completion to vary significantly from estimates.
DEPENDENCE ON FINANCING ACTIVITIES
The Company has no revenue from operations and has financed its activities
primarily from the sale of its common shares. Management anticipates that the
Company's present cash position of approximately $19 million will be sufficient
to cover estimated operating and capital expenditures, primarily those
associated with the completion of a final feasibility study for the Brisas
property, beyond 2001. Significant additional financing will be needed if and
when construction on the property commences. Management, however, currently has
no plans to raise funds through the sale of equity or debt given the continued
depressed metals market.
RECURRING LOSSES
The Company has no revenue from mining operations and has experienced losses
from operations for each of the last five years. Management expects to continue
to incur losses from operations for the next several years as the result of,
among other factors, expenditures associated with the management of activities
on the Brisas property as well as other exploration expenses not associated
with the Brisas property. This trend is expected to reverse if and when the
Brisas property is developed and gold and copper are produced in commercial
quantities.
KEY PERSONNEL
The Company is dependent upon the abilities and continued participation of key
management personnel and if it were to lose the services of such employees, it
could have a material adverse effect on future operations.
ITEM 2. Description of Property
The Brisas Property
LOCATION
The Brisas property is located in the KM 88 mining district in the State of
Bolivar, southeastern Venezuela approximately 373 kilometers (229 miles), by
paved highway, southeast of Puerto Ordaz. The property, 3.5 kilometers (1.5
miles) west of the KM 88 marker on Highway 10, occupies a rectangular area of
2,500 meters (1.5 miles) north-south by 2,000 meters (1.25 miles) east-west or
approximately 500 hectares (1,235 acres) and is accessible by an all-weather
road.
OWNERSHIP
The Brisas property consists of the Brisas alluvial concession, the Brisas
hardrock concession beneath the alluvial concession, applications for other
mineralization (primarily nominal values of copper and silver) contained in
these concessions and mineralization (primarily gold, copper and molybdenum) on
small land parcels contiguous to the existing concessions. The Brisas alluvial
concession was acquired in 1992 through the acquisition of Brisas. The alluvial
concession was previously granted to Brisas in 1988. The Brisas hardrock
concession was granted to the Company in March 1998.
The Brisas alluvial concession is an exploitation concession, with an original
term of 20 years, with two renewal periods of 10 years each, at the discretion
of MEM, and a 3% assessment on gold sales. The Brisas hardrock concession is
an exploitation concession with a term of 20 years with two subsequent renewal
periods of 10 years each, at the discretion of the MEM. The hardrock concession
provides for a 4% assessment on gold sales and a 7% mine mouth assessment on
copper production. Gold sold directly to the Central Bank of Venezuela is
assessed a 1% tax.
REGIONAL INFRASTRUCTURE
The project site is located in the Guayana region, which makes up approximately
one-third of Venezuela's national territory. The nearest major city is Puerto
Ordaz, with approximately 600,000 inhabitants, situated on the bank of the
Orinoco River near its confluence with the Caroni River. Puerto Ordaz has major
port facilities, accessible to ocean-going vessels from the Atlantic Ocean, via
the Orinoco, a distance of about 200 km. Puerto Ordaz is the center of major
industrial developments in the area, including iron and steel mills, aluminum
smelters, iron and bauxite mining and forestry. These industries are supported
by major dams and hydroelectric generating plants on the Caroni River, which
provide 12,900 MW of electricity. The Corporacion Venezolana de Guayana
("CVG") power authority, Electrificacion del Caroni C.A. ("EDELCA"), is
constructing a 400 kV power line south from Puerto Ordaz into Brazil. The route
runs through the community of Las Claritas, nearby the project, and is expected
to supply sufficient power for both the Placer Dome Inc./CVG Las Cristinas
property and the Brisas property.
Puerto Ordaz is a modern urban center with good road and air connections to the
rest of Venezuela. There are regularly scheduled flights to Caracas and other
major cities several times daily. There are also port facilities 428 km
northwest of Puerto Ordaz on the Caribbean coast. Guanta, near Barcelona, would
likely be the port of entry for most construction, mining and milling equipment.
The port facilities at Puerto Ordaz are generally dedicated to serving the bulk
handling requirements of the area's basic industries. However, Puerto Ordaz has
potential for the development of facilities for the export of copper
concentrates in bulk. The highway system within Venezuela is generally good,
with paved roads in good condition providing access to within 3.5 km of the
Brisas property. Four-lane highways run from Puerto Ordaz both northwest to
Barcelona and Guanta, and for 55 km south to Upata where it becomes two lane on
into Brazil.
GEOLOGY
The Brisas property is within the Proterozoic granite-greenstone terrain of the
Guyana shield. The shield covers eastern Columbia, southeastern Venezuela,
Guyana, Suriname, French Guiana and northeastern Brazil. The terrain is a
thick section of andesite to dacite volcanics intruded by numerous granite
stocks and batholiths. Several periods of deformation, metamorphism, and
mineralization can be documented within this terrain. The rock units on the
Brisas property are divided into weathered and unweathered. Weathered rock or
saprolite is further defined by the degree of oxidation into oxide saprolite
and sulfide saprolite. Both contain clays and quartz with the oxide saprolite
having iron oxides such as hematite and goethite while in the sulfide saprolite
the iron is present as pyrite. The unweathered rocks consist of andesite or
dacite tuffs that are further subdivided based on the presence or absence of
mineral crystals and lithic or lapilli fragments. Unweathered intrusive rocks
include a tonolite stock and basalt dikes and sills. The tuffs strike
northerly and dip 30 to 35 degrees to the west. No faulting can be recognized
within the deposit. The mineralization is stratabound and strataform within a
200-meter thick series of tuffs marked by rapid horizontal and vertical facies
changes. Three styles of mineralization are seen: (1) massive
sulfide-quartz-tourmaline breccia with pyrite, chalcopyrite and gold in an
outcrop referred to as the Blue Whale, (2) stratabound, disseminated
pyrite-gold-copper mineralization and (3) quartz-calcite high angle veins
marked by erratic but high gold values. The disseminated mineralization is
characterized by a calcite-quartz-epidote-sulfide alteration and constitutes
the bulk of the economic mineralization. There appears to be no relationship
between the disseminated mineralization and the high angle veins. The
mineralization to the north is generally pyrite-chalcopyrite-gold with the
copper content decreasing to the south until in the southern portion of the
deposit the copper is a minor constituent of the mineralization. Mineralization
is open down dip to the west and to the north.
HISTORICAL EXPLORATION
Past surface and alluvial mining by local miners helped identify the property
as a target for gold exploration. Exploration and development activities,
commenced in 1992, have included surface mapping and geochemical sampling,
drilling, assaying, petrology and mineral studies, and metallurgical sampling
as well as approximately 165,000 meters of drilling comprised of 763 holes. The
stratabound gold-copper mineralization is over 1,900 meters long and 500 to 900
meters wide. Mineralization continues for an unknown distance down-dip to the
west and to the north as well as below the current deposit.
MINERAL RESOURCE
The Brisas property is estimated to contain a total mineral resource of 9.9
million ounces of gold and approximately 1.13 billion pounds of copper (based
on 0.5 gram per tonne gold equivalent cut-off). The mineral resource is
summarized in the following tables:
Measured Indicated Inferred Total
Au Eq ------------------------- ------------------------- ------------------------- -------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade kt (gpt) (%) kt (gpt) (%) kt (gpt) (%) kt (gpt) (%)
- ------ ----------------------------------------------------------------------------------------------------------
0.50 221,042 0.805 0.111 145,028 0.690 0.155 40,103 0.733 0.110 406,173 0.757 0.127
========================================================================================================================
In Millions
Measured Indicated Inferred Total
Au Eq ------------------------- -------------------------- ------------------------ -------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade oz. lb. oz. lb. oz. lb. oz. lb.
- ----- ----------------------------------------------------------------------------------------------------------
0.50 - 5.721 541.0 - 3.217 495.7 - 0.945 97.3 - 9.883 1,134.0
=========================================================================================================================
PROVEN AND PROBABLE RESERVES
The pre-feasibility report was completed with the assistance of JE MinCorp, a
Division of Jacobs Engineering Group Inc., and a number of other independent
consultants. The pre-feasibility report was originally completed in early 1998
and subsequently revised (most recently in early 2000) to reflect the results
of ongoing exploration and development data. Behre Dolbear audited the data
collection procedures and the modeling and reserve methodology utilized by the
Company for the pre-feasibility report. Behre Dolbear concluded in their reports
that: technical data collection procedures met or exceeded accepted industry
standards; assay laboratories provided reliable and acceptable results; and the
database compiled by the Company is of a quality appropriate for utilization in
a reserve study suitable for obtaining financing. Further, the estimating
techniques used were an accurate representation for the reserves; drill hole
spacing was sufficient to generate future estimates of proven and probable
reserves; and the database was correct and reliable. The results of the audits
also concluded that the reserve risk for the project is low and there is upside
potential for additional reserves at the Brisas property because the
mineralization can be extrapolated with quite high confidence beyond the
current drilling in the down dip direction and to the north.
The Brisas property is presently estimated to contain approximately 235
million tonnes of ore with an average grade of 0.79 grams per tonne gold and
0.14% copper and a waste to ore ratio of 1.63:1. Gold recoveries vary between
55% and 87 % depending on mineralization type and grade. At a plant feed grade
of 0.79 grams of gold per tonne, the total recovery of gold is anticipated to
be 79%. Recovery of copper, at an average feed grade of 0.14%, is anticipated
to be 82.5%. The reserve estimates have been prepared in accordance with
reporting requirements of applicable Canadian Securities Commissions, are based
on previously audited data and collection procedures and are calculated using
both $300 per ounce of gold and $0.80 per pound of copper as well as $325 per
ounce of gold and $0.90 per pound of copper (and $3.30/tonne revenue cutoff).
Both calculations are presented in tabular form following:
Pit design using $300/oz Au and $0.80/lb. Cu
- --------------------------------------------
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (gpt) (%) (thousands) (thousands) (thousands) (thousands) Ratio
- ---------------------------------------------------------------------------------------------------------------------------
Proven 187,443 0.814 0.119 4,906 491,841
Probable 47,411 0.682 0.205 1,040 214,309
- ---------------------------------------------------------------------------------------------------------------------------
Total 234,854 0.787 0.136 5,946 706,150 383,912 618,766 1.63
===========================================================================================================================
Pit design using $325/oz Au and $0.90/lb. Cu
- --------------------------------------------
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (gpt) (%) (thousands) (thousands) (thousands) (thousands) Ratio
- ---------------------------------------------------------------------------------------------------------------------------
Proven 209,954 0.778 0.121 5,252 560,167
Probable 70,053 0.630 0.201 1,419 310,387
- ---------------------------------------------------------------------------------------------------------------------------
Total 280,007 0.741 0.141 6,671 870,554 411,282 691,289 1.47
===========================================================================================================================
BRISAS PROPERTY ECONOMICS
Based on present estimates, the plant for the large-scale open pit mining
operation is expected to process an estimated 55,000 tonnes per day, yielding
an estimated average annual production of 362,000 ounces of gold and 46 million
pounds of copper, over a minimum mine life of 13 years.
The processing flowsheet contained in the pre-feasibility report and developed
from metallurgical testwork completed by three independent laboratories
includes conventional crushing with a primary gyratory crusher and grinding
with SAG mill and ball mills followed by gravity separation to recover coarse
gold, flotation and cyanidation of cleaner flotation tailings. Present
estimates of capital requirements for initial construction of the mill and
on-site copper production would be approximately $361 million, including
working capital of approximately $19.5 million. Ongoing life of mine
requirements are estimated at $39 million.
The pre-feasibility report contemplates the implementation of on-site copper
processing using the Cominco Engineering Services Limited (CESL) technology.
The CESL process utilizes an autoclave for pressure oxidation of the
concentrates followed by a series of leaching sequences to recover the copper
and gold. Implementation of the CESL process will eliminate significant
transportation costs for the copper gold concentrates to an off-site smelter
resulting in improved Brisas project economics.
Pre-tax operating cash costs (mining, processing, concentrate transportation,
smelting and refining expenses), including on-site copper production, are
estimated at $162 per ounce of gold net of copper revenues. Total pre-tax costs
per ounce of gold produced, including life of mine capital and on-site copper
production, are estimated at $254, excluding previously incurred sunk costs.
Exploitation taxes and royalties add approximately $8 to the total cost per
ounce.
Management expects to complete a final feasibility study in late 2000 or 2001.
The ultimate design and future construction of the plant is subject to the
results of the final feasibility study. Construction of the planned facility is
expected to take approximately 18 to 24 months, with commissioning and
achievement of commercial production expected shortly thereafter.
