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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, 2000
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 registrants shares outstanding as of December 31, 2000:
Class A common shares, no par value per share: 22,196,242
Equity Units, no par value per share: 1,446,396
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
PART I
GENERAL INFORMATION
Forward-Looking Statements
Reserve Estimates
Currency
Glossary of Significant Terms
Item 1. Identity of Directors, Senior Management and Advisors - Not Applicable
Item 2. Offer Statistics and Expected Timetable - Not Applicable
Item 3. Key Information
Selected Financial Data
Risk Factors
Item 4. Information on the Company
History and Development of the Company and Business Overview
Corporate Reorganization
Description of Property
Brisas-Cristinas Combined Project
Venezuelan Mining, Environment and Other Matters
1999 Mining Law
Item 5. Operating and Financial Review and Prospects
Overview
Liquidity and Capital Resources
Results of Operations
Item 6. Directors and Senior Management and Employees
Compensation of Directors and Officers
Board Practices
Item 7. Major Shareholders and Related Party Transactions
Control of Registrant
Related Party Transactions
Item 8. Financial Information
Legal Proceedings
Item 9. The Offer and Listing
Offer and Listing details
Item 10. Additional Information
Memorandum and Articles of Association
Exchange Controls and Other Limitations Affecting Security Holders
Taxation
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other Than Equity Securities - Not
applicable.
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Item 14. Material Modifications to Rights of Security Holders and Use of
Proceeds - None
Item 15. [Reserved]
Item 16. [Reserved]
PART III
Item 17. Financial Statements
Management's Report
Report of Independent Accountants
ITEM 18. Financial Statements - Not Applicable
ITEM 19. Financial Statements and Exhibits
Index 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.
Signatures
PART I
GENERAL INFORMATION
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, our concentration of
operations and assets in Venezuela, regulatory, political and economic risks
associated with Venezuelan operations, our ability to obtain additional funding
for future development of the Brisas property, our dependence upon the
abilities and continued participation of certain key employees, 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 estimates
will 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, 2001, approximately 707 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 MEM
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.
CESL... Cominco Engineering Services Limited (CESL) on-site
copper processing technology.
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 MEM
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.
Cristinas... Gold and copper property (Cristinas 4, 5, 6 and 7) which
is north of and contiguous to the Brisas property and is
held by MINCA, a Venezuelan company 30% owned by CVG and
70% owned by Placer Dome Inc.
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... A comprehensive study of a deposit in which all
geological, engineering, operating economic and other
relevant factors are considered in sufficient detail that
it could reasonably serve as the basis for a final
decision by a financial institution to finance the
development of the deposit for mineral production.
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 mineral
resource... That part of a Mineral Resource for which quantity, grade
or quality, densities, shape and physical characteristics,
can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and
economic parameters, to support mine planning and
evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration
and testing information gathered through appropriate
techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely
enough for geological and grade continuity to be
reasonably assumed.
inferred mineral
resource... That part of a Mineral Resource for which quantity and
grade or quality can be estimated on the basis of
geological evidence and limited sampling and reasonably
assumed, but not verified, geological and grade
continuity. The estimate is based on limited information
and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and
drill holes.
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.
measured mineral
resource... That part of a Mineral Resource for which quantity, grade
or quality, densities, shape, physical characteristics are
so well established that they can be estimated with
confidence sufficient to allow the appropriate application
of technical and economic parameters, to support
production planning and evaluation of the economic
viability of the deposit. The estimate is based on
detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm
both geological and grade continuity.
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... A naturally occurring homogeneous substance having fixed
physical properties and chemical composition and, if
formed under favorable conditions, a defined crystal form.
mineral resource... A concentration or occurrence of natural, solid,
inorganic or fossilized organic material in or on the
Earth's crust in such form and quantity and of such grade
or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource are
known, estimated or interpreted from specific geologic
evidence and knowledge.
mineral reserve... The economically mineable part of a Measured or Indicated
Mineral Resource demonstrated by at least a Preliminary
Feasibility Study. This study must include adequate
information on mining, processing, metallurgical, economic
and other relevant factors that demonstrate, at the time
of reporting, that economic extraction can be justified. A
Mineral Reserve includes diluting materials and allowances
for losses that may occur when material is mined.
mineralization... The presence of 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
study... A comprehensive study of the viability of a mineral
project that has advanced to a stage where the mining
method, in the case of underground mining, or the pit
configuration, in the case of an open pit, has been
established, and which, if an effective method of mineral
processing has been determined, includes a financial
analysis based on reasonable assumptions of technical,
engineering, operating, economic factors and the
evaluation of other relevant factors which are sufficient
for a qualified person, acting reasonably, to determine if
all or part of the mineral resource may be classified as a
mineral reserve.
probable mineral
reserve... The economically mineable part of an Indicated, and in
some circumstances a Measured Mineral Resource
demonstrated by at least a Preliminary Feasibility Study.
This Study must include adequate information on mining,
processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that
economic extraction can be justified.
Proterozoic... That part of the Precambrian time represented by rocks
in which traces of life appear or the younger part of
Precambrian time.
proven mineral
reserve... The economically mineable part of an Indicated, and in
some circumstances a Measured Mineral Resource
demonstrated by at least a Pre-feasibility Study. This
study must include adequate information on mining,
processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that
economic extraction is justified.
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.
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
Item 1. Identity of Directors, Senior Management and Advisors - Not Applicable
Item 2. Offer Statistics and Expected Timetable - Not Applicable
Item 3. Key Information
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 Operating and Financial Review and Prospects in Item 5. 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. All
financial amounts contained herein are, unless otherwise noted, denominated in
U.S. Dollars.
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(in thousands of U.S. Dollars, except share and per share amounts)
Other income $ 1,168 $ 1,173 $ 1,410 $ 1,806 $ 1,624
Net loss (1,311) (2,047) (2,450) (1,533) (830)
Loss per common share (1) (0.06) (0.09) (0.11) (0.07) (0.04)
Total assets (2) 63,502 64,800 66,919 73,282 73,769
Net Assets
Shareholders' equity(3) 62,130 63,303 64,713 66,538 67,191
Capital stock 102,105 102,067 101,661 102,269 100,953
Common shares:
Issued 22,196,242 21,987,672 23,191,767 22,918,143 22,703,811
Outstanding(4) 22,018,953 21,810,383 22,720,329 22,437,099 22,222,767
Equity Units:
Issued 1,446,396 1,584,966
Outstanding(4) 1,152,247 1,290,817
____________________
1. Basic and diluted
2. Total assets prepared in accordance with accounting principles generally
accepted in the U.S. at December 31, 2000, 1999, 1998, 1997 and 1996 were
$63,600, $64,460, $66,907, $73,293 and $73,772, respectively.
3. Total shareholders' equity prepared with accounting principles generally
accepted in the U.S. at December 31, 2000, 1999, 1998, 1997 and 1996 was
$62,228 $62,963, $64,702, $66,549 and $67,193, 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.
A reconciliation of the differences between accounting principles generally
accepted in the United States and Canada is presented in Note 11 of the
consolidated financial statements located at Item 17.
Dividends
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.
Risk Factors
Potential investors should carefully evaluate all of the information contained
and incorporated by reference in this report and, in particular, the following.
Mineral Reserve and Resource Estimates
The mineral reserve and resource estimates set forth in this document have been
prepared in accordance with the disclosure requirements of applicable Canadian
Securities Commissions and will not qualify as a commercially mineable ore body
under standards published by the U.S. Securities and Exchange Commission until
the economic viability of the project is established and documented in a final
feasibility study.
