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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, 2001
GOLD RESERVE INC.
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada
(Jurisdiction of incorporation)
1-8372
(Commission File Number)
926 West Sprague Avenue
Suite 200
Spokane, Washington 99201
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A common shares, no par value per share
(Title of each class)
The Toronto Stock Exchange ("TSE")
U.S. Over the Counter Market ("OTC")
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None
The total number of the registrant's shares issued as of December 31, 2001:
Class A common shares, no par value per share: 22,655,122
Equity Units, no par value per share: 1,313,016
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
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
Description of Property
Brisas-Cristinas Combined Project
Venezuelan Mining, Environment and Other Matters
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
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
Signatures
Glossary of Significant Terms
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 any 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.
The words "believe," "anticipate," "expect," "intend," "estimate," "plan,"
"assume," "positioned," "may," "will," "risk," "project," "could" and other
similar expressions that are predictions of or indicate future events and
future trends which do not relate to historical matters, identify
forward-looking statements. Any such forward-looking statements are not
intended to give any assurances as to future results.
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.
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.
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(in thousands of U.S. Dollars, except share and per share amounts)
Other income $ 1,200 $ 884 $ 965 $ 1,410 $ 1,806
Net loss (851) (1,311) (2,047) (2,450) (1,533)
Loss per common share (1) (0.04) (0.06) (0.09) (0.11) (0.07)
Total assets (2) 62,553 63,231 64,800 66,919 73,282
Net Assets
Shareholders' equity(3) 61,169 62,859 63,303 64,713 66,538
Capital stock 102,266 102,106 102,067 101,661 102,269
Common shares:
Issued 22,655,122 22,196,242 21,987,672 23,191,767 22,918,143
Outstanding(4 22,361,035 21,902,155 21,810,383 22,720,329 22,437,099
Equity Units:
Issued 1,313,016 1,446,396 1,584,966
Outstanding(4) 813,741 947,121 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, 2001, 2000, 1999, 1998, and 1997 were
$62,713, $63,329, $64,460, $66,907 and $73,293, respectively.
3. Total shareholders' equity prepared with accounting principles generally
accepted in the U.S. at December 31, 2001, 2000, 1999, 1998 and 1997 was
$61,329, $61,957, $62,963, $64,702 and $66,549, respectively.
4. Great Basin and MGC Ventures, each consolidated subsidiaries of the
Company, own shares of the Company, representing an indirect investment in
itself. The shares held by these entities represents the difference between
issued and outstanding shares.
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 regulations or
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, legal regulations or restrictions, 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, 2001, approximately 76% of our identifiable assets were
located in Venezuela. 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, political instability, changes in mining
laws or regulations, 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 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. 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. The Brisas property is located within the Imataca Forest Reserve
(the "Imataca"), in the State of Bolivar. In 1986, an area within the
Imataca, which includes the Brisas property, was authorized by presidential
decree for mining activities. These regulations were later challenged by
several parties as unconstitutional. The Venezuelan Supreme Court (the
"Court") subsequently issued an order prohibiting new concessions in the
Imataca. Subsequent to the Court's order, the MEM granted the Company the
Brisas hardrock concession. We have been advised by Venezuelan counsel 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.
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, 2002, the closing price for gold and copper was: Gold: $301.40
per ounce, Copper: $0.75 per pound. The following table sets forth the average
of the daily closing price for gold and copper for the periods indicated as
reported by the London Metal Exchange:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
5 Yr. Avg. 2001 2000 1999 1998 1997
---------- ------ ------ ------ ------ ------
Gold ($ per ounce) 293 271 279 279 294 340
Copper ($ per pound) 0.80 0.73 0.80 0.71 0.75 1.03
PROJECT DEVELOPMENT
Capital expenditure estimates for the Brisas property are based on available
information as outlined in the preliminary feasibility study. Estimates
contained in the preliminary feasibility study could differ significantly
from those contained in the final feasibility study however, management does
not anticipate any significant changes. 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 and investments position of approximately $14.3 million
will be sufficient to cover estimated operating and capital expenditures,
primarily those associated with the Brisas property, beyond 2004. 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.
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
HISTORY
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.
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 MGC Ventures Inc. ("MGC Ventures"),
formally MegaGold Corporation. Great Basin and MGC Ventures are U.S.
corporations, which have no current business activities and each hold
approximately $1 million in cash and investments. All subsidiaries are wholly
owned except for Great Basin and MGC Ventures, 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, 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.
PRIMARY MINING ASSET
Our primary mining asset, the Brisas property, is a gold and copper deposit
located in the KM 88 mining district of the State of Bolivar in southeastern
Venezuela. Approximately $70 million has been expended on the Brisas property
since its acquisition in 1992. 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. 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.