Most operating supplies are expected to be imported, probably from North
America. Electrical power is expected to be available from a major new
transmission line which is under construction starting from Puerto Ordaz into
Brazil, passing within a few kilometers of the Brisas property. Abundant water
is available in the area, and the Company expects project requirements to be
met by water pumped from the pit de-watering system and by rainfall stored in
the tailings water pond. On site accommodations will be provided for
employees.
OUTLOOK
The overall focus of management in the upcoming 18 months will continue to be
activities related to permitting, securing additional sites required for
process facility, infrastructure, waste disposition and the completion of a
final feasibility study. A period of 18 months is anticipated in the overall
project schedule for permitting as well as completion of a final feasibility
study, but there can be no assurance that these items will be completed as
planned.
In addition, completion of metallurgical testing, geotechnical and hydrological
investigations, electrical power supply and concentrate sales agreements, and
development and condemnation drilling will occur prior to completion of a final
feasibility study.
Venezuelan Mining, Environment and Other Matters
Venezuelan mining operations are subject to laws of title that differ
substantially from those of Canada and the United States, as well as to various
mining and environmental rules and regulations that are similar in purpose to
those in Canada and the United States, but more bureaucratically complex. The
complexity of the Venezuelan mining law is due to the numerous changes in and
interpretations of mining statutes, and is further complicated by the necessity
to acquire a number of concessions and/or contracts to secure all of the
necessary rights to explore and mine a particular parcel of land. The following
is a summary of the more significant Venezuelan mining and environmental laws
and other laws and regulations that may affect the Company's operations on the
Brisas property, but does not purport to be a comprehensive review of all laws
or a complete analysis of all potential regulatory considerations related to
the Brisas property.
1999 Mining Law
A new mining law was approved and subsequently published in the Official
Gazette on September 28, 1999 (the "Mining Law") that establishes five basic
ways to structure mining activities with the primary one being concessions for
exploration and subsequent exploitation.
CONCESSIONS
Obtaining a Concession
The Mining Law sets out the basic requirements for a concession application to
the MEM, including:
* Identification of the mineral(s) to be explored for and exploited.
* Evidence of technical, economic and financial capability, and
* Special advantages to be granted to the Republic in different areas (e.g.
technology, infrastructure, social facilities, training obligations, etc.).
Before initiating exploitation, the concession holder must provide to the MARN
an environmental bond to guarantee the rehabilitation of the environment at the
completion of exploitation.
SCOPE OF CONCESSION
The concession holder will have the right to exploit the granted minerals
regardless of whether they occur in the vein (veta) or alluvial and the
concession will extend only to minerals specifically covered by the concession.
A concession holder that finds a deposit of another mineral must inform the MEM
and will have a privileged right to obtain a concession to exploit that
mineral. However, the Republic may reserve for itself the right to exploit the
new deposit.
TERM OF CONCESSION
Concession terms will be for twenty years (including both phases of exploration
and exploitation) with two subsequent ten-year renewals, provided the concession
holder has received such renewal within 3 years before the expiration of the
term of the concession. Concession exploration periods will be for three years
with a possible extension for one year. In order to develop a mine, the
concession holder must obtain an exploitation certificate by application to the
MEM. A feasibility study covering the technical, financial and environmental
aspects of the project must accompany the application. The concession holder
has seven years from the date of the exploitation certificate to commence
development.
TAXES AND PAYMENTS RELATED TO A CONCESSION
Concession holders will be subject to the following taxes:
A nominal surface tax is to be paid quarterly commencing on the fourth
anniversary of the grant of the concession.
Mining taxes will be assessed as follows:
- - Gold, silver, platinum and associated metals, 3% of their commercial value.
- - Diamonds and other precious stones, 4% of their commercial value.
- - In other cases, including copper, 3% of their commercial value at the mine
mouth. The MEM can reduce this tax from 3% to 1% (and subsequently increase it
back to 3%) if economic conditions warrant.
Also, under the new law the government is entitled to exempt totally or
partially concession holders from taxes on importation of tools and equipment
not produced in the country and needed to develop mining activities.
1945 MINING LAW TRANSITION PROVISIONS
All concessions acquired by Brisas under the 1945 Mining Law will be governed
by the 1999 Mining Law subject to the following provisions: a) The right to
conduct exploitation activities will be limited to the minerals and deposits
indicated in the corresponding mining titles. Accordingly, Brisas will have the
right to exploit alluvial and vein gold, copper and molybdenum deposits located
within the Concessions; b) Payment of mining taxes will be subject to the 1999
Mining Law from September 28, 2000 onwards. Until that date, the 1945 Mining
Law will apply. Hence, surface tax is payable pursuant to the 1945 Mining Law
until September 27, 2000. From September 28, 2000, surface tax is payable in
accordance with Schedule B of Article 90 of the 1999 Mining Law, and are less
than US$1 per hectare per concession. Exploitation tax will be payable upon
extraction of the ore. It will be payable in cash or kind depending on the
National Government's preference. Once exploitation commences, the production
tax will be subtracted from the surface taxes due for the same period; c) The
term of the Concessions is the one indicated in the corresponding mining
titles, which commences from publication thereof in the Official Gazette; d)
All other provisions of the 1999 Mining Law will apply to the Concessions after
September 28, 2000.
CONVERSION OF CVG WORK CONTRACTS INTO MINING CONCESSIONS.
The Transitory Provisions included in Title XI of the 1999 Mining Law
contemplate the conversion of CVG Work Contracts into mining concessions.
Brisas has acquired mining rights under certain CVG Work Contracts and timely
applied to MEM for conversion thereof into Mining concessions. Brisas expects
a positive answer from MEM before year end.
ENVIRONMENTAL LAWS AND REGULATIONS
Venezuela's environmental laws and regulations are administered through the
MARN. The MARN proscribes certain mining recovery methods deemed harmful to
the environment and monitors concessionaires' activities to ensure compliance.
Before the Company can begin construction and production at the Brisas
property, it must obtain three different permits from the MARN: (1) Permit to
Occupy the Territory ("Occupation Permit"), (2) Permit to Affect for
Exploration ("Exploration Permit") and (3) Permit to Affect for Construction
and Exploitation ("Exploitation Permit"). Although not consistently applied in
the past, regulations state that the MEM will apply for and obtain the
Occupation Permit on behalf of those persons or entities applying for
concessions before granting the concession title. Applicants submit an
environmental questionnaire to MEM, which they in turn submit to the MARN. The
exploration permit for which Brisas applies for annually is an authorization to
perform only those activities relating to exploration, such as drilling,
building of camps, cutting lines and trenching. The production permitting
process is initiated by filing the proposed terms of reference which, when
approved, will serve as the basis for an Environmental Impact Statement (EIS).
The format for the EIS is stipulated in a 1996 law (decree #1257) and conforms
to an international standard.
The Company holds the Occupation Permit for the Brisas alluvial and hardrock
concessions and plans to continue to apply for additional permits as further
development dictates. Management believes that the alluvial and hardrock
concessions should be exploited as one project. Because the law treats each
concession separately, the Company has initiated discussions with the MEM and
MARN to seek alternatives to the duplication of environmental studies and
permitting. There can be no assurance, however, that the Company's efforts to
reduce such duplication will be successful.
OTHER TAXES
The Venezuelan tax law provides for a maximum corporate income tax rate on
mining companies of 34%. This rate applies to net income over approximately US$
43,636 depending on exchange rates. Other Venezuelan taxes that apply or may
eventually apply to the Company's subsidiaries include a 1% tax on the value of
tangible and intangible business assets, a 15.5% value added tax (formerly
luxury goods and wholesale tax), which applies to goods and services, municipal
taxes, which vary from 0.1% to 10%, import duties on mining equipment, which
range from 5% to 20% percent. Brisas currently pays value added tax on certain
purchases within Venezuela and expects that taxes on revenue generated from the
future sale of gold will result in a refund of these taxes. To date, the Company
has paid or accrued approximately $1.3 million of value added tax. Venezuela
offers certain exemptions from value added tax and import duties to mining
companies. Management expects to apply for exoneration in the future. There can
be no assurances, however, that exoneration will be granted.
POLITICAL AND ECONOMIC SITUATION
Venezuela elected a new President, Hugo Chavez Frias, in December 1998.
President Chavez, in response to a high level of voter dissatisfaction with the
country's established political parties, promised profound changes including a
new constitution and a war against corruption. President Chavez has introduced
a number of changes in recent months. A 131-member Constituent Assembly rewrote
the 1961 constitution, and the new constitution passed overwhelmingly in a
December 1999 public referendum. The new constitution increases the
presidential term from five years to six and allows the president to run for
re-election. The Senate has been eliminated and the opposition-dominated
Congress has been suspended until new elections are held sometime in the first
half of 2000. Despite the political uncertainty created by these changes, the
Company has not seen a significant adverse impact on its operations in
Venezuela.
The Bolivar/dollar exchange rate ended 1999 at Bs.649.25 to the Dollar, up
Bs.10.50 from November and Bs.84.25 (14.9%) from December 1998. An exchange peg
policy was maintained throughout the year, and will continue for the rest of
this year, the Central Bank announced in early January. The system of exchange
bands was introduced in July 1996 and modified in January 1998. The Bolivar is
devalued at 1.28% per month. At the end of last year the Bolivar was overvalued
by an estimated 45.1 %. Even so, the high levels of international reserves
appears to give the Central Bank room to maneuver to maintain the system of
bands. In the short term, an exchange crisis or maxi-devaluation seems
unlikely. The exchange rate was approximately Bs.670 to the Dollar at March 31,
2000, up approximately Bs.20 from December 1999.
GOLD SALES
The Central Bank of Venezuela (BCV) allows gold mining companies to sell up to
85% of their production on the international market. The remaining 15% must be
sold domestically at the current market price, which is paid in Venezuelan
currency. Gold sold to the BCV is assessed a maximum mining tax of 1% of the
value of gold.
LABOR
Venezuela, typical of most countries, has extensive labor laws and regulations
including obligations to favor Venezuelan nationals for employment whenever
possible. It is anticipated that, in the initial stages of the Brisas property
project, approximately 95% of the workforce will be Venezuelan. In order to
maintain or exceed this level, the Company will implement an extensive training
program over the life of the project on the Brisas property. Management plans
to draw on Venezuela's large industrial base to staff many of its positions,
but the experience base for large-scale mining and milling operations in
Venezuela is limited. The Brisas property project will draw on the Puerto Ordaz
area to fill a significant portion of the required management, engineering and
administration staff with the remaining positions to be filled from the local
(Las Claritas) area.
ITEM 3. Legal Proceedings
Management is unaware of any legal proceedings, either threatened or pending,
to which the Company is or is likely to be a party, or of which any of its
properties or assets is or is likely to be the subject, that are material to
the business and affairs of the Company.
ITEM 4. Control of Registrant
No company, government or individual beneficially owns, directly or indirectly,
or exercises control or direction over, shares carrying more than 10% of the
voting rights attached to the Company's issued common shares as of the date of
this report. Directors and officers as a group own 4,085,952 shares (including
2,418,118 shares subject to options exercisable within 60 days) or 15.7% of the
total shares issued.
ITEM 5. Nature of Trading Market
The Class A common shares of Gold Reserve Inc. are traded on The Toronto Stock
Exchange ("TSE") under the symbol "GLR.A" and on the U.S. Over-the-Counter
Market ("OTC") under the symbol "GLDR." Neither the equity units nor the
underlying securities are listed for trading on any exchange. Because the
Reorganization was not completed until February 1999, the high and low
quarterly prices set forth below are those of Gold Reserve Corporation prior to
February 1999.
TSE OTC
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
High Low High Low High Low High Low
----- ----- ----- ----- ----- ----- ----- -----
Canadian Dollars U.S. Dollars
First Quarter $2.32 $1.71 $5.35 $3.10 $1.56 $1.06 $3.75 $2.25
Second Quarter 2.00 1.52 5.40 2.50 1.38 1.03 3.75 1.75
Third Quarter 2.00 1.20 3.19 1.40 1.38 0.75 2.00 0.88
Fourth Quarter 2.15 1.02 3.00 1.38 1.47 0.72 1.88 0.88
On March 31, 2000, the closing price for a Class A common share of the Company
was $1.00 per share (Canadian Dollars) on the TSE and $0.70 per share on the
OTC.
The number of holders of common shares of record on March 31, 2000 was
approximately 1,200. Based on recent mailings to shareholders, the Company
believes its common shares are owned beneficially by approximately 10,000
shareholders. An estimated 76% of the Company's shareholders are Canadian who
own approximately 62% of the Company's outstanding shares, with the remaining
shareholders, primarily U.S. holders, owning the remaining outstanding shares.
On December 6, 1999, the Company announced a normal course issuer bid to
purchase up to a maximum of 1,097,000 Class A common shares over a twelve month
period beginning December 15, 1999. As of December 31, 1999, no shares had been
purchased by the Company.