Mineral 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 mineral reserve estimates due to geologic variations within areas mined.
Production may vary from estimates because of changes in mineral 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 mineral
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 mineral 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, mineral reserves change over time to reflect
actual experience.
Risks Inherent in the Mining Industry
Development of a gold and copper project 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. These 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 maintained and will not 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
to companies in the mining industry. The payment of environmental liabilities
would reduce available funds and in the event we were unable to fund the cost of
remedying an environmental problem, we might be required to suspend operations
or enter into interim compliance measures pending completion of remedial
activities.
Foreign Operations
At December 31, 2000, approximately 70% of our 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 our operations. Nonetheless,our 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 (see Item 4. Information
on the Company) 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.
We have obtained the necessary permits to complete the activities to-date
related to the development of the Brisas property. We 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 expect 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. We have been
advised by our Venezuelan attorneys that it is unlikely that future rulings by
the Court related to this issue will impact our concessions, but there can be no
assurance that an adverse ruling that affects us will not occur. The Venezuelan
Supreme Court has not acted on the Imataca issue, and it is not known when it
will do so in the future.
Gold and Copper
The price of gold and copper has a significant influence on the market price of
our shares and our business activities. The price of gold is affected by
numerous factors beyond our 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, 2001,
the closing price for gold and copper was: Gold: $259.05 per ounce, Copper:
$0.76 per pound. The following table sets forth the average of the daily closing
price for gold and copper for the periods indicated as reported by the London
Metal Exchange:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
5 Yr. Avg. 2000 1999 1998 1997 1996
---------- ------ ------ ------ ------ ------
Gold ($ per ounce) 316 279 279 294 340 388
Copper ($ per pound) 0.87 0.80 0.71 0.75 1.03 1.04
Project Development
Capital expenditure estimates for the Brisas property are based on currently
available information as outlined in the pre-feasibility report. 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 our control. The capital cost estimates outlined in this report are based
on operating experience, expected production, estimates by and contract terms
with third-party suppliers, expected legal requirements, reports by our
employees and independent contractors and other factors. Factors involved in
estimated time for completion of projects include our 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
We do not generate revenue from operations. We have historically financed
operating activities primarily from the sale of common shares. We anticipate
that the present cash position of approximately $16.2 million will be sufficient
to cover estimated operating and capital expenditures, primarily those
associated with further development of the Brisas property, beyond 2002.
Significant additional financing will be needed if and when construction on the
Brisas commences. We currently have no near-term plans to raise funds through
the sale of equity or debt given the continued depressed metals market.
Recurring Losses
We have experienced losses from operations for each of the last fifteen years
and expect this trend to continue 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 unrelated exploration expenses. 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
We are dependent upon the abilities and continued participation of key
management personnel. If the services of our key employees were lost, it could
have a material adverse effect on future operations.
Item 4. Information on the Company
History and Development of the Company and 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
registered agent is Austring, Fendrick, Fairman & Parkkari, The Drury Building,
3801 Third Avenue, Whitehorse, Yukon, Y1A 4Z7. The registered agent's telephone
and fax are 867.668.4405 and 867.668.3710, respectively.
Our 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 $68 million has been expended on the
Brisas property since its acquisition in 1992. These costs include property and
mineral rights, capitalized exploration and development costs, equipment
expenditures and prior litigation settlement costs of $22.5 million, which were
expensed in 1994. We have no revenue producing mining operations at this time.
Proven and probable mineral reserves on the Brisas property, last reported upon
in early 2000, 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 10 million ounces of gold
and 1 billion pounds of copper. The mineral reserve and resource estimates set
forth in this document have been prepared in accordance with the disclosure
requirements of applicable Canadian Securities Commissions. The reserve and
resource estimates set forth in this document have been prepared in accordance
with applicable Canadian requirements. Such estimates will 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.
Extensive independent analysis of the Brisas property mineral reserve data has
been completed, including audits by Behre Dolbear & Company Inc. ("Behre
Dolbear") of Denver, Colorado, which confirmed the reliability of our mineral
reserve estimate calculations and methodologies. The proven and probable mineral
reserves noted above are based on the results of previously audited data and
collection procedures.
As a result of the sustained low-level gold price, we have evaluated
alternatives to the development of the Brisas property on a stand-alone basis.
Our evaluation has led us to the conclusion that the best alternative and the
most rational way to develop the Brisas property, is to combine it with the
contiguous MINCA-owned Cristinas property to the north and jointly develop the
properties as one large project. We have presented our proposal to combine the
Brisas and Cristinas projects to various Venezuelan government decision makers
and it has received considerable support.
Cash and short and long-term investments at March 31, 2001, approximate $16.2
million. We presently have no long-term debt and anticipate that current cash
and investment balances will be sufficient to cover estimated operating and
capital expenditures (excluding construction costs, if any) beyond 2002. The
Company has expended approximately $68 million on the development of the Brisas
property since inception. As of March 31, 2001, the Company had the following
common shares, equity units and share purchase options outstanding:
Common shares 22,309,622
Equity Units* 1,333,016
Share purchase options 3,286,971
* An equity unit consists of one Class B common share of Gold Reserve Inc. and
one Class B common share of Gold Reserve Corporation. Equity units are
convertible into Class A common shares of Gold Reserve Inc. on a one-to-one
basis.
All 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.
Organizational Structure
References to the "Company" throughout this report refer primarily to Gold
Reserve, Inc., Gold Reserve Corporation, Gold Reserve de Venezuela, C.A.
("GLDRV"), Compania Aurifera Brisas del Cuyuni, C.A. ("BRISAS"), Great Basin
Energies, Inc. ("Great Basin") and MegaGold Corporation ("MegaGold"). Title to
the Brisas property is held through the Company's 100% ownership in GLDRV, which
in turn owns BRISAS-the Brisas property titleholder. Great Basin and Megagold
are U.S. corporations, which have no current business activities and each hold
approximately $1 million in cash and investments. The consolidated group also
consists of seven Aruban subsidiaries and five Venezuelan subsidiaries formed to
hold the Company's future mining properties. All subsidiaries are wholly owned
except for Great Basin and MegaGold, which are owned 58% and 63%, respectively.
Corporate Reorganization
In February 1999, Gold Reserve Corporation became a subsidiary of Gold Reserve
Inc., the successor issuer (the "Reorganization"). 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. Certain U.S. holders
elected, for tax reasons, to receive equity units in lieu of 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, is substantially
equivalent to a Class A common share and is generally immediately convertible
into Class A common shares. 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.
After the Reorganization, a shareholder continued to own an interest in the
business that in aggregate was essentially the same as before the
Reorganization. The consolidated financial statements, prior to December 31,
1999, that are presented herein are those of Gold Reserve Corporation. The
financial position of the consolidated group subsequent to the Reorganization
was substantially the same as prior to the Reorganization.
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 west of
the KM 88 marker on Highway 10, occupies a rectangular area of 2,500 meters
north-south by 2,000 meters east-west or approximately 500 hectares 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 in March 1998. We have also obtained several contiguous
and nearby properties for the purpose of locating infrastructure related to the
operation of the Brisas property.