FINANCIAL POSITION
Cash and short and long-term investments at March 31, 2002, approximate $14.3
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 2004.
Significant additional financing will be needed if and when construction on
the Brisas property commences. We currently have no near-term plans to raise
funds through the sale of equity or debt.
SHARES ISSUED
As of March 31, 2002, the Company had the following Class A Common shares,
equity units and share purchase options issued:
Class A Common shares 22,709,447
Equity Units* 1,301,691
----------
Total Issued 24,011,138
Share purchase options 3,376,398
----------
Fully diluted 27,387,536
==========
* 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.
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.
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 up to a 4% royalty on gold sales and up to a 7% mine
mouth tax on copper production. Gold sold directly to the Central Bank of
Venezuela is subject to a maximum 1% royalty.
REGIONAL INFRASTRUCTURE
The project site is located in the Guayana region. The nearest major city is
Puerto Ordaz, with approximately 700,000 inhabitants. 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. A 400 kV power line 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 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.
PRELIMINARY FEASIBILITY STUDY
The preliminary 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 most recent preliminary feasibility study. 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. A final
feasibility study will be required to be completed before a production
decision on the property can be made.
GEOLOGY
The Brisas property is within the Proterozoic granite-greenstone terrain of
the Guyana shield. The shield covers eastern Colombia, 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 activities, commenced by us 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
Based on the preliminary feasibility study, the Brisas property contains
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 preliminary feasibility study 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 preliminary feasibility study also 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 should
eliminate significant transportation costs for the copper gold concentrates
to an out-of-country smelter resulting in improved 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 a final feasibility study which will be required to be completed
before a production decision can be made in the future. 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 400kV transmission line and
transformer station, which passes within a few kilometers of the property.
The 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
In late 1999 we recognized that the price of gold, which was near a 20 year
low, was not going to improve in the near term. While our Brisas project on a
stand-alone basis would return positive cash flow, financing the project, if
possible, would severely dilute existing shareholders' interest and burden
the company with debt. As a result, we evaluated ways to improve the
economics of the Brisas project by examining a number of alternatives. Our
conclusion was that the best alternative was to combine the Brisas project
with the adjacent Cristinas project, thereby realizing substantial economies
of scale. The combined project, versus two stand-alone projects, provides
the best solution economically, environmentally and socially for the
Venezuelan Republic.
The two projects are contiguous to each other with Gold Reserve controlling
the Brisas property to the south and Venezuelan government controlling the
Cristinas property to the north. In November 2001, the Venezuelan government
assumed physical control of the Cristinas property from MINCA and is in the
process of assigning the rights to the mineralization on the property to CVG.
CVG is currently evaluating development alternatives to the Cristinas project
and will soon be seeking third party interest in Cristinas.
We envisage a combined project that would be the second largest gold mine in
Latin America and the sixth largest in the world. Based on information
developed by the Company as well as publicly available data published by
MINCA, management believes that the Brisas-Cristinas gold and copper project
contains a world-class reserve estimated to be at least 21 million ounces of
gold and 2.2 billion pounds of copper. We have made a number of presentations
regarding the combined project to the various government entities that
administer mining and mining related activities in Venezuela and all have
received our proposal very favorably. CVG has publicly stated its objective
to proceed with the development and construction of Cristinas on a stand
alone basis or the combined project, recognizing that successfully combining
the two properties requires involvement of a major mining company.
The development of the combined project will be influenced by: legal
implications related to the cancellation of the work contract by CVG and
cancellation of the copper concession by MEM; legal challenges related to the
ownership of Cristinas property; the involvement of a major mining company;
various approvals and permits by the government of Venezuela; completion of a
feasibility study; adequate financing; and future metal prices
There can be no assurances that the development of the combined project will
proceed and, if it does, what the Company's exact interest in the combined
project will be. Management continues to believe the development of Brisas
and Cristinas as a combined project is the most rational approach to exploit
the orebody.
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 are subject to various mining and environmental rules and regulations
that are similar in purpose to those in Canada and the United States, but
often 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 Venezuelan 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.
SCOPE AND TERM OF CONCESSIONS
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.
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 make separate application for such mineral, subject to the
1999 mining law.
The term of a concession is 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 are
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.