ITEM 6. Exchange Controls and Other Limitations Affecting Security Holders
There are no Canadian laws that restrict the export or import of capital,
including foreign exchange controls, or that affect the payment of dividends to
non-resident holders, except as described in Item 7 below.
Presently, the Company does not carry on any business in Canada. If, however,
in the future the Company carries on a Canadian business, as defined in the
Investment Canada Act, an acquisition of control of the Company by
non-Canadians will be subject to the Investment Canada Act. The Investment
Canada Act provides, among other things, that any non-Canadian, as defined in
the Investment Canada Act, proposing to acquire control of a Canadian business
through the acquisition of voting shares or the acquisition of all or
substantially all the assets of the Canadian business must give notice in the
prescribed form to Investment Canada, an agency of the Canadian government, and
may be required to obtain approval from Investment Canada prior to
implementation of such acquisition. The term "non-Canadian" is defined in the
Investment Canada Act to include an individual who is neither a citizen nor a
permanent resident of Canada, a foreign government or any corporation or other
entity that is not Canadian-controlled.
The Investment Canada Act deems that the acquisition of a majority of the
voting shares of a corporation by a non-Canadian constitutes acquisition of
control of such corporation. The acquisition of one-third or more (but less
than a majority) of the voting shares of a corporation by a non-Canadian is
presumed to be an acquisition of control of the corporation unless it can be
established that the acquirer does not in fact control the corporation through
the ownership of voting shares. The acquisition of less than one-third of the
voting shares of a corporation is deemed not to be an acquisition of control of
the corporation. If an acquisition of control of a corporation is made in
contravention of the Investment Canada Act, a court of competent jurisdiction
may make any order it thinks fit, including requiring the acquirer to divest
its shares of the corporation.
Except as described above, statutes in Canada and the Yukon Territory and the
charter documents of the Company do not restrict the right of non-resident or
foreign owners to hold or vote common shares of the Company.
The Company maintains a Shareholder Rights Plan, which is intended to give
adequate time for shareholders of the Company to properly assess the merits of
a take-over bid without pressure and to allow competing bids to emerge. The
Plan is designed to give the board of directors time to consider alternatives
to allow shareholders to receive full and fair value for their common shares.
One right is issued in respect of each outstanding share. The rights become
exercisable only when a person, including any party related to it or acting
jointly with it, acquires or announces its intention to acquire 20% or more of
the Company's outstanding shares without complying with the "permitted bid"
provisions of the Shareholder Rights Plan. Each right would, on exercise,
entitle the holder, other than the acquiring person and related persons, to
purchase common shares of the Company at a 50% discount to the market price at
the time. Management expects to submit to the shareholders for their approval
at the next annual meeting a proposal to reconfirm and amend the term of the
current Shareholder Rights Plan.
ITEM 7. Taxation
Canadian Federal Income Tax Considerations
The following is a general summary of the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) (the "Canadian Act") generally
applicable to holders of Class A and Class B common shares (together, the
"common shares") who, for purposes of the Canadian Act and the Canada-United
States Income Tax Convention (the "Treaty"), as applicable, and at all relevant
times: (i) hold common shares as capital property; (ii) are not resident in
Canada or deemed to be resident in Canada in any taxation year in which they
own common shares; (iii) do not and will not have a fixed base or permanent
establishment in Canada; (iv) do not use and are not deemed to use common
shares in carrying on a business in Canada; and (v) do not hold the common
shares as "designated insurance property" for the purposes of the Canadian Act
(the "Holders"). This summary is not applicable to holders of common shares
that are "financial institutions", as such term is defined for the purposes of
the mark to market rules under the Canadian Act.
DISPOSITION OF COMMON SHARES
A Holder will not be subject to tax under the Canadian Act in respect of any
capital gain realized by such Holder on a disposition or deemed disposition of
common shares unless such shares constitute "taxable Canadian property" of the
Holder for the purposes of the Canadian Act. Generally, the Class A common
shares will not constitute taxable Canadian property of a Holder in any given
taxation year in which such Holder owned the shares provided that the Class A
common shares are listed on a prescribed stock exchange within the meaning of
the regulations under the Canadian Act and provided further that such Holder
has not at any time during the five year period immediately preceding the
disposition owned (or had a right to acquire), alone or together with persons
with whom such Holder does not deal at arm's length, 25% or more of the issued
shares of any class or series of the capital stock of the Company. As of March
31, 2000, the Class A common shares are listed on The Toronto Stock Exchange,
which is a prescribed stock exchange for purposes of the regulations under the
Canadian Act. The Class B common shares and Class A common shares received on
a conversion of Class B common shares, will be taxable Canadian property. Even
if common shares owned by a Holder constitute taxable Canadian property of the
Holder, the Treaty provides that Canadian income tax will not be applicable to
a disposition of common shares by a Holder that is a resident of the United
States for the purposes of the Treaty, provided that the value of the common
shares is not derived principally from real property (as defined in the Treaty)
situated in Canada. The Company believes the value of its common shares is not
at present derived principally from real property for these purposes. Provided
that the Class A common shares are listed on a prescribed stock exchange, there
are no clearance certificate requirements imposed by the Canadian Act on a
Holder in respect of a disposition of Class A common shares. A Holder will be
subject to the clearance certificate requirements imposed by the Canadian Act
on disposition of Class B common shares, other than on a conversion to Class A
common shares.
DIVIDENDS
Dividends paid or credited on common shares owned by a Holder are subject to
Canadian withholding tax that is levied at a basic rate of 25%, subject to
reduction under any applicable tax treaty. For a Holder that is a resident of
the United States for the purposes of the Treaty (and complies with any
applicable substantiation requirements), the Canadian withholding tax rate is
reduced under the provisions of the Treaty to 15% generally and is further
reduced to 5% if the Holder is a company that owns at least 10% of the voting
stock of the Company. Under the Treaty, dividends paid to certain religious,
scientific, charitable and other tax-exempt organizations and certain pension
organizations that are resident in, and exempt from tax in, the United States
are exempt from Canadian withholding tax. Provided that certain administrative
procedures are observed by the Holder, the Company will not be required to
withhold tax on dividend payments to such organizations.
U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax
consequences generally applicable to U.S. holders of the Company's common
shares. This summary does not address tax treatment under applicable state,
local, foreign or other tax laws and generally does not take account of rules
that may apply to U.S. holders that are subject to special treatment,
including, without limitation: (1) insurance companies, dealers in securities,
certain retirement plans, financial institutions, tax exempt organizations or
holders of securities held as part of a "straddle," "hedge" or "conversion
transaction" with other investments and taxpayers whose functional currency is
not the United States dollar or (2) shareholders owning directly, indirectly or
by attribution, 10% or more of the Company's common shares.
For purposes of this discussion, a "U.S. Holder" is any shareholder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to U.S. federal income taxation regardless of its source. A "Non-U.S.
Holder" is any shareholder other than a U.S. Holder. The discussion below
assumes that the Company's common shares are held as a capital asset.
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS FOR U.S. HOLDERS.
For U.S. federal income tax purposes, the gross amount of dividends paid by the
Company to U.S. Holders will be treated as foreign source dividend income to the
extent paid out of current or accumulated earnings and profits. These dividends
will not be eligible for the dividends received deduction generally allowed to
U.S. corporate shareholders on dividends from U.S. domestic corporations. To
the extent that an amount received by a U.S. Holder exceeds the allocable share
of current and accumulated earnings and profits, such excess will be applied
first to reduce such U.S. Holder's tax basis in its shares and then, to the
extent in excess of such U.S. Holder's tax basis, such excess will constitute
gain from a deemed sale or exchange of such shares. For U.S. foreign tax credit
purposes, dividends on the shares will generally constitute "passive income" or,
in the case of certain U.S. Holders, "financial services income." U.S. Holders
may elect annually to either deduct Canadian withholding taxes against their
income or to credit the withholding taxes against their U.S. tax liability,
subject to U.S. foreign tax credit limitation rules.
CLASSIFICATION OF THE COMPANY AS A CONTROLLED FOREIGN CORPORATION
Under Section 951(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), each "United States shareholder" of a "controlled foreign corporation"
("CFC") must include in its gross income for U.S. federal income tax purposes
its pro rata share of the CFC's "subpart F income," even if the subpart F
income is not distributed. In addition, gain on the sale of stock in a CFC
realized by a United States shareholder is treated as ordinary income to the
extent of such shareholder's proportionate share of the CFC's undistributed
earnings and profits accumulated during such shareholder's holding period for
the stock. Section 951(b) of the Code defines a United States shareholder
("U.S. Shareholder") as any U.S. corporation, citizen, resident or other U.S.
person who owns (directly or through certain deemed ownership rules) 10% or
more of the total combined voting power of all classes of stock of a foreign
corporation. In general, a foreign corporation is treated as a CFC only if such
U.S. Shareholders collectively own more than 50% of the total combined voting
power or total value of the corporation's stock. Under these rules the Company
does not expect to be a CFC. If the Company is treated as a CFC, the Company's
status as a CFC should have no adverse effect on any shareholder of the Company
that is not a U.S. Shareholder.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
Sections 1291 through 1298 of the Code contain special rules applicable with
respect to foreign corporations that are "passive foreign investment companies"
("PFICs"). A company will be considered a PFIC if 75% or more of its gross
income (including a pro rata share of the gross income of any company (United
States or foreign) in which the Company is considered to own 25% or more of the
shares by value) in a taxable year is passive income. Alternatively, a company
will be considered to be a PFIC if at least 50% of the assets (averaged over
the four quarter ends for the year) of the Company (including a pro rata share
of the assets of any company of which the Company is considered to own 25% or
more of the shares by value) in a taxable year are held for the production of,
or produce, passive income.
For the year ended December 31, 1999, the Company was considered a PFIC because
it met both the tests noted above. As a consequence, each shareholder who is a
U.S. person, in the absence of an election by such shareholder to treat the
Company as a "qualified electing fund" (a "QEF" election), as discussed below,
will, upon certain distributions by the Company or upon disposition of the
Company shares at a gain, be liable to pay tax at the highest tax rate on
ordinary income in effect for each period to which the income is allocated plus
interest on the tax, as if the distribution or gain had been recognized ratably
over the taxpayer's holding period for the Company's common shares while the
Company was a PFIC. Additionally, U.S. Holders who acquired the Company's
common shares from decedents who failed to make a QEF election will be denied
the normally available step-up of the income tax basis for such shares to fair
market value at the date of death and, instead, would have a tax basis equal to
the decedent's basis, if lower.
U.S. shareholders who hold the Class A common shares during a period when the
Company is a PFIC will be subject to the foregoing PFIC rules, even if the
Company ceases to be a PFIC, unless they make a QEF election in the first year
they held the shares and the Company was considered a PFIC.
If a U.S. shareholder makes a QEF election for the first taxable year (in this
case 1999) that shares of the Company were held, distributions and gain will
not be taxed as if recognized ratably over the taxpayer's holding period or
subject to an interest charge in the case of a PFIC. Any future gain on the
sales of the Company's shares will be characterized as capital gain and the
denial of basis step-up at death described above will also not apply.
Instead, a shareholder who makes a QEF election will for each taxable year the
company qualifies as a PFIC include in income a pro rata share of the ordinary
earnings of the Company as ordinary income and a pro rata share of any net
capital gain of the Company as long-term capital gain, subject to a separate
election to defer payment of taxes, which deferral is subject to an interest
charge. The Company, at the request of a shareholder electing to have the
Company treated as a QEF, will comply with the applicable information reporting
requirements.
A U.S. shareholder who makes a QEF election for the year in which the Company
first becomes a PFIC (and complies with certain U.S. federal income tax
reporting requirements) should not have any material adverse U.S. federal
income tax consequences because the Company had no ordinary earnings or net
capital gains during the year ended December 31, 1999. In addition, the Company
believes that it will not have any ordinary earnings or net capital gains in
future years in which it may be deemed a PFIC. However, no assurance can be
given as to this expectation. U.S. shareholders are urged to consult their tax
advisors concerning the application of the U.S. federal income tax rules
governing PFICs in their particular circumstances.
For taxable years beginning after 1997, a U.S. Holder of certain publicly
traded PFIC stock can elect to mark the stock to market annually, recognizing
as ordinary income or loss each year an amount equal to the difference as of
the close of the taxable year between the holder's fair market value of the
PFIC stock and the adjusted basis in the PFIC stock. Losses would be allowed
only to the extent of net mark-to-market gain previously included by the U.S.
Holder under the election for prior taxable years. If the mark-to-market
election were made, then the rules set forth above would not apply for periods
covered by the election.
ITEM 8. Selected Financial Data
The selected financial data set forth below are derived from the Company's
audited financial statements and should be read in conjunction with the
Company's consolidated financial statements and notes thereto appearing
elsewhere herein and Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 9. The following selected financial
data have been prepared on the basis of accounting principles generally accepted
in Canada. The amounts shown for the years prior to 1999 are those of Gold
Reserve Corporation, the predecessor issuer.