The Brisas alluvial concession is an exploitation concession with a term of 20
years and 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 700,000 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 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"), has constructed 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 the Brisas property. A transformer station is located 3 km
from the 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, northwest to both
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, effective
November 1999, 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 Mineral reserves
The pre-feasibility study was originally completed in 1998 with the assistance
of JE MinCorp, a Division of Jacobs Engineering Group Inc., and a number of
other independent consultants and last updated in early 2000. Behre Dolbear
audited our data collection procedures and modeling and mineral reserve
methodology 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 compiled database was of a quality appropriate for utilization in a
mineral reserve study suitable for obtaining financing. Further, the estimating
techniques used were an accurate representation for the mineral reserves; drill
hole spacing was sufficient to generate future estimates of proven and probable
mineral reserves; and the database was correct and reliable. The results of the
audits also concluded that the mineral reserve risk for the project is low and
there is upside potential for additional mineral 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 mineral reserve estimate, effective January 2000, has been prepared
in accordance with reporting requirements of applicable Canadian Securities
Commissions and is presented in tabular form below:
Pit design using $300/oz Au and $0.80/lb. Cu (and $3.30/tonne revenue cutoff)
- -----------------------------------------------------------------------------
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
===========================================================================================================
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 $353 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 $153 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 $243, excluding previously incurred sunk costs.
Exploitation taxes and royalties add approximately $8 to the total cost per
ounce. Costs are calculated using $300 per ounce of gold and $0.90 per pound of
copper.
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 will be imported, probably from North America. Electrical power is
available from a major new transmission line and transformer station, which
passes within a few kilometers of the properties. Abundant water is available in
the area, and project water requirements will 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.
Brisas-Cristinas Combined Project
As a result of the sustained low-level gold price, we have evaluated
alternatives to the development of the Brisas property on a stand-alone basis.
We have concluded that the best alternative and the most rational way to develop
the Brisas property, is to combine it with the contiguous Cristinas property and
jointly develop the properties as one large project. We have presented our
proposal to combine the two projects to various Venezuelan government decision
makers and it has received considerable support.
The Cristinas project is located to the north and is contiguous (one ore body)
to the Brisas property. This project is controlled by MINCA, a 30%-70% joint
venture between the Corporacion Venezolana de Guayana (CVG), a Venezuelan
government corporation, and Placer Dome Inc. of Vancouver, British Columbia,
respectively. MINCA maintains control of Cristinas 4, 5, 6 & 7 in the case of
gold mineralization in the form of a CVG work contract and in the case of copper
through a MEM concession. In 1999, MINCA placed the project on care and
maintenance and, in 2000, the joint venture partners agreed to a one-year
extension (which expires July 16, 2001) to their relationship. As required by
the extension agreement, MINCA engaged Scotia Capital of Toronto to explore
various alternatives and solicit third-party interest for the development of the
Cristinas project.
We believe these deposits should be exploited in combination due to the
potential enhanced return on investment afforded by a single infrastructure
package, eliminating duplication and offering both cost savings and a reduced
environmental impact; more efficient mining through a single open pit, lowering
operating costs and allowing access to otherwise unavailable ore between the
Brisas and Cristinas deposits and; a single process plant offering a lower
capital cost for each ounce of gold produced. If combined, the project could
potentially contain a world-class mineral reserve.
The Government of Venezuela desires to recommence construction and initiate
mining activities at the Cristinas project and is evaluating various
alternatives including this proposal to combine the projects. However, the
development of the proposed combined project is dependent upon, among other
things, the final decision of the Venezuelan government, participation by one or
more major gold producers, completion of a final feasibility study, the price of
gold and copper, and obtaining adequate financing and the appropriate
environmental and operating permits. For these reasons, there can be no
assurances that the proposal will proceed or, if it does, what the Company's
interest in the combined project might be.
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, while at the same time
subject 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 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 preferential 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 (from the date the certificate of
exploitation is granted) 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
exploitation.
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 have been subject to the 1999 Mining
Law since September 28, 2000. Surface tax is now payable in accordance with
Schedule B of Article 90 of the 1999 Mining Law, and is 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 concession 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 have applied to the concessions since 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 applied to MEM
in a timely manner for conversion thereof into mining concessions. MEM have not
indicated when they expect to act on these conversion applications.
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.
We hold the Occupation Permit for the Brisas alluvial and hardrock concessions
and will 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,
we have 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 our 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$50,000 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 14.5% value added tax (formerly
luxury goods and wholesale tax), which applies to goods and services, 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, we have paid or accrued approximately $1.2 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 has seen a number of significant changes in its political system in
recent years. Hugo Chavez Frias was originally elected President in December
1998 in response to a high level of voter dissatisfaction with the country's
established political parties and his promise to make profound changes including
a new constitution and a war against corruption. A 131-member Constituent
Assembly rewrote the 1961 constitution, which was overwhelmingly approved in a
December 1999 public referendum. This paved the way for President Chavez's re-
election in 2000. Despite these political changes, we have not seen any adverse
impact on our operations in Venezuela.
The Bolivar/dollar exchange rate ended 2000 at Bs. 700 to the Dollar, up Bs. 3
from November and Bs. 51 (7.9%) from December 1999. An exchange peg policy was
maintained throughout the year, and is expected to continue for the rest of this
year. The system of exchange bands was introduced in July 1996 and modified in
January 1998. The high levels of international reserves appear 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.707 to the Dollar at March 31, 2001.
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 domestically to 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 5. Operating and Financial Review and Prospects
Overview
The Company has not recorded revenue or cashflow from mining operations and has
experienced losses from operations for each of the last fifteen years, a trend
we expect to continue until the Brisas property is developed and put into
production either on a stand-alone basis or, as discussed elsewhere in this
report, combined with the Cristinas property to the north.
The consolidated results of operations for the years presented consist of
expenses, net of interest income from invested funds, related to activities
other than those directly associated with the Brisas property. Expenditures
related to the Brisas property have been capitalized. We prepare the
consolidated financial statements in accordance with accounting principles
generally accepted in Canada. A reconciliation of the differences between
accounting principles generally accepted in the U.S. and Canada 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 our operations in Venezuela
to date as substantially all sources of funding for our Venezuelan operations
are denominated in U.S. Dollars and we do not typically repatriate funds from
Venezuela.
As a result of the sustained low-level gold price, we have evaluated
alternatives to the development of the Brisas property on a stand-alone basis.
Our evaluation has led us to the conclusion that the best alternative and the
most rational way to develop Brisas is to combine it with the contiguous
Cristinas property to the north and jointly develop the properties as one large
project.
We have presented our proposal to combine the Brisas and Cristinas projects into
one of the largest gold mines in the world to various Venezuelan government
decision makers and it has received considerable support from every major area
of the government. We are advancing to a final decision on the combined project
with the assistance of Standard Bank's Warrior division, Scotia Capital, the
Venezuelan Ministry of Energy and Mines, Corporacion Venezolana de Guayana (CVG)
and Minera Las Cristinas (MINCA) (current operator of Cristinas). We anticipate
that the bulk of our activities in the next 12 to 18 months will be concentrated
on efforts to bring our proposal to realization.
Liquidity and Capital Resources
Investing
The total expenditures on the Brisas property in 2000 approximated $1.4 million.
Approximately $68 million has been expended on the Brisas property since its
acquisition in 1992. These costs include property and mineral rights,
capitalized exploration and development costs, equipment expenditures and
litigation settlement costs 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.
Planned expenditures for 2001 are estimated at $3.1 million. Approximately $1.1
million will be spent directly on the Brisas property, primarily on development
activities. The remaining expenditures relate to corporate management of the
Brisas property, exploration activities other than on the Brisas property and
general corporate activities including the advancement of our proposal to
combine Brisas with the Cristinas property. Interest income for 2001 is
projected to be approximately $0.9 million.