Concession holders are subject to several royalties or taxes. A nominal
surface tax is to be paid quarterly commencing on the fourth anniversary of
the grant of the concession. In addition, minimum royalties are assessed as
follows:
_ Gold, silver, platinum and associated metals, 3% of their commercial value
as determined in the city of Caracas,
_ Diamonds and other precious stones, 4% of their commercial value as
determined in the city of Caracas,
_ 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, the government is entitled to exempt, either 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 are 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; and b) The term of the concession is the one
indicated in the corresponding mining titles, which commences from
publication thereof in the Official Gazette.
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 several other properties located near the Brisas property
pursuant to CVG Work Contracts and has 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. Construction and production activities require 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 production permitting process is initiated by filing
the proposed terms of reference which, when approved, serves 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.
OTHER TAXES
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$46,000
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 on goods
and services, a 5% to 20% import duty on mining equipment and a 0.75% tax on
certain bank transactions. Upon application, Venezuela offers certain
exemptions from value added tax and import duties to mining companies.
Management expects to apply for exoneration, where available, 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. As a result, President
Chavez's was re-elected in 2000. Since President Chavez's re-election,
Venezuela has experienced a number of public protests, including the
temporary removal of President Chavez as head of the country, high-level
denunciations of the president's policies and agendas and general populace
unrest. Despite this recent political turmoil, we have not seen any adverse
impact on our operations in Venezuela nor have we curtailed our investment
activities in the country.
The Bolivar/Dollar exchange rate ended 2001 at Bs. 758 to the Dollar, up Bs.
58 (8.3%) from December 2000. An exchange peg policy was maintained
throughout 2001, but abandoned in February 2002. Thereafter, a free floating
exchange rate system was established, with the Venezuelan Central Bank acting
as the main foreign currency seller. The exchange rate was approximately Bs.
921 to the Dollar at March 31, 2002.
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
royalty of 1% of the value of gold as compared to the 3% royalty stated in
the mining law.
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 five years, a
trend we expect to continue until the Brisas property is developed and put
into production.
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 principal measurement
differences between accounting principles generally accepted in Canada and
the U.S. 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.
Liquidity and Capital Resources
INVESTING
The total capitalized expenditures on the Brisas property in 2001
approximated $1.4 million. Approximately $70 million has been expended on the
Brisas property since its acquisition in 1992. These costs include property
and mineral rights, capitalized exploration costs, equipment expenditures and
litigation settlement costs that were expensed in 1994. Amounts recorded as
property, plant and equipment (capitalized exploration costs) include all
costs associated with the Brisas property, including personnel and related
administrative expenditures incurred in Venezuela, drilling, preliminary
feasibility and related costs, capitalized interest expense and general
support costs related to the Brisas property.
The processing facility for Brisas on a stand-alone basis, as presently
proposed in the Brisas preliminary feasibility study, is estimated to cost
$353 million. The cost of mining facilities for the combined project
(discussed below) is estimated at $818 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. Future development of either the
Brisas on a stand alone basis or on a combined basis is dependent upon, among
other things, the price of gold and copper, participation by one or more major
gold producers, obtaining adequate financing, support of the Venezuelan
government and obtaining the appropriate environmental and operating permits.
It is unclear when the development of the Brisas property will commence.
OPERATIONS
Planned expenditures for 2002 are estimated at $3.1 million, which will be
spent on activities directly related to the Brisas property, corporate
management of the Brisas project, activities other than those related to the
Brisas property and the advancement of our proposal to combine Brisas with
the Cristinas property. Interest and investment income for 2002 is projected
to be approximately $0.75 million.
FINANCING
As of March 31, 2002, the Company held approximately $14.3 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 2004. 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
2001 COMPARED TO 2000
The consolidated net loss for the year ended December 31, 2001 was $851,206
or $0.04 per share, a decrease of approximately $460,000 from the prior year.
Other income for 2001 amounted to $1,199,906, which is an increase of
approximately $316,000 from the previous year. Other income increased as a
result of higher investment yields and gains on sales of investments.
Operating expenses for the year amounted to $2,051,112, which is a decrease
from the prior year of approximately $144,000 and primarily attributable to
continued cost reduction measures undertaken by the Company.
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 $884,069, which is a decrease of
approximately $81,000 from the previous year. Other income decreased
primarily as a result of an increase in investment losses over the prior
period. Operating expenses for the year amounted to $2,195,133, which is a
decrease from the prior year of approximately $817,000 and primarily
attributable to cost reduction measures undertaken by the Company including a
reduction in personnel and costs related to the reorganization.
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 56 President and Chief Executive Officer March 1984
President, Chief, of the Company. Director and President of MGC
Executive Officer, Ventures, Inc. and Great Basin Energies,
Director Inc. Resides: Spokane, Washington.
A. Douglas Belanger 48 Executive Vice President of the Company. Director August 1988
Executive Vice and Executive Vice President of MGC Ventures, Inc.