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(in thousands of U.S. Dollars, except share and per share amounts)
Other income $ 965 $ 1,410 $ 1,806 $ 1,624 $ 1,537
Net loss (2,047) (2,450) (1,533) (830) (337)
Loss per common share (1) (0.09) (0.11) (0.07) (0.04) (0.02)
Total assets (2) 64,800 66,919 73,282 73,769 52,176
Contract payable - - - - 187
Shareholders' equity (3) 63,303 64,713 66,538 67,191 46,987
Common shares:
Issued 21,987,672 23,191,767 22,918,143 22,703,811 20,476,688
Outstanding(4) 21,810,383 22,720,329 22,437,099 22,222,767 19,995,644
Equity Units:
Issued 1,584,966 - - - -
Outstanding(4) 1,290,817 - - - -
____________________
1. Basic and diluted
2. Total assets prepared in accordance with U.S. generally accepted accounting
principles at December 31, 1999, 1998, 1997, 1996 and 1995 were $64,460,
$66,907, $73,293, $73,772 and $52,262, respectively.
3. Total shareholders' equity prepared in accordance with U.S. generally
accepted accounting principles at December 31, 1999, 1998, 1997, 1996 and
1995 was $62,963, $64,702, $66,549, $67,193 and $47,073, respectively.
4. Great Basin and MegaGold, each consolidated subsidiaries of the Company, own
shares of the Company, representing an indirect investment in itself. The
Company's proportionate ownership interest in the shares held by these
entities represents the difference between issued and outstanding shares.
The Company has not declared cash or share dividends on its common shares since
1984 and has no present plans to pay any cash or share dividends. The Company
will declare cash or share dividends in the future only if earnings and capital
of the Company are sufficient to justify the payment of such dividends.
ITEM 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Formation of Canadian Parent
In addition to expanding the group's profile among Canadian investors who
generally are significant investors in resource companies, the Reorganization,
which was completed in February 1999, resulted in a deemed disposition,
providing the majority of our Canadian shareholders a tax benefit in the form
of a taxable loss on their 1999 tax return without the need to dispose of the
shares held. Unfortunately, the tax rules and regulations are different in the
U.S. and, as a result, we were unable to create a similar benefit for our U.S.
shareholders.
Because the Reorganization did not take place until February 1999, the
financial statements that are presented in this report are those of Gold
Reserve Inc. and subsidiaries as of and for the year ended December 31, 1999
and those of Gold Reserve Corporation and subsidiaries as of December 31, 1998
and for the years ended December 31, 1998 and 1997. The financial position of
the consolidated group subsequent to the Reorganization was substantially the
same as prior to the Reorganization. The primary difference was the exchange at
the time of the transaction of approximately 2.3 million Gold Reserve
Corporation common shares for an equal number of equity units in lieu of Gold
Reserve Inc. Class A common shares.
Overview
Significant events must occur before commercial production on the Brisas
property can begin. These include the completion of a final feasibility study,
acquisition of additional infrastructure sites, the procurement of all
necessary regulatory permits and approvals and the procurement of additional
funding.
The Company has no revenue or cashflow from mining operations and has
experienced losses from operations for each of the last five years, a trend
management expects to continue for the next several years as the result of,
among other factors, expenditures associated with the corporate management of
activities on the Brisas property as well as other exploration expenses not
associated with the Brisas property.
The consolidated results of operations for the years presented consist of
expenses related to activities other than those directly associated with the
Brisas property, which have been capitalized, partially offset by interest
income from invested funds. The Company prepares its consolidated financial
statements in accordance with generally accepted accounting principles in
Canada. A reconciliation of the differences between U.S. and Canadian generally
accepted accounting principles is presented in Note 11 of the consolidated
financial statements.
Venezuela has experienced high levels of inflation during the last several
years. Such conditions have not adversely affected the Company's operations in
Venezuela to date as substantially all of the Company's sources of funding for
its Venezuelan operations are denominated in U.S. Dollars and the Company does
not typically repatriate funds from Venezuela.
Liquidity and Capital Resources
INVESTING
Total 1999 expenditures on the Brisas property approximated $2.5 million. The
Company has expended approximately $66 million on the Brisas property since its
acquisition in 1992. These costs include property and mineral rights
expenditures of $11.1 million, capitalized exploration and development costs
and equipment expenditures of $32.4 million and prior litigation settlement
costs of $22.5 million (which were expensed in 1994). Amounts recorded as
property, plant and equipment (capitalized exploration and development costs)
include all costs associated with the Brisas property, including personnel and
related administrative expenditures incurred in Venezuela, drilling,
pre-feasibility and related costs, capitalized interest expense and general
support costs related to the Brisas property.
The overall budgeted corporate expenditures for 2000, excluding interest income
estimated at approximately $1 million, is estimated at $3.2 million.
Approximately $1.2 million will be spent directly on the Brisas property,
primarily to complete a final feasibility study and related activities. The
remaining budgeted expenditures relate to corporate management of the Brisas
property, exploration activities other than on the Brisas property and general
corporate activities.
The recovery plant, as presently proposed in the Brisas pre-feasibility report,
is expected to consist of a conventional 55,000 tonne per day,
gravity/flotation/cyanidation process facility along with CESL on-site copper
production. This facility is expected to cost an estimated $361 million,
including working capital needs. The ultimate design and cost of the plant and
associated expenditures are subject to the results of a final feasibility
study.
Various permitting required for the Brisas property (primarily the EIS) is
ongoing. Final development of the Brisas property is dependent upon the future
price of gold and copper, completion of a final feasibility study, obtaining
adequate financing and the appropriate environmental and operating permits.
Construction is expected to commence after the receipt of the necessary
operating and environmental permits and as gold and copper prices warrant.
Given the successful completion of the milestones necessary to begin
construction of the mine facility, initial production is not expected to
commence any earlier than 2002.
FINANCING
As of March 31,2000, the Company held approximately $19 million in cash and
investments. Management anticipates that its current cash and investment
position is adequate to cover estimated operational and capital expenditures
associated with the activities on the Brisas property as well as for general
corporate activities into the year 2001.
Future costs of placing the Brisas property or additional properties into
production, if warranted, will require additional financing which is expected
to be a combination of the sale of equity, bank borrowings and/or other means.
Management does not plan to raise funds through the sale of equity or debt for
the next 18 to 24 months. Whether and to what extent additional or alternative
financing options are pursued by the Company depends on a number of important
factors, including if and when mine development activities are commenced on the
Brisas property, management's assessment of the financial markets, the price of
gold and copper, the acquisition of additional properties and the overall
capital requirements of the consolidated group.
Whether management would in the future pursue alternatives to commercial
development of the Brisas property, including the sale of the Brisas property
or a joint development or similar arrangement with another company to develop
the Brisas property, cannot presently be determined. Management has not entered
into discussions with any other mining company in this regard, nor has it shared
any of its exploration data.
Results of Operations
1999 COMPARED TO 1998
The consolidated net loss for the year ended December 31, 1999 was $2,046,596
or $0.09 per share, a decrease of approximately $400,000 from the prior year.
Other income for 1999 amounted to $965,445, which is a decrease of
approximately $445,000 from the previous year. The decrease in other income is
principally due to lower returns on lower levels of invested cash and losses on
investments. Operating expenses for the year amounted to $3,012,041, which is a
decrease from the prior year of approximately $848,000 and primarily
attributable to Reorganization expenses in 1998.
1998 COMPARED TO 1997
The consolidated net loss for the year ended December 31, 1998 was $2,450,020
or $0.11 per share, an increase of approximately $917,000 from the prior year.
Other income for 1998 amounted to $1,410,179, which is a decrease of
approximately $396,000 from the previous year. The decrease in other income is
principally due to lower returns on lower levels of invested cash. Operating
expenses for the year amounted to $3,860,199, which is an increase over the
prior year of approximately $521,000 and primarily attributable to costs of the
Reorganization.
ITEM 9a. Quantitative and Qualitative Disclosures about Market Risk
The carrying amounts for cash and cash equivalents, accrued interest, advances
and accounts payable on the balance sheet approximate fair value because of the
immediate or short-term maturity of these instruments. Fair value estimates are
made at the balance sheet date based on relevant market information but involve
uncertainties and therefore cannot be determined with precision. In order to
limit its market risk, the Company diversifies its cash and investment holdings
into U.S. treasury and agency obligations and major financial institutions and
corporations. The fair values of investments in marketable securities are
disclosed in Note 2 to the Consolidated Financial Statements.
ITEM 10. Directors and Officers of the Company
The Board of Directors of Gold Reserve Inc. presently consists of seven
members. All directors presently serve until the next annual meeting of the
Company's shareholders or until their successors are elected and have
qualified. The Board of Directors appoints officers on an annual basis. The
following sets forth certain information regarding the Company's Board of
Directors and executive officers. The time periods referred to below reflect
the period of time the individual has been a director or officer of the Company
or Gold Reserve Corporation, the predecessor issuer.
Individual Age Principal Occupation Director and/or Officer Since
Rockne J. Timm 54 Chairman, President and Chief Executive Officer March 1984
President, Chief of the Corporation. Director and President of both
Executive Officer, MegaGold Corporation and Great Basin Energies,
Director Inc. Resides: Spokane, Washington.
A. Douglas Belanger 46 Executive Vice President of the Corporation. August 1988
Executive Vice Director and Executive Vice President of both Great
President, Director Basin Energies, Inc. and MegaGold Corporation.
Resides: Spokane, Washington.
James P. Geyer 47 Senior Vice President of the Corporation. Director June 1997
Senior Vice of Wheaton River Minerals since 1995. Resides:
President, Director Spokane, Washington.
James H. Coleman 49 Senior partner and Chairman of the Executive February 1994
Director Committee of Macleod Dixon of Calgary, Alberta,
counsel to the Company. Director of various
public companies including Pangea Goldfields, Inc.
Resides: Calgary, Alberta.
Patrick D. McChesney 50 President of LMO Test Systems, Inc. (an automated August 1988
Director test equipment manufacturer). Director of MegaGold
Corporation. Resides: Spokane, Washington.
Chris D. Mikkelsen 48 Principal in McDirmid, Mikkelsen & Secrest, P.S. (a June 1997
Director certified public accounting firm). Director of Great
Basin Energies, Inc. and MegaGold Corporation.
Resides: Spokane, Washington.
Jean Charles Potvin 46 President and Chief Executive Officer of Pangea November 1993
Director Goldfields, Inc., Director, Chairman and Chief
Executive Officer of Tiomin Resources Inc.
Resides: Toronto, Ontario
Mary E. Smith 47 Vice President-Administration and Secretary of the January 1997
Vice President- Corporation. Vice President-Administration and
Administration Secretary for Great Basin Energies, Inc. and
and Secretary MegaGold, Corporation. Resides: Colbert, Washington.
Robert A. McGuinness 44 Vice President of-Finance and Chief Financial March 1993
Vice Pesident- Officer of the Corporation. Vice President-Finance
Finance and Chief and Chief Financial Officer of Great Basin Energies,
Financial Officer Inc. and MegaGold Corporation. Resides: Spokane,
Washington.
ITEM 11. Compensation of Directors and Officers
Executive Compensation
The following table sets forth the compensation paid by the Company to the
executive officers who served during the year ended December 31, 1999.
Long Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------- --------------------------------------- ----------- ------------
Securities Under Restricted Shares All Other
Name and Principal Salary Bonus Other Options/ SARs Or Restricted LTIP Compensation
Position Year ($) ($) ($) Granted (#) (1) Share Units ($) Payouts ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Rockne J. Timm 1999 195,000 - - 696,700 - - (2)(4)60,000
President and Chief 1998 195,000 60,000 - 656,700 - - (2) 30,000
Executive Officer 1997 195,000 60,000 - 535,500 - - (2) 30,000
A. Douglas Belanger 1999 175,000 - - 573,955 - - (2) 30,000
Executive Vice President 1998 175,000 50,000 - 543,955 - - (2) 30,000
1997 175,000 50,000 - 473,955 - - (2) 30,000
James P. Geyer(3) 1999 175,000 - - 284,209 - - (2) 30,000
Senior Vice President 1998 175,000 29,023 - 254,209 - - (2) 22,500
1997 168,509 44,063 - 190,000 - - -
Richard J. Kehmeier 1999 85,000 - - 50,000 - - (7) 47,200
Vice President- 1998 120,000 25,609 - 135,278 - - (2) 30,000
Exploration 1997 103,000 - - 90,000 - - (6) 2,586
Mary E. Smith 1999 65,000 - - 106,367 - - (2) 16,250
Vice President- 1998 65,000 14,805 - 86,367 - - (2) 17,930
Administration 1997 57,000 9,875 - 52,000 - - -
Robert A. McGuinness 1999 120,000 - - 306,622 - - (2) 30,000
Vice President- 1998 120,000 30,000 - 276,622 - - (2) 30,000
Finance and CFO 1997 120,000 25,000 - 208,205 - - (2) 30,000
Officers as a group 1999 815,000 - - 2,017,853 - - 213,450
1998 850,000 209,437 - 1,953,131 - - 160,430
1997 818,509 188,938 - 1,549,660 - - 92,586
1) Consists of the number of common shares issuable to executive officers
pursuant to options held at the end of each reported period.