The processing facility for Brisas on a stand-alone basis, as presently proposed
in the Brisas pre-feasibility report, is expected to cost an estimated $400
million. On a combined basis, the cost of mining facilities is estimated at $900
million. The ultimate design and cost of the plant and associated expenditures
of either scenario are subject to the results of a final feasibility study.
Final development of the Brisas property either on a stand-alone basis or in
combination with the Cristinas property is dependent upon the future price of
gold and copper, participation by one or more major gold producers, completion
of a final feasibility study and obtaining adequate financing and the
appropriate environmental and operating permits. Given the current price of gold
and other issues related to the combined projects, it is unclear when the
development of the Brisas property will commence.
Financing
As of March 31, 2001, the Company held approximately $16.2 million in cash and
investments. We anticipate that current cash and investments are adequate to
cover estimated operational and capital expenditures associated with the
activities on and related to the Brisas property as well as for general
corporate activities into the year 2002. Future costs of placing the Brisas
property or the combined 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.
We have no near-term plan to raise funds through the sale of equity or debt.
Whether and to what extent additional or alternative financing options are
pursued depends on a number of important factors, including if and when mine
development activities are commenced, our 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.
Results of Operations
2000 Compared to 1999
The consolidated net loss for the year ended December 31, 2000 was $1,311,064 or
$0.06 per share, a decrease of approximately $736,000 from the prior year. Other
income for 2000 amounted to $1,167,576, which is a decrease of approximately
$5,000 from the previous year. Other income decreased slightly as the Company
earned higher yields on lower levels of invested cash. Operating expenses for
the year amounted to $2,478,640, which is a decrease from the prior year of
approximately $741,000 and primarily attributable to cost reduction measures
undertaken by the Company including a reduction in personnel and costs related
to the reorganization.
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 $403,000 from the prior year. Other
income for 1999 amounted to $1,172,792, which is a decrease of approximately
$237,000 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 $3,219,388, which is a decrease from the prior year of
approximately $641,000 and primarily attributable to reorganization expenses in
1998 partially offset by losses on sales of marketable securities.
Item 6. Directors and Senior Management and Employees
The following sets forth certain information regarding the Company's Board of
Directors and executive officers. The time periods referred to below reflect the
cumulative 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 55 Chairman, President and Chief Executive Officer March 1984
President, Chief, of the Company. Director and President of both
Executive Officer, MegaGold Corporation and Great Basin Energies,
Director Inc. Resides: Spokane, Washington.
A. Douglas Belanger 47 Executive Vice President of the Company. Director August 1988
Executive Vice and Executive Vice President of both Great Basin
President, Director Energies, Inc. and MegaGold Corporation.
Resides: Spokane, Washington.
James P. Geyer 48 Senior Vice President of the Company. Director June 1997
Senior Vice of Wheaton River Minerals since 1995. Resides:
President, Director Spokane, Washington.
James H. Coleman 50 Senior Partner of Macleod Dixon of Calgary, February 1994
Director Alberta, counsel to the Company and Director of
various public companies. Resides: Calgary, Alberta.
Patrick D. McChesney 51 President of LMO Test Systems, Inc. (an automated August 1988
Director test equipment manufacturer). Director of MegaGold
Corporation. Resides: Spokane, Washington.
Chris D. Mikkelsen 49 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 47 President and Chief Executive Officer of Tiomin November 1993
Director Resources Inc. Resides: Toronto, Ontario.
Mary E. Smith 48 Vice President-Administration and Secretary of the January 1997
Vice President- Company. Vice President-Administration and Secretary
Administration for Great Basin Energies, Inc. and MegaGold,
and Secretary Corporation. Resides: Colbert, Washington.
Robert A. McGuinness 45 Vice President of Finance and Chief Financial March 1993
Vice President- Officer of the Company. Vice President-Finance
Finance and Chief and Chief Financial Officer of Great Basin Energies,
Financial Officer Inc. and MegaGold Corporation. Resides: Spokane,
Washington.
Each of the foregoing individuals has held his/her present principal occupation
with his current employer or other positions with the same firm throughout the
last five years with the exception of Mr. Geyer. Prior to January 1997, Mr.
Geyer was employed as Vice President of Operations with Pegasus Gold Inc. He
had been with Pegasus Gold Inc. since March 1987. There are no family
relationships or arrangements or understandings pursuant to which any person was
appointed as a director or member of senior management.
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, 2000.
Securities
Under
Options/
SARs All Other
Name and Granted Compensation
Principal Position Year Salary $ Bonus(4) (#) (1) ($)
- --------------------------------------------------------------------------------
Rockne J. Timm 2000 195,000 - 696,700 (2)30,000
President and Chief 1999 195,000 - 696,700 (2)(3)60,000
Executive Officer 1998 195,000 60,000 656,700 (2)30,000
A. Douglas Belanger 2000 175,000 - 573,955 (2)30,000
Executive Vice President 1999 175,000 - 573,955 (2)30,000
1998 175,000 50,000 543,955 (2)30,000
James P. Geyer(3) 2000 175,000 - 284,209 (2)30,000
Senior Vice President 1999 175,000 - 284,209 (2)30,000
1998 175,000 29,023 254,209 (2)22,500
Mary E. Smith 2000 65,000 - 106,367 (2)16,250
Vice President- 1999 65,000 - 106,367 (2)16,250
Administration 1998 65,000 14,805 86,367 (2)17,930
Robert A. McGuinness 2000 120,000 - 306,622 (2)30,000
Vice President- 1999 120,000 - 306,622 (2)30,000
Finance and CFO 1998 120,000 30,000 276,622 (2)30,000
Officers as a group 2000 730,000 - 1,967,853 136,250
1999 815,000 - 2,017,853 213,450
1998 850,000 209,437 1,953,131 160,430
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 2000, 1999 and
1998, respectively as follows: Mr. Timm, 30,060 shares, 22,948 shares, 7,204
shares; Mr. Belanger, 30,060 shares, 22,948 shares, 7,204 shares; Mr.
McGuinness, 30,060 shares, 22,948 shares, 7,204 shares; Mr. Geyer, 30,060
shares, 22,948 shares 5,403 shares; and Ms. Smith, 16,283 shares, 12,430
shares, 7,791 shares.
3) Includes $30,000 reimbursement per prior agreement with executive officer for
tax consequences of previous year's compensation.
4) The bonus granted to each executive officer was used to exercise previously
granted options to purchase common shares during 1998 as follows: Mr. Timm,
53,800 shares; Mr. Belanger, 45,000 shares; Mr. McGuinness, 11,583 shares;
Mr. Geyer, 10,791 shares; and Ms. Smith 5,633 shares.
Options granted for shares of the Company during the year ended December 31,
2000
No additional stock options were granted during the year. For re-pricing of
options see "Report On Re-pricing of Options in Last Fiscal Year".
Aggregated option exercises during the year ended and option values as of
December 31, 2000
The following table sets forth all options exercised during the financial year
ended December 31, 2000 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 Aggregate Value SARs at FY-End SARS at FY-end
Name on exercise (#) Realized Exercisable/Unexercisable (1) Exercisable/Unexercisable (2)
- -------------------- --------------- --------------- ----------------------------- -----------------------------
Rockne J. Timm - - 667,532 / 29,168 -
A. Douglas Belanger - - 554,787 / 19,168 -
James P. Geyer - - 271,709 / 12,500 -
James H. Coleman - - 216,666 / - -
Patrick D. McChesney - - 138,218 / 4,167 -
Chris D. Mikkelsen - - 103,111 / 4,167 -
Jean Charles Potvin - - 166,445 / 4,167 -
Mary E. Smith - - 99,700 / 6,667 -
Robert A. McGuinness - - 293,288 / 13,334 -
1) Options range in price of between $1.000 and $3.75 and generally expire
between 2002 and 2007, with the majority expiring in 2003 and 2004.