President, Director and Great Basin Energies, Inc.
Resides: Spokane, Washington.
James P. Geyer 50 Senior Vice President of the Company. Resides: June 1997
Senior Vice Spokane, Washington.
President, Director
James H. Coleman 51 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 52 President of LMO Test Systems, Inc. (an automated August 1988
Director test equipment manufacturer). Director of MGC
Ventures, Inc. Resides: Spokane, Washington.
Chris D. Mikkelsen 50 Principal in McDirmid, Mikkelsen & Secrest, P.S. (a June 1997
Director certified public accounting firm). Director of MGC
Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
Jean Charles Potvin 48 President and Chief Executive Officer of Tiomin November 1993
Director Resources Inc. Resides: Toronto, Ontario.
Mary E. Smith 49 Vice President-Administration and Secretary of the January 1997
Vice President- Company. Vice President-Administration and Secretary
Administration of MGC Ventures, Inc. and Great Basin Energies, Inc.
and Secretary Resides: Colbert, Washington.
Robert A. McGuinness 46 Vice President-Finance and Chief Financial March 1993
Vice President- Officer of the Company. Vice President-Finance
Finance and Chief and Chief Financial Officer of MGC Ventures, Inc.
Financial Officer and Great Basin Energies, Inc. Resides: Spokane,
Washington.
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, 2001.
(1)Securities
Under
Options/ (2)All
SARs Other
Name and Granted Compensation
Principal Position Year Salary (#) ($)
- ----------------------------------------------------------------------------------
Rockne J. Timm 2001 195,000 696,700 25,500
President and Chief 2000 195,000 696,700 30,000
Executive Officer 1999 195,000 696,700 (3)60,000
2001 175,000 573,955 25,500
A. Douglas Belanger 2000 175,000 573,955 30,000
Executive Vice President 1999 175,000 573,955 30,000
2001 175,000 284,209 25,500
James P. Geyer 2000 175,000 284,209 30,000
Senior Vice President 1999 175,000 284,209 30,000
Mary E. Smith 2001 65,000 106,367 9,750
Vice President- Administration 2000 65,000 106,367 16,250
and Secretary 1999 65,000 106,367 16,250
Robert A. McGuinness 2001 120,000 306,622 18,000
Vice President-Finance 2000 120,000 306,622 30,000
and Chief Financial Officer 1999 120,000 306,622 30,000
Officers as a group (5) 2001 730,000 1,967,853 104,250
2000 730,000 1,967,853 136,250
1999 815,000 2,017,853 213,450
1) Consists of the number of Class A Common shares issuable to Executive
Officers pursuant to options held at the end of each reported period.
2) Consists of the dollar value of shares purchased under the Company's KSOP
Plan and allocated to the account of each named executive officer during
2001, 2000, and 1999 respectively as follows: Mr. Timm: 44,232 shares,
30,060 shares, 22,948 shares; Mr. Belanger: 44,232 shares, 30,060 shares,
22,948 shares; Mr. Geyer: 44,232 shares, 30,060 shares, 22,948 shares; Ms.
Smith 16,912 shares, 16,283 shares, 12,430 shares; and Mr. McGuinness:
31,223 shares, 30,060 shares, 22,948 shares.
3) Includes $30,000 reimbursement per prior agreement with executive officer
for income tax.
OPTIONS GRANTED FOR SHARES OF THE COMPANY DURING THE YEAR ENDED DECEMBER 31,
2001
No stock options were granted during the year to Executive Officers.
AGGREGATED OPTION EXERCISES DURING THE YEAR ENDED AND OPTION VALUES AS OF
DECEMBER 31, 2001
No options were exercised during the financial year ended December 31, 2001.
The following table sets forth the financial year-end values for options
granted to the Executive Officers and Directors of the Company.
# of securities $ value of unexercised in-
acquired on # of unexercised options/ the-money options/
exercise Aggregate Value SARs at fiscal year-end SARs at fiscal year-end
Name (#) Realized Exercisable (1) Exercisable (2)
- ------------------------------------------------------------------------------------------------------------
Rockne J. Timm - - 696,700 $14,606
A. Douglas Belanger - - 573,955 12,039
James P. Geyer - - 284,209 5,985
James H. Coleman - - 216,666 4,483
Patrick D. McChesney - - 142,385 3,269
Chris D. Mikkelsen - - 107,278 2,296
Jean Charles Potvin - - 170,612 3,562
Mary E. Smith - - 106,367 2,327
Robert A. McGuinness - - 306,622 6,432
1) Options range in price of between $0.72 and $1.00 and generally expire
between 2002 and 2005, with the majority expiring in 2005. All options were
exercisable at December 31, 2001.