2) Consists of the dollar value of common shares purchased under the KSOP Plan
and allocated to the account of each executive officer during 1999, 1998 and
1997 respectively as follows: Mr. Timm, 22,948 shares, 7,204 shares, 5960
shares; Mr. Belanger, 22,948 shares, 7,204 shares, 5,960 shares; Mr.
McGuinness, 22,948 shares, 7,204 shares, 5,960 shares; Mr. Geyer, 22,948
shares 5,403 shares; Ms. Smith, 12,430 shares, 7,791 shares; and Mr.
Kehmeier, 7,204 shares. Mr. Geyer and Mr. Kehmeier were not eligible for
contributions during 1997. Mr. Kehmeier resigned in September 1999 and
therefore was not eligible for a contribution for the year ending
December 31, 1999.
3) Mr. Geyer became an executive officer of the Company in January 1997.
4) Includes $30,000 reimbursement per prior agreement with executive officer
for tax consequences of previous year's compensation.
5) The bonus granted to each executive officer was used to exercise previously
granted options to purchase common shares during 1998 and 1997, respectively
as follows: Mr. Timm, 53,800 shares, 10,000 shares; Mr. Belanger, 45,000
shares, 4,545 shares; Mr. McGuinness, 11,583 shares, 2,780 shares; Mr.
Geyer 10,791 shares, 5,000 shares; Mr. Kehmeier, 9,722 shares; and Ms. Smith
5,633 shares, 1,000 shares.
6) Relocation expenses.
7) Mr. Kehmeier resigned as Vice President-Exploration in September 1999.
Includes severance of $40,000 and forgiveness of an outstanding loan of
$7,200.
Options granted to officers of the Company during the year ended December 31,
1999
The following table sets forth all options granted during the year ended
December 31, 1999 and the year-end values for options granted to the executive
officers of the Company.
% of total Market value of
options/SARs secuities underlying
# of securities granted to Exercise or options/SARs on the
under options/ employees in base price date of grant Expiration
Name SARs Granted financial year ($/Security) ($/Security) Date
- ------------------- --------------- --------------- ------------ -------------------- ----------
Rockne J. Timm 40,000 6.88% $1.500 $1.500 02/03/2004
A. Douglas Belanger 30,000 5.16% 1.500 1.500 02/03/2004
James P. Geyer 30,000 5.16% 1.500 1.500 02/03/2004
Richard J. Kehmeier 20,000 3.44% 1.500 1.500 02/03/2004
50,000 8.60% 0.906 0.906 09/15/2000
Mary E. Smith 20,000 3.44% 1.500 1.500 02/03/2004
Robert A. McGuinness 30,000 5.16% 1.500 1.500 02/03/2004
Aggregated option exercises during the year ended and option values as of
December 31, 1999
The following table sets forth all options exercised during the financial year
ended December 31, 1999 and the financial year-end values for options granted
to the executive officers of the Company.
$ value of unexercised
# of securities # of unexercised options/ in-the-money options/
acquired on Aggregate Value SARs at FY-End SARs at FY-end
Name exercise ($) realized Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ------------------- --------------- --------------- ------------------------- -----------------------------
Rockne J. Timm - - 552,387 / 144,313 -
A. Douglas Belanger - - 466,085 / 107,870 -
James P. Geyer - - 235,771 / 48,438 -
Richard J. Kehmeier - - 50,000 / - -
Mary E. Smith - - 74,470 / 31,897 -
Robert A. McGuinness - - 229,189 / 77,433 -
1) At December 31, 1999, the closing share price was less than the exercise
price of the options
Director Compensation
Consistent with the Board's intent to have both Directors and management hold
shares of the Company, non-employee Directors, Messrs. Coleman, McChesney,
Mikkelsen and Potvin, were each granted 10,000 Class A common shares. These
shares are restricted as to sale and/or transfer as follows: 5,000 shares are
saleable after June 22, 2000 and the remaining 5,000 common shares after
December 22, 2000.
In addition, the following table sets forth option grants during the financial
year ended December 31, 1999 to the non-employee Directors of the Company.
% of total options Market value
# of securities granted to all Security exercise of underlying
under option employees during or base price securities on Expiration
Name granted year ($/Security) date of grant date
- -------------------- --------------- ------------------ ----------------- ------------- ----------
James H. Coleman 15,000 2.58% $1.280 $1.280 1/11/2004
Patrick D. McChesney 15,000 2.58% 1.280 1.280 1/11/2004
Chris D. Mikkelsen 15,000 2.58% 1.280 1.280 1/11/2004
Jean Charles Potvin 15,000 2.58% 1.280 1.280 1/11/2004
Macleod Dixon, a law firm in which Mr. Coleman was a senior partner during
1999, billed the Company an aggregate of approximately $31,000 for professional
services and out-of-pocket expenses during the fiscal year ended December 31,
1999.
Directors of the Company received no additional compensation for serving on
Board committees or for attendance at the Board or committee meetings.
Equity Incentive Plan
The Company presently has one active stock option plan, the 1997 Equity
Incentive Plan (the "Plan"), and two predecessor plans that have been
terminated as they relate to future option grants. The Plan provides for the
issuance of up to 2,000,000 Class A common shares, through the grant of both
"incentive stock options" and "non statutory options" to purchase Class A
Shares, stock appreciation rights ("SARs") or up to 500,000 shares of
restricted stock. In addition, options previously issued under predecessor
plans that, as a result of forfeiture to the Company become subject to
re-issuance, shall be reissued and administered pursuant to the Plan. As of
March 31, 2000, options for the purchase of 615,525 Class A common shares
remained available for grant under the Plan and options for the purchase of
3,263,240 Class A common shares, including options under the predecessor plans
and the Plan, were outstanding. To date, 70,000 shares of restricted stock
have been granted under the Plan. No SARs have been granted to date.
Key employees of the Company and its subsidiaries are eligible to receive
grants under the Plan. An incentive option may be exercised during the lifetime
of the optionee only by the optionee. At such optionee's death an option or any
part thereof may only be transferable by such optionee's will or by the laws of
descent and distribution. The Board or a committee of the Board is responsible
for the administration of the Plan.
Options, SARs and restricted stock granted under the Plan are generally granted
at prices equivalent to the closing sales price or the United States Dollar
equivalent of the closing sales price of the Class A common shares on the day
immediately preceding the grant date, as reported on the exchange on which the
majority of the Company's shares were traded over the last 12 months. This
includes the TSE and/or the OTC.
KSOP Plan
The Company also maintains the KSOP Plan for the benefit of eligible employees.
The KSOP Plan consists of two components- a salary reduction component (401(k))
and stock ownership component (ESOP)- and is available to all eligible
employees who have been employed for a period in excess of one year and who
have worked at least 1,000 hours during the year in which any allocation is to
be made. Prior to the Reorganization, the KSOP Plan generally invested in Gold
Reserve Corporation shares. As a result of the Reorganization, the KSOP Plan
now generally invests in Gold Reserve Inc. Class A common shares. The salary
reduction component of the KSOP Plan has not been utilized to date.
The employee stock ownership component of the KSOP Plan qualifies under the
Code. Total employer and employee annual contributions to an employee
participating in both the 401(k) and ESOP components of the KSOP Plan are
limited to the lesser of 25% of salary or $30,000. Generally, contributions to
the 401(k) component of the KSOP Plan are limited in each year to (i) the total
amount of salary reduction the employee elected to defer during the year (which
is limited to 10% of such employee's compensation during the year, or such
amount as is established by law), (ii) a matching contribution from the Company
equal to 50% of any salary reduction the employee elected to defer during the
year, (iii) special contributions by the Company equal to a percentage of the
employee's compensation during the year and (iv) discretionary contributions by
the Company determined in each year by the Company. Distributions from the KSOP
Plan are not permitted before the participating employee reaches the age of 59,
except in the case of death, disability or termination of employment by the
Company or financial hardship.
Employment Contract and Termination Agreements
The Board is currently in the process of implementing employment contracts with
executive officers. The contracts will provide for an immediate benefit upon
termination by the Company without cause or for termination of employment for
good reason, which could include events occurring following a change-in-control
or sale of assets or upon the death or disability of the employee. The contracts
also provide that the employee receive a lump sum amount ranging from three
months to 36 months' salary upon termination for other than cause including
termination for good reason, also if the employee dies or is disabled,
compensation equal to at least three months' salary would be paid. The
contracts will also provide that following termination other than for cause,
including termination for good reason, other benefits, such as life and health
insurance, would be continued for a period of at least 12 months or until
replaced by benefits of a similar nature by a new employer.
ITEM 12. Options to Purchase Securities From the Registrant or Subsidiaries
The following table sets forth the number of common shares of Gold Reserve
Inc. subject to options for the year ended December 31, 1999. As a group,
officers and directors of the Company (9 persons) held 2,654,794 options to
purchase Class A common shares of the Company. No warrants to purchase common
shares were outstanding.
No. of common shares
subject to option Price Expiry date
- -------------------- ----- -----------
50,000 $0.906 09/15/00
40,000 1.031 06/15/04
10,000 1.060 10/23/03
75,000 1.100 07/09/04
80,352 1.125 09/04/02
25,000 1.220 06/30/00
75,000 1.280 01/11/04
17,500 1.500 09/28/01
211,500 1.500 02/03/04
335,079 1.500 09/28/04
343,194 2.590 03/17/03
6,000 2.875 12/17/07
15,000 3.000 03/18/03
175,000 3.250 04/08/03
1,854,615 3.750 03/18/03
---------
3,313,240
Great Basin Energies, Inc and MegaGold Corporation, subsidiaries of the
Company, have a total 1,540,000 and 1,580,000 options to purchase common shares
outstanding, respectively. As a group, officers and directors of the Company (9
persons) held 1,150,000 and 1,210,000 options to purchase common shares of
Great Basin Energies, Inc. and MegaGold Corporation, respectively. These
options were granted in 1998, are exercisable at $0.03 per share and expire in
2008. No warrants to purchase common shares were outstanding.
Repricing of Certain Options Granted to Directors and Officers of the Company
The Board in September 1999, as a part of its regular review of executive
compensation, evaluated the effectiveness of the Plan. At the time of the
review, the Company's year-long average share price approximated the cash value
per share of the Company, largely ignoring the value of the Brisas property. In
addition, the price of gold was at or near its 20 year low and nearly all
outstanding stock options to purchase shares of the Company were "underwater"
- -with exercise prices in excess of the current market value per share.
The Board concluded that the outstanding options granted under the Plan were
not achieving their intended objective. The Board also noted during its review
that no salary increases were granted during the last two years to the
executive officers and only a limited number of additional options were
granted, substantially less than previous years.
Under a program approved by the Board, executive officers and directors were
permitted to exchange 1/3 of their "underwater" options. These options, which
were originally issued at an exercise price of $3.75, were exchanged for
options priced at $1.00. The new option exercise price approximated the then
most recent 30-day average share price and represents a 25% premium over the
market share price as March 31, 2000. The vesting schedules remained
unchanged. In addition, non-executive employees and consultants were allowed to
exchange all of their "underwater" options for options priced at $1.50.
The objective of the Plan is to advance the interests of the Company and its
subsidiaries and promote continuity of management by encouraging and providing
key employees, directors and consultants with the opportunity to acquire an
equity interest in the Company and to participate in the increase in
shareholder value as reflected in the growth in the price of the Company's
shares. Further, the Plan serves as a tool to attract and retain the services
of key employees, directors and consultants upon whose judgment, interest,
skills and special effort the successful conduct of its operations is largely
dependent.
The Board determined that it was in the best interest of the Company to
implement the revision to the existing stock options by re-calibrating the
risk-reward mechanism inherent in the Company's incentive plans, thereby
creating an incentive where, in the case of "underwater" options, little or
none exists.
In September 1999, the TSE consented to the amendment of the exercise price of
such options granted to insiders (directors and officers) of the Company,
subject to the approval of disinterested shareholders at the Annual Meeting.
The amendment of the options granted to non-insiders of the Company was
approved without the requirement of obtaining shareholder approval. The
following table sets forth the number of re-priced options held by directors
and officers of the Company as well as the exercise prices of these options.