2) At December 31, 2000, 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 issued 12,500 restricted Class A common shares
as compensation. There were no stock options granted to Directors in 2000.
Macleod Dixon, a law firm in which Mr. Coleman was a senior partner during 2000,
billed the Company an aggregate of approximately $16,000 for professional
services and out-of-pocket expenses during the fiscal year ended December 31,
2000. 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, 2001, options for the
purchase of 451,794 Class A common shares remained available for grant under the
Plan and options for the purchase of 3,286,971 Class A common shares, including
options under the predecessor plans and the Plan, were outstanding. To date,
140,000 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.
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, which were outstanding at December 31, 2000. As a group,
officers and directors of the Company (9 persons) held 2,604,794 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
20,000 $ 0.550 12/14/01
50,000 0.688 11/02/05
25,000 0.750 08/06/04
15,000 0.850 06/16/05
771,480 1.000 09/28/04
40,000 1.031 12/16/01
80,352 1.125 09/04/02
75,000 1.280 01/11/04
685,677 1.500 01/06/01-09/28/04
333,827 2.590 03/17/03
6,000 2.875 12/17/07
175,000 3.250 04/08/03
1,028,135 3.750 03/18/03
---------
3,305,471
Great Basin Energies, Inc and MegaGold Corporation, subsidiaries of the Company,
have a total 1,440,000 and 1,480,000 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.
Re-pricing of Certain Options Granted to Directors and Officers of the Company
In September 1999 the Board of Directors approved a program to re-price all
stock options held by directors, executive officers and other employees, subject
to TSE approval. On April 3, 2000, the Board revised the program as it related
to directors and executive officers by re-pricing only 1/3 of the options held
by such persons. On June 2, 2000 the Shareholders of the Corporation approved
the re-pricing of certain stock options to $1.00, as set forth in the following
table:
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
Under a program approved by the Board on December 20, 2000, executive officers,
directors and other employees will be permitted to exchange certain options with
exercise prices in excess of $0.72. The re-pricing excludes stock options re-
priced for officers and directors effective September 28, 1999. The new
exercise price of the exchanged options will be $0.72, which represents a 50%
premium over the market share price as of the date of the approval by the Board.
In addition, the vesting schedules of all the re-priced stock options held by
executive officers, directors and other employees were modified as follows:
fifty-percent of all re-priced stock options, which were vested prior to the
date of the re-pricing, were no longer vested, or immediately exercisable, but
will vest 12 months from the date of re-pricing.
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
Internal Revenue Code of 1986, as amended (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 ($35,000 in 2001). 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 approved employment contracts for its Executive Officers in 1999 and
has not yet implemented these contracts. The Board may, in the near future,
finalize and implement, at a minimum, Change of Control Agreements for its
Executive Officers and other key employees.
Board Practices
Based upon the recommendations of a report dated December 1994 (the "Report") by
the TSE Committee on Corporate Governance in Canada, the TSE adopted a by-law
requiring corporations listed on the TSE to disclose their approach to corporate
governance. The Board believes that the Company's general approach, as
summarized below, is substantially consistent with objectives reflected in the
Report.
Mandate and Duties of the Board
The Board has ultimate responsibility for supervising the conduct of the
Company's affairs and the management of its business. The principal objective
of the Board is to protect and enhance Shareholder value over the long term.
Although the Board has delegated to management responsibility for the day-to-day
operations of the Company, the Board has ultimate responsibility for the
stewardship of the Company. Board members generally serve until the next annual
meeting and do not have service contracts.
The Board's duties include overseeing strategic planning, reviewing and
assessing principal risks to the Company's business and approving risk
management strategies, supervising and evaluating management, authorizing
significant expenditures, ensuring timely and effective communication with
Shareholders, and overseeing the Company's internal controls and information
systems.
The Board's duties also include planning and monitoring activities of senior
management. In considering and making appointments of senior management, the
Board considers it appropriate, where relevant, to address succession and
planning issues. In appointing senior management, the Board considers as a
necessary requirement of such appointments that such personnel be qualified to
carry out the duties and responsibilities relating to the appointed positions
and thus, apart from monitoring, assessing and providing feedback to senior
management, the Board does not consider it necessary to engage in specifically
training senior management. The Board met in person or by telephone 10 times
during 2000.
Board Composition
The Report's Guidelines recommend that a majority of the Directors of the
Company be "unrelated" Directors. An "unrelated" director is a director who is
independent of management and is free from any interest and any business or
other relationship which could, or could reasonably be perceived to, materially
interfere with a director's ability to act with a view to the best interests of
the corporation, other than the interests and relationships arising from
shareholding. The Company's Board presently consists of seven members. The
Board considers that four members are "unrelated" directors as defined in the
Report's Guidelines. The remaining three members are currently executive
officers of the Company. For the purposes of this discussion, a "related"
director is a director who is not an unrelated director. 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 currently believes that seven directors, the current composition of
the Board, represents an appropriate board size for the Company, having regard
to the size and activities of the Company. The current composition of the Board
provides, in the Board's view, an appropriate representation of senior
management and outside directors.
Board Compensation
The Board reviews from time to time the compensation paid to the directors in
order to ensure that directors are being adequately compensated for the duties
performed and the obligations assumed by the directors.
Board Committees
The Board has delegated some of its authority to three committees of the Board.
These are the Executive Committee, the Compensation Committee and the Audit
Committee. The Board does not maintain a nominating committee or an orientation
and education program for new directors as suggested by the Report or a
committee to deal with corporate governance matters generally. Decisions
regarding recruitment of new directors, assessment of current directors,
succession planning and other corporate governance matters are made by the full
Board. The Board is of the view that, given the size of the Company and the
fact that a majority of the Board members are independent of management, these
matters can be appropriately dealt with by the full Board. During 2000, all of
the directors attended 75% or more of the meetings of the Board and Committees
on which they served.
The Executive Committee, which is comprised of Rockne J. Timm (Chair), A.
Douglas Belanger and James H. Coleman, meets in person or by phone on a regular
basis. The Executive Committee supervises the business affairs of the Company
between Board meetings, except for those matters assigned to the Compensation
and Audit Committees. The Executive Committee is composed of one unrelated
director (Mr. Coleman) and two related directors (Messrs. Timm and Belanger).
The Compensation Committee, which met four times during 2000, consists of Chris
D. Mikkelsen (Chair) and Jean Charles Potvin, both of whom are unrelated
directors. The Compensation Committee has responsibility with respect to
approving and advising the full Board on compensation matters involving officers
of the Company.
The Audit Committee, which met once during 2000, consists of James H. Coleman
(Chair), Patrick D. McChesney and Chris D. Mikkelsen, all of whom are unrelated
directors. The Audit Committee recommends to the Board a firm of independent
certified public accountants to audit the annual financial statements, discusses
with the auditors and approves in advance the scope of the audit, reviews with
the independent auditors the financial statements and their audit report,
reviews management's administration of the system of internal accounting
controls, and reviews the Company's procedures relating to business ethics. The
Audit Committee reports to the Board on its activities and findings.
Independence From Management
It is the Board's view that the Board operates and functions independently of
management as required. Although the President and Chief Executive Officer of
the Company also serves as Chairman of the Board, the Board is of the view that
this does not impair the Board's ability to act independently of management.