2) At December 31, 2001, the closing share price on the OTC Market
was $0.75.
DIRECTOR COMPENSATION
Consistent with the Board's intent to have both Directors and management hold
shares of the Company, non-employee Directors, Messrs. Coleman, McChesney,
Mikkelsen and Potvin, were each granted 10,000 Class A Common shares in
January 2002 for services in 2001. Macleod Dixon, a law firm in which Mr.
Coleman was a senior partner during 2001, billed the Company an aggregate of
approximately $22,000 for professional services and out-of-pocket expenses
during the fiscal year ended December 31, 2001. 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 Common 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 re-issued and
administered pursuant to the Plan.
As of March 31, 2002, options for the purchase of 293,867 Class A Common
shares were available for grant and options for the purchase of 3,376,398
Class A Common shares were outstanding under the Plan, including predecessor
plans. To date, 200,000 shares of restricted stock have been granted from
the Plan. No SARs have been granted to date.
Key employees, advisors and consultants 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 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 TSE.
OPTIONS TO PURCHASE SECURITIES FROM THE REGISTRANT OR SUBSIDIARIES
GOLD RESERVE INC.
The following table sets forth the number of common shares of Gold Reserve
Inc. subject to options, which were outstanding at December 31, 2001. 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 Class A Common shares were outstanding.
No. of common shares
Name subject to option Price Expiry date
- ------------------------------------------------------------------
Rockne J. Timm 486,867 $ 0.72 12/20/2005
209,833 1.00 09/28/2004
A. Douglas Belanger 401,303 0.72 12/20/2005
172,652 1.00 09/28/2004
James P. Geyer 199,473 0.72 12/20/2005
84,736 1.00 06/02/2005
James H. Coleman 149,444 0.72 12/20/2005
67,222 1.00 09/28/2004
Patrick D. McChesney 108,974 0.72 12/20/2005
33,411 1.00 09/28/2004
Chris D. Mikkelsen 76,519 0.72 12/20/2005
30,759 1.00 09/28/2004
Jean Charles Potvin 118,741 0.72 12/20/2005
51,871 1.00 09/28/2004
Mary E. Smith 77,578 0.72 12/20/2005
28,789 1.00 09/28/2004
Robert A. McGuinness 214,415 0.72 12/20/2005
92,207 1.00 09/28/2004
SUBSIDIARIES
Great Basin Energies, Inc. and MGC Ventures, Inc., 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 MGC Ventures, Inc., respectively.
These options were granted in 1998, are exercisable at $0.03 per share and
expire in 2003. No warrants to purchase such common shares were outstanding.
RE-PRICING OF CERTAIN OPTIONS GRANTED TO DIRECTORS AND OFFICERS OF THE COMPANY
The following table sets forth re-pricing of options held by Executive
Officers and Directors of the Company. The re-pricing of these options was
approved by the Board on December 20, 2000 and by the Shareholders on June 8,
2001. Under a program, Executive Officers, Directors and other employees were
permitted to exchange certain options with exercise prices in excess of
$0.72. The market price at the date of re-pricing was $0.47 and the new
exercise price of the subject options was set at 150 percent of the market
value or $0.72 per share. In addition, the vesting schedules of all the
re-priced stock options held by Executive Officers, Directors and other
employees were modified as follows: fifty-percent of all re-priced stock
options, which were vested prior to the date of the re-pricing, were no
longer vested, or immediately exercisable, but vested 12 months from the date
the re-pricing was approved by the Board. No additional options were granted
during the year.
Exercise Price at Time of Length of Original Option
Securities Under Options/SARs Re-pricing or Amendment Term Remaining at Date of
Name Re-priced Or Amended (#) ($/Security) Re-pricing or Amendment
- --------------------------------------------------------------------------------------------------------
Rockne J. Timm 27,200 1.13 1.7 years
40,000 1.50 3.1 years
50,000 2.59 2.2 years
125,000 3.25 2.3 years
244,667 3.75 2.2 years
A. Douglas Belanger 26,000 1.13 1.7 years
30,000 1.50 3.1 years
65,000 2.59 2.2 years
50,000 3.25 2.3 years
230,303 3.75 2.2 years
James P. Geyer 30,000 1.50 3.1 years
64,209 2.59 2.2 years
5,000 2.88 7.0 years
100,264 3.75 2.2 years
James H. Coleman 15,000 1.28 3.1 years
134,444 3.75 2.2 years
Patrick D. McChesney 27,152 1.13 1.7 years
15,000 1.28 3.1 years
17,278 2.59 2.2 years
49,544 3.75 2.2 years
Chris D. Mikkelsen 15,000 1.28 3.1 years
17,278 2.59 2.2 years
44,241 3.75 2.2 years
Jean Charles Potvin 15,000 1.28 3.1 years
17,278 2.59 2.2 years
89,463 3.75 2.2 years
Robert A. McGuinness 30,000 1.50 3.1 years
68,417 2.59 2.2 years
115,998 3.75 2.2 years
Mary E. Smith 20,000 1.50 3.1 years
34,367 2.59 2.2 years
1,000 2.88 7.0 years
22,211 3.75 2.2 years
KSOP PLAN
The Company also maintains a KSOP Plan for the benefit of eligible employees
of the Company. 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 of the Company 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
invests in Gold Reserve Inc. Class A Common shares. The salary reduction
component of the KSOP Plan has not been utilized prior to January 1, 2002,
although participants can make salary deferrals under this component of the
Plan.