Number of Shares Original Expiration
Name of Optionee Under Option Exercise Price Date
- ---------------- ---------------- -------------- ----------
Rockne J. Timm,
Director, President & CEO 209,833 3.750 03/18/2003
A. Douglas Belanger,
Director, Executive Vice President 172,652 3.750 03/18/2003
James P. Geyer,
Director, Senior Vice President 84,736 3.750 03/18/2003
James H. Coleman, Director 67,222 3.750 03/18/2003
Patrick D. McChesney, Director 33,411 3.750 03/18/2003
Chris D. Mikkelsen, Director 30,759 3.750 03/18/2003
Jean Charles Potvin, Director 51,871 3.750 03/18/2003
Robert A. McGuinness,
Vice President-Finance and CFO 92,207 3.750 03/18/2003
Mary E. Smith, Vice President-
Administration and Secretary 28,789 3.750 03/18/2003
ITEM 13. Interest of Management in Certain Transactions
The directors, officers and principal shareholders of the Company and
associates and affiliates of the foregoing have had no material interest,
direct or indirect, in any transaction in which the Company has participated
during the last year. The following table sets forth maximum indebtedness to
the Company of each director and executive officer during the last three fiscal
years and the amount outstanding at March 31, 2000:
Involvement of issuer Largest amount outstanding Amount outstanding
Name and Principal Position or subsidiary during 1999 (1) at March 31, 2000
- -------------------------------- --------------------- -------------------------- ------------------
Rockne J. Timm
President and CEO and Director Lender $23,500 $23,500
A. Douglas Belanger
Exec. VP and Director Lender 19,500 0
James P. Geyer
Senior VP and Director Lender 18,200 18,200
Richard J. Kehmeier
VP Exploration Lender 7,200 0
Robert A. McGuinness
VP Finance, CFO Lender (2) 62,500 62,500
Mary E. Smith
VP Administration and Secretary Lender 4,001 1,179
1) The indebtedness represents amounts loaned to these individuals by the
Company. The Company holds promissory notes for each amount loaned at an
interest rate of 4.57%.
2) Includes an outstanding loan of $50,000, bearing interest at 5.2% and
secured by a second mortgage on his residence.
PART II
ITEM 14. Description of Securities to be Registered
Not Applicable
PART III
ITEM 15. Defaults Upon Senior Securities
Not Applicable
ITEM 16. Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds
Not Applicable
PART IV
ITEM 17. Financial Statements
As a result of the Reorganization, the financial statements that are presented
in this report are those of Gold Reserve Inc. and its subsidiaries as of and
for the year ended December 31, 1999 and those of Gold Reserve Corporation and
its subsidiaries as of December 31, 1998 and for the years ended December 31,
1998 and 1997. The financial position of the consolidated group subsequent to
the Reorganization was substantially the same as prior to the Reorganization.
Management's Report
To the Shareholders of Gold Reserve Inc.
The accompanying consolidated financial statements of the Company were prepared
by management in accordance with accounting principles generally accepted in
Canada, consistently applied and within the framework of the summary of
significant accounting policies in these consolidated financial statements.
Management is responsible for all information in the annual report. All
financial and operating data in the annual report is consistent, where
appropriate, with that contained in the consolidated financial statements.
Management has established and maintains a system of internal accounting
control designed to provide reasonable assurance that assets are safeguarded
from loss or unauthorized use, financial information is reliable and accurate
and transactions are properly recorded and executed in accordance with
management's authorization. This system includes established policies and
procedures, the selection and training of qualified personnel and an
organization providing for appropriate delegation of authority and segregation
of responsibilities.
The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee,
which is composed of three directors, none of whom are members of management.
This Committee meets with management to assure that it is performing its
responsibility to maintain financial controls and systems and to approve the
annual consolidated financial statements of the Company. The Audit Committee
also meets with the independent auditors to discuss the results of their audit,
their review of internal accounting controls and their audit report prior to
submitting the consolidated financial statements to the Board of Directors for
approval.
The consolidated financial statements have been audited on behalf of the
shareholders by the Company's independent auditors, PricewaterhouseCoopers LLP.
The auditors' report outlines the scope of their examination and their opinion
on the consolidated financial statements. The auditors have full and free
access to the Audit Committee.
s/ Rockne J. Timm s/ Robert A. McGuinness
President and CEO Vice President-Finance and CFO
Auditors' Report
To The Board of Directors and Shareholders of Gold Reserve Inc.
We have audited the accompanying consolidated balance sheets of Gold Reserve
Inc., successor issuer to Gold Reserve Corporation, and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows in each of the three
years in the period ended December 31, 1999, which, as described in Note 1, have
been prepared on the basis of accounting principles generally accepted in
Canada. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Gold
Reserve Inc. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows in each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in Canada.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
February 28, 2000
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents $ 4,377,521 $ 2,848,189
Marketable securities 9,884,909 15,531,922
Deposits, advances and other 346,834 461,684
Accrued interest 171,732 456,418
------------ ------------
Total current assets 14,780,996 19,298,213
Property, plant and equipment, net 43,374,065 41,038,160
Marketable securities 5,350,417 5,194,359
Other 1,295,014 1,388,302
------------ ------------
Total assets $ 64,800,492 $ 66,919,034
============ ============
LIABILITIES
Accounts payable and accrued expenses $ 320,214 $ 785,754
Note payable-KSOP 184,419 414,771
------------ ------------
Total current liabilities 504,633 1,200,525
Minority interest in consolidated
subsidiaries 992,587 1,005,237
------------ ------------
Total liabilities 1,497,220 2,205,762
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: 1999...Unlimited
1998...20,000,000 shares
Issued: None
Common shares and equity units: 102,067,298 101,661,054
Class A common shares, without par value
Authorized: 1999...Unlimited
1998...480,000,000 shares
Issued: 1999... 21,987,672
1998... 23,191,767
Outstanding:1999... 21,810,383
1998... 22,720,329
Equity Units
Issued: 1999... 1,584,966
1998... None
Outstanding:1999... 1,290,817
1998... None
Less, common shares and equity units
held by affiliates (403,331) (403,331)
Accumulated deficit (38,176,276) (36,129,680)
KSOP debt guarantee (184,419) (414,771)
------------ ------------
Total shareholders' equity 63,303,272 64,713,272
------------ ------------
Total liabilities and shareholders' equity $ 64,800,492 $ 66,919,034
============ ============
Approved by the Board of Directors:
s/ Chris D. Mikkelsen s/ Patrick D. McChesney
The accompanying notes are an integral part of the consolidated
financial statements.
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
Other Income:
Interest income $ 1,171,932 $ 1,410,179 $ 1,806,309
Net loss on sale of investments (207,347) - -
Miscellaneous 860 - -
------------ ------------ ------------
965,445 1,410,179 1,806,309
Expenses:
General and administrative 1,744,993 1,472,277 1,639,403
Technical services 620,354 660,487 567,263
Corporate communications 261,668 382,280 475,945
Legal and accounting 112,954 217,339 540,464
Reorganization 108,714 932,798 -
Foreign currency loss 157,040 130,763 68,393
Interest 18,968 33,540 25,691
Minority interest in net income (loss)
of consolidated subsidiaries (12,650) 30,715 21,951
------------ ------------ ------------
3,012,041 3,860,199 3,339,110
------------ ------------ ------------
Net loss $ (2,046,596) $ (2,450,020) $ (1,532,801)
============ ============ ============
Net loss per share-basic and diluted $ (0.09) $ (0.11) $ (0.07)
============ ============ ============
Weighted average common shares outstanding 22,792,898 22,586,136 22,347,163
============ ============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Common Shares and Equity Units Issued Common Shares
---------------------------------------------- Accumulated and Equity Units
Common Shares Equity Units Amount Deficit Held by Affiliates
------------- ------------ --------------- -------------- ------------------
Balance, December 31, 1996 22,703,811 - $ 100,952,778 $ (32,146,859) $ (1,428,565)
Net loss - - - (1,532,801) -
Common shares issued for cash 214,332 - 1,316,716 - -
------------- ------------ --------------- -------------- ------------------
Balance, December 31, 1997 22,918,143 - 102,269,494 (33,679,660) (1,428,565)
Net loss - - - (2,450,020) -
Change in shares held by affiliates - - (1,034,323) - 1,025,234
Common shares issued for cash 273,624 - 425,883 - -
------------- ------------ --------------- -------------- ------------------
Balance, December 31, 1998 23,191,767 - 101,661,054 (36,129,680) (403,331)
Net common shares exchanged
for equity units (1,584,966) 1,584,966 - - -
Net loss - - - (2,046,596) -
Common shares issued for cash 380,871 - 406,244 - -
------------- ------------ --------------- ------------- ------------------
Balance, December 31, 1999 21,987,672 1,584,966 $ 102,067,298 $ (38,176,276) $ (403,331)
============= ============ =============== ============= ==================
The accompanying notes are an integral part of the consolidated
financial statements.
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ ------------
Cash Flow from Operating Activities:
Net loss $ (2,046,596) $ (2,450,020) $ (1,532,801)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 42,667 38,365 47,042
Amortization of premium (discount)
on marketable securities (60,698) 94,522 (170,199)
Foreign currency loss 157,040 130,763 68,393
Minority interest in net income (loss) of
consolidated subsidiaries (12,650) 30,715 21,951
Net loss on disposition of marketable securities 207,347 - -
Changes in current assets and liabilities:
Decrease in litigation settlement held in escrow - 4,500,000 -
(Increase) decrease in other current assets 399,536 (265,620) 19,556
Decrease in litigation settlement payable - (4,500,000) -
Increase (decrease) in other current liabilities (465,540) 139,551 (292,689)
------------ ------------ ------------
Net cash used by operating activities (1,778,894) (2,281,724) (1,838,747)
------------ ------------ ------------
Cash Flow from Investing Activities:
Purchase of marketable securities (12,948,347) (18,192,858) (23,603,702)
Purchase of property, plant and equipment (2,535,612) (2,761,119) (9,464,299)
Proceeds from the sale and maturity of
marketable securities 18,292,653 13,056,187 16,639,926
Other 93,288 77,695 (854,793)
------------ ------------ ------------
Net cash provided (used) by investing activities 2,901,982 (7,820,095) (17,282,868)
------------ ------------ ------------
Cash Flow from Financing Activities:
Proceeds from issuance of common shares 406,244 425,883 1,316,716
------------ ------------ ------------
Net cash provided by financing activities 406,244 425,883 1,316,716
Change in Cash and Cash Equivalents: ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,529,332 (9,675,936) (17,804,899)
Cash and cash equivalents - beginning of year 2,848,189 12,524,125 30,329,024
------------ ------------ ------------
Cash and cash equivalents - end of year $ 4,377,521 $ 2,848,189 $ 12,524,125
============ ============ ============
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 18,968 $ 33,540 $ 25,691
The accompanying notes are an integral part of the consolidated
financial statements.
GOLD RESERVE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Significant Accounting Policies:
The Company. Gold Reserve Inc. (the "Company") is a mining company incorporated
in 1998 under the laws of the Yukon Territory, Canada, and is the successor
issuer to Gold Reserve Corporation. The Company's primary mining asset, the
Brisas property, is a late development-stage gold and copper deposit located in
the KM 88 mining district of the State of Bolivar in southeastern Venezuela. The
Company has no revenue producing mining operations at this time.
In February 1999, the shareholders of Gold Reserve Corporation approved a plan
of reorganization whereby Gold Reserve Corporation became a subsidiary of Gold
Reserve Inc., the successor issuer (the "Reorganization"). The primary purpose
of the formation of a Canadian parent was to expand the group's profile among
Canadian investors who generally are significant investors in resource
companies. Gold Reserve Corporation previously made filings with the U.S.
Securities and Exchange Commission. Generally, each shareholder of Gold Reserve
Corporation received one Gold Reserve Inc. Class A common share for each common
share owned of Gold Reserve Corporation. After the Reorganization, a
shareholder of Gold Reserve Inc. continued to own an interest in the business,
through subsidiary companies, that in aggregate is essentially the same as
before the Reorganization.
U.S. holders of Gold Reserve Corporation could elect to receive equity units in
lieu of Gold Reserve Inc. Class A common shares. An equity unit is comprised of
one Gold Reserve Inc. Class B common share and one Gold Reserve Corporation
Class B common share. Equity units were provided to U.S. holders who would have
had a substantial taxable gain upon receipt of Gold Reserve Inc. Class A common
shares so they might defer a significant portion of such gain. The equity units
are substantially equivalent to a Class A common share and are immediately
convertible into Gold Reserve Inc. Class A common shares upon compliance with
certain procedures. Equity units are not listed for trading on any stock
exchange, but, subject to compliance with applicable federal, provincial and
state securities laws, may be transferred. Unless otherwise noted, general
references to common shares of the Company include Class A common shares and
Class B common shares as a combined group.