The Board's independence from management is principally derived from the fact
that four out of the seven Board members are unrelated and independent
Directors.
Shareholder Communication
The Company communicates regularly with its Shareholders through annual and
quarterly reports, as well as news releases and regulatory filings. In
addition, the executive officers of the Company are responsible for addressing
day-to-day Shareholder inquiries and other Shareholder communication issues.
Expectations of Management
The Board has delegated to the President and Chief Executive Officer, and other
executives, responsibility for day-to-day management of the business and affairs
of the Company, subject to compliance with directives and objectives established
by the Board from time to time. The Board relies on management to provide the
Board on a timely basis with information required by the Board to perform its
duties.
Outside Advisors
The Company does not have in place any specific procedures pursuant to which an
individual director may engage the services of an outside advisor at the expense
of the Company. Any requests for the services of an outside advisor at the
expense of the Company would be considered by the Board on a case-by-case basis.
Share Ownership by Directors and Management
The following table sets forth the share ownership in the Company by Directors
and officers as of April 19, 2001.
Number of Common Shares
Name Beneficially Owned as of Percent
April 19, 2001 (1) Ownership
- -----------------------------------------------------------------------
Rockne J. Timm (2) (3) 1,426,296 5.3%
A. Douglas Belanger (2) (3) 1,255,375 4.7%
James P. Geyer 366,411 1.4%
James H. Coleman (2) (3) 254,000 0.9%
Patrick D. McChesney (3) 212,262 0.8%
Chris D. Mikkelsen (2) (3) (4) 269,500 1.0%
Jean Charles Potvin 197,434 0.8%
Mary E. Smith 146,504 0.6%
Robert A. McGuinness 415,669 1.5%
(1) Includes for each individual shares issuable pursuant to presently
exercisable options for common shares as of April 19, 2001 or options
exercisable within 60 days of April 19, 2001 as follows: Mr. Timm, 696,700;
Mr. Belanger, 573,955; Mr. Geyer, 284,209; Mr. Coleman, 216,666; Mr.
McChesney, 142,385; Mr. Mikkelsen, 107,278; Mr. Potvin, 170,612; Ms. Smith
106,367 and Mr. McGuinness 306,622.
(2) Mr. Timm, Mr. Belanger, Mr. Coleman and Mr. Mikkelsen are Directors of Great
Basin Energies, Inc., which owns 516,720 common shares, or 2.2% of the
outstanding common shares. The foregoing individuals own 6.8%, 4.0%, 1.7%,
and 0.9% respectively, of the outstanding common shares of Great Basin
Energies, Inc. and may be deemed indirectly to have an interest in the
Company through their respective management positions and/or ownership
interests in Great Basin Energies, Inc. Each of the foregoing individuals
disclaims any beneficial ownership of the common shares owned by Great Basin
Energies, Inc.
(3) Mr. Timm, Mr. Belanger, Mr. McChesney, Mr. Coleman, and Mr. Mikkelsen are
Directors of MegaGold Corporation, which owns 276,642 common shares, or 1.2%
of the outstanding common shares of the Company. The foregoing individuals
own 6.6%, 6.4%, 2.1%, 2.8%, and 1.4% respectively, of the outstanding common
shares of MegaGold Corporation and may be deemed indirectly to have an
interest in the Company through their respective management positions and/or
ownership interests in MegaGold Corporation. Each of the foregoing
individuals disclaims any beneficial ownership of the common shares owned by
MegaGold Corporation.
(4) Excludes 114,552 common shares of which Mr. Mikkelsen is trustee for the
benefit of members of Mr. Timm's family. Mr. Mikkelsen disclaims any
beneficial ownership of the 114,552 common shares.
Number of Employees
- -------------------
As of March 31, 2001, the Company employed 8 people in its Spokane, Washington,
office and approximately 30 people in Venezuela, of which approximately 20 are
located at the Brisas property. Day-to-day activities of Venezuelan operations
are managed from Caracas and Puerto Ordaz.
Item 7. Major Shareholders and Related Party Transactions
Control of Registrant
We are not directly or indirectly owned or controlled by another corporation or
by any foreign government. No company, government or individual beneficially
owns, directly or indirectly, or exercises control or direction over, shares
carrying more than 5% 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 4,543,451 shares (including 2,604,794 shares subject to options exercisable
within 60 days), or 17.3% of the total shares issued. We have no knowledge of
any arrangements that may, at a subsequent date, result in a change in our
control.
Related Party Transactions
Interest of Management in Certain Transactions
The directors, officers and principal shareholders of the Company and
associates, affiliatesand close family members 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 fiscal year and the amount outstanding at March 31, 2001:
Involvement of Largest amount Amount outstanding
Name and Principal Position issuer or subsidiary outstanding during 2000(1) at March 31, 2001
- ------------------------------- -------------------- -------------------------- ------------------
Rockne J. Timm
President and CEO and Director Lender $23,500 $23,500
James P. Geyer
Senior VP and Director Lender 18,200 18,200
Robert A. McGuinness
VP Finance, CFO Lender (2) 62,500 62,500
Mary E. Smith
VP Administration and Secretary Lender 1,743 0
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.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
None of the Directors, officers of the Company, nor any person or corporation
owning more than 10% or any class of voting securities of the Company, nor any
associates or affiliate of any of them, had or has any material interest in any
transaction since the commencement of the Company's last financial year or in
any proposed transaction which has materially affected or would materially
affect the Company or any of its subsidiaries.
Item 8. Financial Information
Our consolidated financial statements have been prepared in accordance with
auditing standards generally accepted in Canada and the United States of
America.. For a discussion of the principal differences between Canadian GAAP
and U.S. GAAP, please refer to note 11 to the consolidated financial statements,
included elsewhere in this annual report. A consolidated balance sheet is
presented for fiscal 2000 and 1999 along with consolidated statements of
operations, cashflow and changes in shareholders' equity, which are presented
for fiscal 2000, 1999 and 1998. Reference is made to Item 17 for detailed
financial information.
Legal Proceedings
We are 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 9. The Offer and Listing
Offer and Listing details
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.
Last Six Months TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
April $0.96 $0.75 $0.63 $0.55
March 1.10 0.80 0.81 0.53
February 0.81 0.72 0.56 0.47
January 0.80 0.68 0.55 0.44
December 0.90 0.69 0.55 0.41
November 1.05 0.85 0.69 0.56
Last Eight Quarters TSE OTC
2000 1999 2000 1999
High Low High Low High Low High Low
Canadian Dollars U.S. Dollars
First Quarter $1.46 $0.95 $2.32 $1.71 $1.25 $0.70 $1.56 $1.06
Second Quarter 1.10 0.85 2.00 1.52 0.88 0.59 1.38 1.03
Third Quarter 1.00 0.72 2.00 1.20 0.70 0.45 1.38 0.75
Fourth Quarter 1.05 0.67 2.15 1.02 0.70 0.41 1.47 0.72
Last Five Years TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
2000 $1.46 $0.67 $1.25 $0.41
1999 2.32 1.02 1.56 0.72
1998 5.40 1.38 3.75 0.88
1997 15.60 2.35 11.50 1.75
1996 21.70 7.38 15.75 5.75
On March 31, 2001, the closing price for a Class A common share of the Company
was Cdn$0.80 per share on the TSE and US$0.59 per share on the OTC. As of March
31, 2001, there were a total of 22,309,622 Class A common shares issued and
1,333,016 Class B common shares issued.