Contributions to the 401(k) component of the KSOP Plan are limited in each
year to the total amount of salary reduction the employee elects to defer
during the year, which is limited in 2002 to $11,000 ($12,000 limit for
participants who are 50 or more years of age, or who turn 50 during 2002),
special contributions by the Company equal to a percentage of the employee's
compensation during the year and discretionary contributions by the Company
determined in each year by the Company.
Total employer and employee annual contributions to an employee participating
in both the 401(k) and ESOP components of the KSOP Plan are limited (in 2002)
to a maximum of $40,000 ($41,000 limit for participants who are 50 or more
years of age or who turn 50 during 2002). The annual dollar limit is an
aggregate limit which applies to all contributions made under this plan or
any other cash or deferral arrangements. For Plan year 2002 the Company has
adopted a "Safe Harbor" contribution of 3% of eligible compensation.
Distributions from the KSOP Plan are not permitted before the participating
employee reaches the age of 59, except in the case of death, disability,
termination of employment by the Company or financial hardship. The employee
stock ownership component of the KSOP Plan is qualified under Sections 421
and 423 of the U.S. Internal Revenue Code of 1986, as amended.
The Company allocated contributions to eligible KSOP Plan participants for
plan years 2001, 2000 and 1999 were $133,304, $224,120 and $239,710,
respectively.
EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS
The Board has approved employment contracts for its Executive Officers,
although has not yet executed 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.
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 four times during 2001.
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 2001, 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 2001, 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 2001, 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 Board has delegated review of the quarterly financial
statements to the Audit Committee, which reviews the quarterly reports prior
to filing with the regulatory agencies. 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 officers, 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 on a case by case basis by
the Board.
SHARE OWNERSHIP BY DIRECTORS AND MANAGEMENT
The following table sets forth the share ownership in the Company by
Directors and officers as of March 31, 2002.
Number of Common Shares Percent
Name Beneficially Owned (1) Ownership
- --------------------------------------------------------------------------
Rockne J. Timm (2) (3) 1,465,528 6.3%
A. Douglas Belanger (2) (3) 1,308,401 5.6%
James P. Geyer 410,643 1.8%
James H. Coleman (2) (3) 259,000 1.1%
Patrick D. McChesney (3) 212,262 0.9%
Chris D. Mikkelsen (2) (3) (4) 279,500 1.2%
Jean Charles Potvin 207,434 0.9%
Mary E. Smith(2) (3) 163,416 0.7%
Robert A. McGuinness (2) (3) 446,892 2.0%
(1) Includes for each individual shares issuable pursuant to presently
exercisable options for common shares as of March 31, 2002 or options
exercisable within 60 days of March 31, 2002 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, Mr. Mikkelsen, Ms. Smith and Mr.
McGuinness are Directors and/or officers of Great Basin Energies, Inc., which
owns 516,720 common shares, or 2.2% of the outstanding common shares of the
Company. The foregoing individuals own 6.8%, 4.0%, 1.7%, 0.9%, 0.0%, and
0.6%, 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, Mr. Mikkelsen, Ms.
Smith and Mr. McGuinness are Directors and/or officers of MGC Ventures, Inc.,
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%, 1.4%,
0.1%, and 0.9%, respectively, of the outstanding common shares of MGC
Ventures, Inc. and may be deemed indirectly to have an interest in the
Company through their respective management positions and/or ownership
interests in MGC Ventures, Inc. Each of the foregoing individuals disclaims
any beneficial ownership of the common shares owned by MGC Ventures, Inc.