The consolidated financial statements that are presented in this report are
those of Gold Reserve Inc. as of and for the year ended December 31, 1999 and
Gold Reserve Corporation as of December 31, 1998 and for the years ended
December 31, 1998 and 1997. The financial position of the consolidated group
subsequent to the Reorganization was substantially the same as prior to the
Reorganization except for the exchange at the time of the transaction of
approximately 2.3 million Gold Reserve Corporation common shares for an equal
number of equity units in lieu of Gold Reserve Inc. Class A common shares.
As a result of the Reorganization, whereby Gold Reserve Corporation became a
subsidiary of Gold Reserve Inc., the share option plan was amended and adopted
by Gold Reserve Inc. (the successor issuer). The KSOP Plan remains with and
continues to be administered by Gold Reserve Corporation although future shares
issued pursuant to the KSOP Plan will be Gold Reserve Inc. Class A common
shares.
As of March 31, 2000, there were a total of 22,027,672 Class A common shares
issued and 1,544,966 Class B common shares issued.
Presentation of financial statements and consolidation. The consolidated
financial statements contained herein have been prepared in accordance with
Canadian generally accepted accounting principles, which as described in Note
11, differ in certain respects from U.S. generally accepted accounting
principles.
These consolidated financial statements include the accounts of the Company,
Gold Reserve Corporation, two domestic majority-owned subsidiaries, Great Basin
Energies, Inc. ("Great Basin") and MegaGold Corporation ("MegaGold"), seven
Venezuelan subsidiaries, and seven Aruban subsidiaries which were formed to
hold the Company's interest in its foreign subsidiaries or for future
transactions. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's policy is to consolidate those
subsidiaries where majority control exists and control is other than
temporary.
Cash and Cash Equivalents. The Company considers short-term, highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents for purposes of reporting cash equivalents and cash flows. At
December 31, 1999, the Company had certificates of deposits totaling $424,129
partially pledged as security for a bank loan related to the Gold Reserve KSOP
Plan, approximately $209,000 in U.S. banks in excess of federally insured
limits and approximately $111,000 in Venezuelan and offshore banks.
Marketable Securities. Marketable securities are carried at cost. If the market
value of an investment is lower than the cost and the decline is judged to be
other than temporary, the investment is written down to recognize the loss.
Realized gains and losses on the sale of investments are recorded based upon
specific identification.
Financial Instruments. The carrying amounts for cash, advances and accounts
payable on the balance sheet approximate fair value because of the immediate or
short-term maturity of these instruments. Fair value estimates are made at the
balance sheet date based on relevant market information but involve
uncertainties and therefore cannot be determined with precision. In order to
limit its exposure, the Company diversifies its cash and investment holdings
into U.S. treasury and agency obligations and major financial institutions and
corporations. The fair values of investments in marketable securities are
disclosed in Note 2.
Exploration and Development Costs. Exploration costs incurred in locating areas
of potential mineralization are expensed as incurred. Exploration costs of
properties or working interests with specific areas of potential mineralization
are capitalized pending the determination of a property's economic viability.
Development costs of proven mining properties not yet producing are capitalized
and classified as property, plant and equipment. Upon commencement of
production, capitalized exploration and development costs will be amortized
based on the estimated proven and probable reserves benefited. Deferred
exploration and development costs of unsuccessful projects are expensed.
Property, Plant and Equipment. Property, plant and equipment are recorded at
the lower of cost or estimated net realizable value. Replacements and major
improvements are capitalized. Maintenance and repairs are charged to expense as
incurred. The cost and accumulated depreciation of assets retired or sold are
removed from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is provided using straight-line and accelerated
methods over the lesser of the useful life or lease term of the related asset.
During the exploration and development phase, depreciation of mining assets is
capitalized. Interest costs incurred during the construction and development of
qualifying assets are capitalized.
Foreign Currency. The Company utilizes the U.S. Dollar as its functional
currency. Foreign currency amounts are translated into U.S. Dollars using the
temporal method. Accordingly, non-monetary assets and liabilities are
translated at historical rates, monetary assets and liabilities are translated
at current rates and revenue and expense items are translated at average
exchange rates for the month in which they occur. Translation gains and losses
are included in other income and expense.
Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Substantially all of the Company's investment in property, plant and equipment
represents amounts invested in the Brisas property. Management's capitalization
of exploration and development costs and assumptions regarding the future
recoverability of such costs is subject to the risks and uncertainties of
developing an economic reserve on the Brisas property which is based on
engineering and geological estimates, future gold and copper prices, estimated
plant construction and operating costs and the procurement of all necessary
regulatory permits and approvals. These estimates could change in the future
and this could affect the carrying value and the ultimate recoverability of the
amounts recorded as property, mineral rights and capitalized exploration and
development costs.
Net Loss Per Share. Net loss per share (basic and diluted) is computed by
dividing net loss by the weighted average number of common shares outstanding
during each year, which has been reduced by the Company's proportionate
ownership of common shares owned by Great Basin and MegaGold. As of December
31, 1999, 1998 and 1997, there were 3,313,240, 3,422,784 and 2,908,075 shares,
respectively, available for issuance pursuant to the exercise of previously
granted share options. These options were not included in the computation of
diluted loss per share as a loss was incurred in each of these years and their
inclusion would be anti-dilutive.
Reclassifications. Certain reclassifications of the 1998 and 1997 consolidated
financial statement balances have been made to conform with the 1999
presentation. These reclassifications had no effect on the net loss or
accumulated deficit as previously reported.
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Marketable Securities:
Investments in marketable securities are recorded at amortized cost and yield
between 5% and 8%. The bonds outstanding at December 31, 1999 mature as
follows: $9,884,909 in 2000, $49,968 in 2001, $1,998,363 in 2004, $1,000,000 in
2005 and $495,000 in 2007.
Amortized Cost/ Quoted
Carrying Value Market Value
--------------- ------------
December 31, 1999:
Temporary:
U.S. treasuries and agency obligations $ 9,884,909 $ 9,875,586
============ ============
Long-term:
U.S. treasuries and agency obligations $ 3,543,331 $ 3,373,627
Equity securities (1) 1,807,086 1,466,843
------------ ------------
Total $ 5,350,417 $ 4,840,470
============ ============
December 31, 1998:
Temporary:
U.S. treasuries and agency obligations $ 15,531,922 $ 15,550,612
============ ============
Long-term:
U.S. treasuries and agency obligations $ 3,548,092 $ 3,564,873
Equity securities (1) 1,646,267 1,634,642
------------ ------------
Total $ 5,194,359 $ 5,199,515
============ ============
(1) Includes shares of the Company owned by its subsidiaries. See Note 6 to the
consolidated financial statements.
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property, Plant and Equipment:
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation of mining assets is capitalized. Depreciation
expense for the years ended December 31, 1999, 1998 and 1997 was $42,667,
$38,365 and $47,042, respectively. Property, plant and equipment as of December
31, 1999 and 1998 consisted of the following:
Accumulated
1999 Cost Depreciation Net
- -------------------------------------------------------------------------------
United States
Furniture and office equipment $ 329,419 $ (211,241) $ 118,178
Leasehold improvements 46,807 (17,477) 29,330
------------ ------------ ------------
376,226 (228,718) 147,508
------------ ------------ ------------
Foreign
Property and mineral rights $ 11,102,335 - $ 11,102,335
Capitalized exploration and
development costs 31,862,424 - 31,862,424
Buildings 266,141 $ (132,033) 134,108
Furniture and office equipment 397,901 (343,866) 54,035
Transportation equipment 285,207 (224,687) 60,520
Machinery and equipment 310,166 (297,031) 13,135
------------ ------------ ------------
44,224,174 (997,617) 43,226,557
------------ ------------ ------------
Total $ 44,600,400 $ (1,226,335) $ 43,374,065
============ ============ ============
Accumulated
1998 Cost Depreciation Net
- -------------------------------------------------------------------------------
United States
Furniture and office equipment $ 297,095 $ (178,547) $ 118,548
Leasehold improvements 11,174 (11,174) -
------------ ------------ ------------
$ 308,269 $ (189,721) $ 118,548
------------ ------------ ------------
Foreign
Property and mineral rights $ 11,102,335 - $ 11,102,335
Capitalized exploration and
development costs 29,409,699 - 29,409,699
Buildings 262,208 $ (95,028) 167,180
Furniture and office equipment 396,804 (303,850) 92,954
Transportation equipment 288,231 (183,474) 104,757
Machinery and equipment 310,166 (267,479) 42,687
------------ ------------ ------------
41,769,443 (849,831) 40,919,612
------------ ------------ ------------
Total $ 42,077,712 $ (1,039,552) $ 41,038,160
============ ============ ============
The Company reviews for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. If the sum of the expected future net cash flows to be
generated from the use or disposition of a long-lived asset (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized.
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. KSOP Plan:
The KSOP Plan, adopted in 1990 for the benefit of employees, is comprised of
two parts, (1) a salary reduction component, or 401(k), and (2) an employee
share ownership component, or ESOP. To date, no participant has utilized the
salary reduction component. Common shares purchased by the KSOP Plan are
financed by a bank loan at 7.45% interest, which is due in 2000. The loan is
guaranteed by the Company and accordingly is recorded as a reduction to
shareholders' equity. Allocation of common shares to participants' accounts is
based on contributions by the Company, up to a maximum of 25% of the
participants' annual compensation or $30,000, whichever is less, divided by the
original purchase price of the common shares. The Company allocated
contributions to eligible participants for the Plan years 1999, 1998 and 1997
of $239,710, $313,025 and $223,206, respectively. As of December 31, 1999,
141,067 common shares remain unallocated to plan participants.
5. Share Option Plan:
The Company's Equity Incentive Plan (the "Plan) allows for the granting of up
to 2,000,000 common share purchase options, in addition to any options issued
pursuant to previous plans, to officers, directors and key individuals for
terms of up to ten years. The Company measures compensation cost for
share-based employee compensation plans using the intrinsic value method of
accounting. The vesting period of options ranges from immediately to up to
three years. Share option transactions for the last three years are as follows:
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
Options outstanding,
beginning of year 3,422,784 $ 3.46 2,908,075 $ 6.60 1,962,092 $ 6.62
Options exercised (12,500) 1.19 (223,624) 1.90 (124,649) 5.72
Options canceled (653,544) 3.32 (116,667) 3.17 (209,368) 7.92
Options granted 556,500 1.31 855,000 2.67 1,280,000 6.67
--------- ------ --------- ------ --------- ------
Options outstanding,
end of year 3,313,240 $ 2.93 3,422,784 $ 3.46 2,908,075 $ 6.60
--------- ------ --------- ------ --------- ------
Options exercisable
at end of year 2,673,612 2,065,868 2,185,392
========= ========= =========
Price Price Price
Range Range Range
--------------- --------------- ----------------
Option exercise price
at end of year $ 0.91 - $ 3.75 $ 1.06 - $10.00 $ 1.09 - $ 14.69
Option exercise price
for exercisable shares $ 0.91 - $ 3.75 $ 1.06 - $10.00 $ 1.09 - $ 14.69
As of December 31, 1999, the weighted average remaining contractual life of
total options outstanding was 3.42 years. The weighted average exercise price
of total options outstanding and those options which were exercisable at
December 31, 1999 was $2.93 and $2.96, respectively
In September 1999, the Board approved, subject to shareholder and regulatory
approval, a resolution amending the exercise price of certain incentive stock
options previously granted under the Plan. Under the program, executive
officers and directors were permitted to exchange 1/3 of their "underwater"
options. These options, which were originally issued at an exercise price of
$3.75, were exchanged for options priced at $1.00. The new option exercise
price approximated the then most recent 30-day average share price and
represents a 25% premium over the market share price as of the date of this
report. The vesting schedules remained unchanged. In addition, non-executive
employees and consultants were allowed to exchange all of their "underwater"
options for options priced at $1.50.
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Related Party Transactions:
MegaGold. The President, Executive Vice President, Vice President-Finance and
Vice President- Administration of the Company are also officers, directors
and/or shareholders of MegaGold. At December 31, 1999 and 1998, the Company
owned 23,304,174 common shares of MegaGold which represented 63% of the
outstanding shares. MegaGold owned 276,642 common shares of the Company at
December 31, 1999 and 1998. In addition, MegaGold owned 280,000 common shares
of Great Basin at December 31, 1999 and 1998. The Company performs various
administrative functions and sublets a portion of its office space to MegaGold
for $1,200 per year.
Great Basin. The President, Executive Vice President, Vice President-Finance
and Vice President- Administration of the Company are also officers, directors
and/or shareholders of Great Basin. At December 31, 1999 and 1998, the Company
owned 24,210,636 common shares of Great Basin which represented 58% of the
outstanding shares. Great Basin owned 516,720 common shares of the Company at
December 31, 1999 and 1998. Great Basin also owned 170,800 common shares of
MegaGold at December 31, 1999 and 1998. The Company performs various
administrative functions and sublets a portion of its office space to Great
Basin for $1,200 per year.