The number of holders of common shares of record on March 31, 2001 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 75% of the Company's shareholders are Canadian
residents who own approximately 60% of the Company's outstanding shares, with
the remaining outstanding shares owned primarily by U.S. residents.
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. During this period, no shares were purchased
by the Company.
Item 10. Additional Information
Memorandum and Articles of Association
Information under this heading is 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. All
documents may be examined at the Company's executive offices located at 926 West
Sprague Avenue, Suite 200, Spokane, WA 99201, USA.
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 below under the heading "Taxation".
Presently, the Company does not carry on any significant 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.
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, 2001, 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 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. The Company assumes no responsibility
for the withholding of tax at its source.
Classification of the Company as a Controlled Foreign Corporation
Under Section 951(a) of 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, 2000, 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 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, 2000. 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 11. Quantitative and Qualitative Disclosures about Market Risk
The Company does not enter into any hedging transactions or hold any derivative
instruments. The carrying amounts for cash and cash equivalents, marketable
securities, deposits, advances and other, accrued interest and accounts payable
and accrued expenses 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 value of investments in marketable securities are
disclosed in Note 2 to the Consolidated Financial Statements.
Item 12. Description of Securities Other Than Equity Securities - Not
applicable.
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Item 14. Material Modifications to Rights of Security Holders and Use of
Proceeds - None
Item 15. [Reserved]
Item 16. [Reserved]
PART III
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 years ended December 31, 2000 and 1999 and those of Gold Reserve Corporation
and its subsidiaries as of and for the year ended December 31, 1998. 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
Report of Independent Accountants
To the Board of Directors and Shareholders of Gold Reserve Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of Gold
Reserve Inc. and subsidiaries, successor issuer to Gold Reserve Corporation, at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in Canada. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in Canada and the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
February 16, 2001
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
------------ ------------
ASSETS
Cash and cash equivalents $ 10,108,111 $ 4,377,521
Marketable securities 3,045,421 9,884,909
Deposits, advances and other 370,044 346,834
Accrued interest 53,046 171,732
Total current assets 13,576,622 14,780,996
Property, plant and equipment, net 44,902,369 43,374,065
Marketable securities 3,790,030 5,350,417
Other 1,233,301 1,295,014
Total assets $ 63,502,322 $ 64,800,492
LIABILITIES
Accounts payable and accrued expenses $ 335,103 $ 320,214
Note payable-KSOP 184,419
Total current liabilities 335,103 504,633
Minority interest in consolidated
subsidiaries 1,037,013 992,587
Total liabilities 1,372,116 1,497,220
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: Unlimited
Issued: None
Common shares and equity units: 102,105,986 102,067,298
Class A common shares, without par value
Authorized: Unlimited
Issued: 2000... 22,196,242;
1999... 21,987,672
Outstanding: 2000... 22,018,953;
1999.. . 21,810,383
Equity Units
Issued: 2000... 1,446,396;
1999... 1,584,966
Outstanding: 2000... 1,152,247;
1999... 1,290,817
Less, common shares and equity
units held by affiliates (403,331) (403,331)
Accumulated deficit (39,487,340) (38,176,276)
KSOP debt (85,109) (184,419)
Total shareholders' equity 62,130,206 63,303,272
Total liabilities and shareholders' equity $ 63,502,322 $ 64,800,492
The accompanying notes are an integral part of the consolidated financial
statements.
Approved by the Board of Directors:
s/ Chris D. Mikkelsen s/ Patrick D. McChesney
GOLD RESERVE INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Other Income:
Interest income $ 1,167,576 $ 1,171,932 $ 1,410,179
Miscellaneous 860
1,167,576 1,172,792 1,410,179
Expenses:
General and administrative 1,321,044 1,744,993 1,472,277
Technical services 418,938 620,354 660,487
Corporate communications 229,796 261,668 382,280
Legal and accounting 72,036 112,954 217,339
Reorganization 108,714 932,798
Loss on sale of marketable securities 283,507 207,347
Foreign currency loss 95,922 157,040 130,763
Interest 12,971 18,968 33,540
Minority interest in net income (loss)
of consolidated subsidiaries 44,426 (12,650) 30,715
2,478,640 3,219,388 3,860,199
Net loss $ (1,311,064) $ (2,046,596) $ (2,450,020)
Net loss per share-basic and diluted $ (0.06) $ (0.09) $ (0.11)
Weighted average common shares outstanding 23,112,159 22,792,898 22,586,136
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, 2000, 1999 and 1998
Common Shares
Common Shares and Equity Units Issued Accumulated and Equity Units
Common Shares Equity Units Amount Deficit Held by Affiliates
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)
Equity units exchanged for
common shares 138,570 (138,570)
Net loss (1,311,064)
Common shares issued 70,000 38,688
Balance, December 31, 2000 22,196,242 1,446,396 $ 102,105,986 $ (39,487,340) $ (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, 2000, 1999 and 1998
2000 1999 1998
Cash Flow from Operating Activities:
Net loss $ (1,311,064) $ (2,046,596) $ (2,450,020)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 46,426 42,667 38,365
Amortization of premium (discount)
on marketable securities (32,536) (60,698) 94,522
Foreign currency loss 95,922 157,040 130,763
Minority interest in net income (loss) of
consolidated subsidiaries 44,426 (12,650) 30,715
Net loss on disposition of marketable securities 283,507 207,347
Other 25,938
Changes in current assets and liabilities:
Decrease in litigation settlement held in escrow 4,500,000
(Increase) decrease in other current assets 95,476 399,536 (265,620)
Decrease in litigation settlement payable (4,500,000)
Increase (decrease) in other current liabilities 14,889 (465,540) 139,551
Net cash used by operating activities (737,016) (1,778,894) (2,281,724)
Cash Flow from Investing Activities:
Purchase of marketable securities (4,958,408) (12,948,347) (18,192,858)
Purchase of property, plant and equipment (1,657,902) (2,535,612) (2,761,119)
Proceeds from the sale and maturity of marketable securities 13,107,312 18,292,653 13,056,187
Other 61,713 93,288 77,695
Net cash provided (used) by investing activities 6,552,715 2,901,982 (7,820,095)
Cash Flow from Financing Activities:
KSOP purchases of common shares (85,109)
Proceeds from issuance of common shares 406,244 425,883
Net cash provided (used) by financing activities (85,109) 406,244 425,883
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 5,730,590 1,529,332 (9,675,936)
Cash and cash equivalents - beginning of year 4,377,521 2,848,189 12,524,125
Cash and cash equivalents - end of year $ 10,108,111 $ 4,377,521 $ 2,848,189
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 12,971 $ 18,968 $ 33,540
Non-cash investing and financing activities:
Issuance of common shares as compensation $ 38,688
The accompanying notes are an integral part of the 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"). 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 was essentially
the same as before the Reorganization.
Certain U.S. holders of Gold Reserve Corporation elected, for tax reasons, 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. 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 years ended December 31, 2000 and
1999 and Gold Reserve Corporation for the year ended December 31, 1998.
Presentation of financial statements and consolidation. The consolidated
financial statements contained herein have been prepared in accordance with
accounting principles generally accepted in Canada, which as described in Note
11, differ in certain respects from accounting principles generally accepted in
the United States of America.
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, 2000 and 1999, the Company had approximately $66,000 and $111,000,
respectively, 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
operating expenses.
Accounting for Stock Options. The Company provides the disclosure only
requirements for stock options in accordance with the Emerging Issues Committee
Abstract 98, "Stock-Based Compensation Plans-Disclosures." No compensation
expense is recognized when stock options are issued to employees. Any
consideration paid by employees on exercise of stock options is credited to
share capital.