(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, 2002, the Company employed 8 full and part-time employees 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 or government 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
Class A Common shares as of the date of this report. Directors and Executives
Officers as a group own 4,753,076 shares (including 2,604,794 shares subject
to options exercisable within 60 days), or 17.5% 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, affiliates and 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, 2002:
Amount
Involvement of (1)Largest amount outstanding at
Name and Principal Position issuer or subsidiary outstanding during 2002 March 31,2002
- -----------------------------------------------------------------------------------------------
Rockne J. Timm-
President, Chief Executive
Officer and Director Lender $23,500 $23,500
James P. Geyer-
Senior Vice President
and Director Lender 18,200 18,200
Robert A. McGuinness-
Vice President-Finance and
Chief Financial Officer Lender (2) 62,500 62,500
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
accounting principles generally accepted in Canada. 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 2001 and
2000 along with consolidated statements of operations, cashflow and changes in
shareholders' equity, which are presented for fiscal 2001, 2000 and 1999.
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.
Last Six Months TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
April $1.98 $1.45 $1.22 $0.91
March 1.70 1.20 1.05 0.81
February 1.86 1.46 1.10 0.86
January 1.50 1.06 0.90 0.68
December 1.15 1.05 0.80 0.72
November 1.35 1.12 0.86 0.75
Last Eight Quarters TSE OTC
2001 2000 2001 2000
High Low High Low High Low High Low
Canadian Dollars U.S. Dollars
First Quarter $1.10 $0.68 $1.46 $0.95 $0.81 $0.44 $1.25 $0.70
Second Quarter 1.85 0.75 1.10 0.85 1.22 0.55 0.88 0.59
Third Quarter 1.70 1.20 1.00 0.72 1.12 0.76 0.70 0.45
Fourth Quarter 1.50 1.05 1.05 0.67 1.00 0.72 0.70 0.41
Last Five Years TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
2001 $1.85 $0.68 $1.22 $0.44
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
On March 31, 2002, the closing price for a Class A common share of the
Company was Cdn$1.70 per share on the TSE and US$1.05 per share on the OTC.
As of March 31, 2002, there were a total of 22,709,447 Class A common shares
issued and 1,301,691 Class B common shares issued.
The number of holders of Class A and Class B Common shares of record on March
31, 2002 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.
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, 2002, 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, 2001, the Company was considered a PFIC
because it met the income test 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 generally 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, 2001. 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, 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
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
February 15, 2002 February 15, 2002
Report of Independent Accountants
To the Shareholders of Gold Reserve Inc.
We have audited the consolidated balance sheets of Gold Reserve Inc. as at
December 31, 2001 and 2000 and the consolidated statements of operations,
cash flows and changes in shareholders' equity for each of the three years in
the period ended December 31, 2001. 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 in accordance with generally accepted auditing
standards in Canada and in the United States. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December
31, 2001 and 2000 and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2001 in accordance
with Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
February 15, 2002
GOLD RESERVE INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Expressed in U.S. Dollars)
2001 2000
ASSETS ------------ ------------
Cash and cash equivalents $ 5,764,665 $ 10,108,111
Marketable securities 9,006,362 3,045,421
Deposits, advances and other 350,995 370,044
Accrued interest 52,524 53,046
Total current assets 15,174,546 13,576,622
Property, plant and equipment, net 46,197,434 44,902,369
Marketable securities 2,500 3,518,763
Other 1,178,134 1,233,301
Total assets $ 62,552,614 $ 63,231,055
LIABILITIES
Accounts payable and accrued expenses $ 320,782 $ 335,103
Minority interest in consolidated
subsidiaries 1,062,852 1,037,013
Total liabilities 1,383,634 1,372,116
Commitments
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: Unlimited
Issued: None
Common shares and equity units: 102,265,911 102,105,986
Class A common shares, without par value
Authorized: Unlimited
Issued: 2001... 22,655,122
2000... 22,196,242
Outstanding: 2001... 22,361,035
2000... 21,902,155
Equity Units
Issued: 2001... 1,313,016
2000... 1,446,396
Outstanding: 2001... 813,741
2000... 947,121
Less, common shares and
equity units held by affiliates (674,598) (674,598)
Deficit (40,338,546) (39,487,340)
KSOP debt (83,787) (85,109)
Total shareholders' equity 61,168,980 61,858,939
Total liabilities and shareholders' equity $ 62,552,614 $ 63,231,055
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.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
Other Income:
Interest income $ 837,048 $ 1,167,576 $ 1,171,932
Gain (loss) on sale of
marketable securities 362,858 (283,507) (207,347)
Miscellaneous 860
1,199,906 884,069 965,445
Expenses:
General and administrative 1,205,729 1,321,044 1,744,993
Technical services 349,278 418,938 620,354
Corporate communications 279,628 229,796 261,668
Legal and accounting 93,341 72,036 112,954
Reorganization 108,714
Foreign currency loss 97,297 95,922 157,040
Interest 12,971 18,968
Minority interest in net income (loss)
of consolidated subsidiaries 25,839 44,426 (12,650)
2,051,112 2,195,133 3,012,041
Net loss $ (851,206) $ (1,311,064) $ (2,046,596)
Net loss per share-basic and diluted $ (0.04) $ (0.06) $ (0.09)
Weighted average common shares
outstanding 22,986,958 22,790,235 22,470,974
The accompanying notes are an integral part of the consolidated financial
statements.