Legal Fees Paid to Director. One of the Company's directors also serves as
Canadian legal counsel for the Company. During 1999, 1998 and 1997, the Company
incurred expenses of approximately $31,000, $23,000 and $292,000, respectively,
for services performed by the director and his firm, in which he is Chairman
and a partner.
Notes Receivable from Officers. As of December 31, 1999 and 1998, the Company
had $111,000 and $106,500 respectively, in notes receivable due from officers.
The notes bear interest at between 4.6% and 5.2% and are due in one year.
7. Income Tax:
No income tax benefit has been recorded for the three years ended December 31,
1999 due to the uncertainty of recoverability of the benefit associated with
the net operating loss carryforwards. The Company's Venezuelan subsidiaries are
subject to Venezuelan income tax. All costs related to the Brisas property have
been recorded as capitalized exploration and development costs for tax
purposes, and therefore the Company has not recorded any foreign tax
attributes. No income tax has been paid or accrued by the Company's
subsidiaries during 1999, 1998 and 1997. The Company has recorded a valuation
allowance to reflect the estimated amount of the deferred tax asset which may
not be realized, principally due to the uncertainty of utilization of net
operating losses and other carryforwards prior to expiration. The valuation
allowance for deferred tax assets may be reduced in the near term if the
Company's estimate of future taxable income changes. The components of the
deferred tax assets and liabilities as of December 31, 1999 and 1998 were as
follows:
Deferred Tax Asset (Liability)
------------------------------
1999 1998
------------ ------------
Accounts payable and accrued expenses $ 6,309 $ 147,665
Investment income (58,321) (150,589)
Property, plant and equipment 8,496,025 8,494,920
------------ ------------
Total temporary differences 8,444,013 8,491,996
Net operating loss carryforward 3,480,219 3,154,171
Capital loss 29,763 -
Investment tax credit 5,967 5,967
Alternative minimum tax credit 19,871 19,871
------------ ------------
Total temporary differences, operating losses
and tax credit carryforwards 11,979,833 11,672,005
Valuation allowance (11,979,833) (11,672,005)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1999, the Company had the following U.S. federal tax basis loss
carryforwards and tax credits:
Amount Expires
------------ ------------
Regular tax net operating loss: $ 272,248 2006
1,650,395 2007
1,244,312 2008
700,536 2009
609,833 2010
808,573 2011
1,671,604 2012
1,386,674 2018
1,891,764 2019
------------
$ 10,235,939
============
Alternative minimum tax net operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
671,999 2009
572,555 2010
781,796 2011
1,646,989 2012
------------
$ 6,805,339
============
Investment tax credit $ 5,967 2001
Capital loss $ 87,539 2004
Alternative minimum tax credit $ 19,871 -
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Geographic Segments:
United
States Venezuela Consolidated
------------ ----------- ------------
December 31, 1999
Revenues $ 965,445 - $ 965,445
Depreciation 42,667 - 42,667
Interest expense 18,968 - 18,968
Net loss 1,876,920 $ 169,676 2,046,596
------------ ------------ ------------
Identifiable assets
Property, plant and equipment, net $ 147,508 $ 43,226,557 $ 43,374,065
General corporate assets 19,780,144 1,646,283 21,426,427
------------ ------------ ------------
Total identifiable assets $ 19,927,652 $ 44,872,840 $ 64,800,492
============ ============ ============
December 31, 1998
Revenues $ 1,410,179 - $ 1,410,179
Depreciation 38,365 - 38,365
Interest expense 33,540 - 33,540
Net loss 2,309,888 $ 140,132 2,450,020
------------ ------------ ------------
Identifiable assets
Property, plant and equipment, net $ 118,548 $ 40,919,612 $ 41,038,160
General corporate assets 24,142,801 1,738,073 25,880,874
------------ ------------ ------------
Total identifiable assets $ 24,261,349 $ 42,657,685 $ 66,919,034
============ ============ ============
December 31, 1997
Revenues $ 1,806,309 - $ 1,806,309
Depreciation 47,042 - 47,042
Interest expense 25,691 - 25,691
Net loss 1,455,169 $ 77,632 1,532,801
------------ ------------ ------------
Identifiable assets
Property, plant and equipment, net $ 145,783 $ 38,300,386 $ 38,446,169
General corporate assets 32,985,934 1,849,891 34,835,825
------------ ------------ ------------
Total identifiable assets $ 33,131,717 $ 40,150,277 $ 73,281,994
============ ============ ============
Revenues and identifiable assets of each segment are those that are directly
identified with those operations.
9. Litigation Settlement:
Pursuant to a December 1994 litigation settlement agreement related to an
ownership dispute of the Brisas property, the Company placed $4.5 million in
escrow to be released to one of the defendants at such time as the Company
receives the mining title to the hardrock concession for the Brisas property.
The Company paid $22,512,500 in common shares and cash, including funds held in
escrow, and recorded the litigation settlement as an expense in 1994. The funds
in escrow were released to the defendant in the litigation in March 1998, after
the Company received the mining title to the Brisas hardrock concession.
GOLD RESERVE INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Shareholder Rights Plan:
At the 1997 annual meeting of shareholders, a "Shareholder Rights Plan" was
voted upon and approved by the shareholders of Gold Reserve Corporation. As
part of the Reorganization described in Note 1, the Shareholder Rights Plan was
assumed by the successor issuer Gold Reserve Inc. The Rights Plan is intended to
give adequate time for shareholders of the Company to properly assess the merits
of a take-over bid without pressure and to allow competing bids to emerge. The
Rights Plan is designed to give the board of director's time to consider
alternatives to allow shareholders to receive full and fair value for their
common shares. One right is issued in respect of each outstanding share. The
rights become exercisable only when a person, including any party related to it
or acting jointly with it, acquires or announces its intention to acquire 20% or
more of the Company's outstanding shares without complying with the "permitted
bid" provisions of the Rights Plan. Each right would, on exercise, entitle the
holder, other than the acquiring person and related persons, to purchase common
shares of the Company at a 50% discount to the market price at the time. Unless
otherwise reaffirmed by the shareholders, the Rights Plan expires at the
adjournment of the next annual meeting of shareholders. Management plans to
submit a proposal to shareholders at the next annual meeting to reaffirm and
extend the term of the Rights Plan.
11. Differences Between U.S. and Canadian GAAP:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) in Canada. The effect of the
differences between U.S. and Canadian GAAP are summarized below. There are no
differences between U.S. and Canadian GAAP as they relate to cash flows. Under
U.S. GAAP, marketable securities would be divided between held-to-maturity
securities and available-for-sale securities. Those securities classified as
available-for-sale would be recorded at market value and the unrealized gain or
loss would be recorded as a component of shareholders' equity resulting in the
following changes in the financial statements:
December 31, 1999 Canadian GAAP Change U.S. GAAP
- ---------------------------------------------------------------------------
Total assets $ 64,800,492 $ (340,243) $ 64,460,249
Total shareholders' equity 63,303,272 (340,243) 62,963,029
------------ ----------- ------------
Comprehensive loss (2,046,596) (325,993) (2,372,589)
============ =========== ============
December 31, 1998 Canadian GAAP Change U.S. GAAP
- ---------------------------------------------------------------------------
Total assets $ 66,919,034 $ (11,625) $ 66,907,409
Total shareholders' equity 64,713,272 (11,625) 64,701,647
------------ ----------- ------------
Comprehensive loss (2,450,020) (22,625) (2,472,645)
============ =========== ============
12. Operating Lease:
The Company leases office space under a non-cancelable operating lease that
expires in February 2004. Rent expense under the lease during 1999 was $88,335.
Future minimum annual rent payable under the lease for each of the years 2000
through 2003 is $106,002 and $17,667 in 2004.
ITEM 18. Financial Statements
Not Applicable
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Management's Report
Auditors' Report
Consolidated Balance Sheets
December 31, 1999 and 1998
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Exhibit Table and Index to Exhibits
The following exhibits are filed as part of this report. Exhibits previously
filed are incorporated by reference, as noted.
Exhibit
Number Exhibit
2.0 Agreement and Plan of Merger, dated as of October 5, 1998, by and among
Gold Reserve Corporation (predecessor issuer), Gold Reserve Inc. (successor
issuer) and GR-Merger Corp. Filed as Annex I to the Proxy Statement/Joint
Prospectus included as a part of the Company's Registration Statement on Form
S-4 (Registration No. 333-68061) filed with the Commission on November 27, 1998
and incorporated by reference herein.
3.1 Restated Articles of Incorporation of the Company. Filed as Exhibit 3.1
to the Proxy Statement/Joint Prospectus included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061) filed with the
Commission on November 27, 1998 and incorporated by reference herein.
3.2 Bylaws of the Company. Filed as Exhibit 3.2 to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
4.1 Exchange Agreement by and among Gold Reserve Corporation, the Company,
TranSecurities International, Inc. and Holders of Unit Shares, dated November
17, 1998. Filed as Exhibit 4.1 to the Proxy Statement/Joint Prospectus included
as a part of the Company's Registration Statement on Form S-4 (Registration
No. 333-68061) filed with the Commission on November 27, 1998 and incorporated
by reference herein.
4.2 Rights Agreement, dated as of October 5, 1998, between the Company and
Montreal Trust Company of Canada. Filed as Exhibit 4.3 to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
4.3 Form of Certificate for the Company's Class A common shares. Filed as
Exhibit 4.4 to the Proxy Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration No. 333-68061)
filed with the Commission on November 27, 1998 and incorporated by reference
herein.
4.4 Form of Certificate for the Unit Share. Filed as Exhibit 4.5 to the
Proxy Statement/Joint Prospectus included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061) filed with the
Commission on November 27, 1998 and incorporated by reference herein.
10.1 Mining Operations Agreement, dated July 1, 1992, between Compania
Minera Bajo Caroni - Caromin, C.A. and Compania Minera Unicornio, C.A. Filed as
Exhibit 10.29 to Gold Reserve Corporation's (the predecessor issuer) Annual
Report on Form 10-K for the year ended December 31, 1992 and incorporated by
reference herein.
10.2 Stock Purchase Agreement, dated August 1992, between Antonio Sosa
Aviles and Servicios Escriber S.R.L., and Stock Purchase Agreement, dated
November 26, 1992, between Servicios Escriber S.R.L. and Gold Reserve de
Venezuela. Filed as Exhibit 10.30 to Gold Reserve Corporation's (the
predecessor issuer) Annual Report on Form 10-K for the year ended December 31,
1992 and incorporated by reference herein.
10.3 License and Technical Assistance Agreement, dated September 1, 1992,
between Gold Reserve Corporation and Compania Minera Unicornio, C.A. Filed as
Exhibit 10.31 to Gold Reserve Corporation's (the predecessor issuer) Annual
Report on Form 10-K for the year ended December 31, 1992 and incorporated by
reference herein.
10.4 Credit Agreement, dated October 13, 1992, between Gold Reserve
Corporation and Compania Aurifera Brisas del Cuyuni, C.A. Filed as Exhibit
10.32 to Gold Reserve Corporation's (the predecessor issuer) Annual Report on
Form 10-K for the year ended December 31, 1992 and incorporated by reference
herein.
10.5 Services Agreement, dated November 6, 1992, between Gold Reserve
Corporation and A. Douglas Belanger. Filed as Exhibit 10.33 to Gold Reserve
Corporation's (the predecessor issuer) Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated by reference herein.
10.6 Settlement Agreement, dated December 21, 1994, among the Gold Reserve
Corporation, Brisas, GLDRV, Marwood International Ltd., TVX Gold, Inc.,
BlueGrotto Trading Limited and Inversiones 871010, C.A. Filed as an exhibit to
Gold Reserve Corporation's (the predecessor issuer) Current Report on Form 8-K
(File No. 011-08372) and incorporated by reference herein.
10.7 Services Agreement, dated February 4, 1997, between Gold Reserve
Corporation and James P. Geyer. Filed as Exhibit 10.7 to Gold Reserve
Corporation's (the predecessor issuer) Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated by reference herein.
21.0 Subsidiaries of Registrant. Filed as Exhibit 21 to the Proxy
Statement/Joint Prospectus included as a part of the Company's Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
23.1 Consent of PricewaterhouseCoopers LLP**
** Filed herewith
Reports on Form 8-K. No report on Form 8-K was issued during the quarter ended
December 31, 1999.
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GOLD RESERVE INC.
By: s/ Rockne J. Timm
Rockne J. Timm, its Chairman of the Board,
President and Chief Executive Officer
April 17, 2000
By: s/ Robert A. McGuinness
Robert A. McGuinness, Vice President of Finance
and Chief Financial Officer, its Principal
Financial and Accounting Officer
April 17, 2000
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File No. 033-61113 and No. 333-56495) of Gold Reserve
Inc. of our report dated February 28, 2000, relating to the financial
statements, which appears in this Form 20-F.
s/ PricewaterhouseCoopers LLP
Spokane, Washington
April 17, 2000