Income Taxes. Effective January 1, 2000, the Company has retroactively adopted
the liability method of accounting for income taxes, following new standards
adopted by the Canadian Institute of Chartered Accountants ("CICA"). The
adoption of the new standards resulted in no adjustment to opening retained
earnings. Under the new standards, future tax assets and liabilities are
determined based on the differences between the tax basis of assets and
liabilities and those reported in the financial statements. The future tax
assets or liabilities are calculated using the tax rates for the periods in
which the differences are expected to be settled. Future tax assets are
recognized to the extent that they are considered more likely than not to be
realized.
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,
2000, 1999 and 1998, there were 3,305,471, 3,313,240 and 3,422,784 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 1999 and 1998 consolidated
financial statement balances have been made to conform with the 2000
presentation. These reclassifications had no effect on the net loss or
accumulated deficit as previously reported.
2. Marketable Securities:
Investments in marketable securities are recorded at amortized cost and yield
between 5% and 7%. The debt securities at December 31, 2000 mature as follows:
$49,990 in 2001, $1,998,763 in 2004, $1,000,000 in 2005 and $495,000 in 2007.
Amortized Cost/ Quoted
Carrying Value Market Value
2000
Temporary:
Corporate debt securities $ 49,990 $ 49,537
Equity securities 2,995,431 3,116,813
Total $ 3,045,421 $ 3,166,350
Long-term:
U.S. treasuries and agency obligations $ 2,493,763 $ 2,471,985
Corporate debt securities 1,000,000 978,680
Equity securities (1) 296,267 272,517
Total $ 3,790,030 $ 3,723,182
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
(1) Includes shares of the Company owned by its subsidiaries. See Note 6 to the
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, 2000, 1999 and 1998 was $46,426, $42,667 and $38,365,
respectively. Property, plant and equipment as of December 31, 2000 and 1999
consisted of the following:
Accumulated
Cost Depreciation Net
2000
United States
Furniture and office equipment $ 359,915 $ (246,872) $ 113,043
Leasehold improvements 35,633 (13,429) 22,204
395,548 (260,301) 135,247
Foreign
Property and mineral rights $ 11,252,335 $ 11,252,335
Capitalized exploration and
development costs 33,359,008 33,359,008
Buildings 266,141 $ (169,457) 96,684
Furniture and office equipment 398,638 (368,147) 30,491
Transportation equipment 285,207 (263,574) 21,633
Machinery and equipment 310,166 (303,195) 6,971
45,871,495 (1,104,373) 44,767,122
Total $ 46,267,043 $ (1,364,674) $ 44,902,369
1999
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
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.
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. Prior to 2000, common shares purchases by the KSOP plan
were financed by bank loans. Beginning in 2000, common shares purchased by the
KSOP Plan are financed by the Company. Unallocated shares are 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 2000, 1999 and 1998 of
$224,120, $239,710 and $313,025, respectively. As of December 31, 2000, 76,599
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:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 3,313,240 $ 2.93 3,422,784 $ 3.46 2,908,075 $ 6.60
Options exercised (12,500) 1.19 (223,624) 1.90
Options canceled (92,769) 1.10 (653,544) 3.32 (116,667) 3.17
Options granted 85,000 0.68 556,500 1.31 855,000 2.67
Options outstanding at
end of year 3,305,471 $ 2.23 3,313,240 $ 2.93 3,422,784 $ 3.46
Options exercisable
at end of year 3,080,878 2,673,612 2,065,868
Price Price Price
Range Range Range
Option exercise price
at end of year $ 0.55 - $ 3.75 $ 0.91 - $ 3.75 $ 1.06 - $ 10.00
Option exercise price
for exercisable shares $ 0.55 - $ 3.75 $ 0.91 - $ 3.75 $ 1.06 - $ 10.00
As of December 31, 2000, the weighted average remaining contractual life of
total options outstanding was 2.77 years. The weighted average exercise price of
total options outstanding and those options which were exercisable at December
31, 2000, was $2.23 and $2.26, respectively.
In September 1999, the Board approved a resolution amending the exercise price
of certain incentive stock options previously granted under the Plan.
Shareholder and regulatory approval was obtained in June 2000. Under the
program, executive officers and directors were permitted to exchange 1/3 of
their below-market 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. The vesting schedules remained unchanged. In addition, non-executive
employees and consultants were allowed to exchange all of their below-market
options for options priced at $1.50.
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, 2000 and 1999, 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, 2000 and 1999. In addition, MegaGold owned 280,000 common shares
of Great Basin at December 31, 2000 and 1999. 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, 2000 and 1999, 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, 2000 and 1999. Great Basin also owned 170,800 common shares of
MegaGold at December 31, 2000 and 1999. 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 2000, 1999 and 1998, the Company
incurred expenses of approximately $16,000, $31,000 and $23,000, 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, 2000 and 1999, the Company
had $109,100 and $111,000 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,
2000 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 2000, 1999 and
1998. 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, 2000 and 1999 were as follows:
Deferred Tax Asset(Liability)
2000 1999
Accounts payable and accrued expenses $ 8,846 $ 6,309
Investment income (18,801) (58,321)
Property, plant and equipment 8,507,044 8,496,025
Total temporary differences 8,497,089 8,444,013
Net operating loss carryforward 3,379,888 3,480,219
Capital loss 132,122 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 12,034,937 11,979,833
Valuation allowance (12,034,937) (11,979,833)
Net deferred tax asset $ - $ -
At December 31, 2000, 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
688,808 2009
341,750 2010
645,622 2011
1,424,144 2012
1,386,674 2018
1,621,230 2019
665,663 2020
$ 9,940,846
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
Capital loss $ 301,054 2005
Alternative minimum tax credit $ 19,871
8. Geographic Segments:
United States Venezuela Consolidated
2000
Revenues $ 1,167,576 $ 1,167,576
Depreciation 46,426 46,426
Interest expense 12,971 12,971
Net loss 1,220,797 $ 90,267 1,311,064
Identifiable assets
Property, plant and equipment, net $ 135,247 $ 44,767,122 $ 44,902,369
General corporate assets 17,205,278 1,394,675 18,599,953
Total identifiable assets $ 17,340,525 $ 46,161,797 $ 63,502,322
1999
Revenues $ 1,172,792 $ 1,172,792
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
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
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.
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 on June 30,
2003.
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:
Canadian GAAP Change U.S. GAAP
2000
Total assets $ 63,502,322 $ 97,632 $ 63,599,954
Total shareholders' equity 62,130,206 97,632 62,227,838
Comprehensive loss (1,311,064) 437,875 (873,189)
1999
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)
1998
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 2000 was $106,002.
Future minimum annual rent payable under the lease for each of the years 2001
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, 2000 and 1999
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998
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
1.0 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.
1.1 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.
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.
2.1 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.
2.2 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.
2.3 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.
2.4 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.
8.0 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.
10.0 Consent of PricewaterhouseCoopers LLP**
** Filed herewith
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:
Rockne J. Timm, its Chairman of the Board,
President and Chief Executive Officer
May 11, 2001
By:
Robert A. McGuinness, its Vice President of Finance
and Chief Financial Officer, its Principal Financial
and Accounting Officer
May 11, 2001
Exhibit 10.0
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 16, 2001 relating to the financial statements,
which appears in this Form 20-F.
s/ PricewaterhouseCoopers LLP
Spokane, Washington
May 11, 2001