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
Common Shares
Common Shares and Equity Units Issued and Equity Units
Common Shares Equity Units Amount Deficit Held by Affiliates
Balance, December 31,1998 23,191,767 101,661,054 (36,129,680) (674,598)
Net common shares exchanged
for equity units (1,584,966) 1,584,966
Net loss (2,046,596)
Common shares issued 380,871 406,244
Balance, December 31,1999 21,987,672 1,584,966 102,067,298 (38,176,276) (674,598)
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) (674,598)
Equity units exchanged for
common shares 133,380 (133,380)
Net loss (851,206)
Common shares issued 325,500 159,925
Balance, December 31,2001 22,655,122 1,313,016 $ 102,265,911 $ (40,338,546) $ (674,598)
The accompanying notes are an integral part of the consolidated financial
statements.
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
Cash Flow from Operating Activities:
Net loss $ (851,206) $ (1,311,064) $ (2,046,596)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 43,534 46,426 42,667
Amortization of premium (discount) on marketable securities 25,777 (32,536) (60,698)
Foreign currency loss 97,297 95,922 157,040
Minority interest in net income (loss) of
consolidated subsidiaries 25,839 44,426 (12,650)
Net (gain) loss on disposition of marketable securities (362,858) 283,507 207,347
Other 141,962 (59,171)
Changes in current assets and liabilities:
Decrease in other current assets 19,571 95,476 399,536
Increase (decrease) in other current liabilities (14,321) 14,889 (465,540)
Net cash used by operating activities (874,405) (822,125) (1,778,894)
Cash Flow from Investing Activities:
Purchase of marketable securities (8,335,886) (4,958,408) (12,948,347)
Purchase of property, plant and equipment (1,420,896) (1,657,902) (2,535,612)
Proceeds from the sale and maturity of marketable securities 6,228,289 13,107,312 18,292,653
Other 55,167 61,713 93,288
Net cash provided (used) by investing activities (3,473,326) 6,552,715 2,901,982
Cash Flow from Financing Activities:
Proceeds from issuance of common shares 4,285 406,244
Net cash provided by financing activities 4,285 406,244
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents (4,343,446) 5,730,590 1,529,332
Cash and cash equivalents - beginning of year 10,108,111 4,377,521 2,848,189
Cash and cash equivalents - end of year $ 5,764,665 $ 10,108,111 $ 4,377,521
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 12,971 $ 18,968
Non-cash investing and financing activities:
Issuance of common shares as compensation $ 15,000 $ 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 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.
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 MGC Ventures Inc. formally MegaGold
Corporation ("MGC Ventures"), 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, 2001 and 2000, the Company had approximately $40,000 and $66,000,
respectively, in Venezuelan and offshore banks.
Marketable Securities. Equity securities are carried at cost. Corporate debt
securities and U.S. treasuries and agency obligations are carried at
amortized cost. If the market value of long-term investments is lower than
the cost and the decline is judged to be other than temporary, the investment
is written down to recognize the loss. Short-term investments are recorded at
the lower of cost or market. 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 at cost pending the determination of a
property's economic viability. Development costs of proven mining properties
not yet producing are capitalized at cost 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. Capitalized exploration and development costs of
unsuccessful projects are expensed.
Property, Plant and Equipment. Property, plant and equipment are recorded at
the lower of cost less accumulated depreciation. 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.
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.
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 has a stock option plan as
discussed in note 5 to the consolidated financial statements. No compensation
expense is recognized when stock options are issued to employees.
Consideration paid by employees on exercise of stock options is credited to
share capital.
Income Taxes. The company uses the liability method of accounting for income
taxes. 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 substantive enacted tax rates expected to apply in
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.
Measurement of Uncertainty. 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 and mineral
rights and capitalized exploration and development costs.
The company operates and files tax returns in a number of jurisdictions. The
preparation of such tax filings require considerable judgment and the use of
assumptions. Accordingly, the amounts reported could vary in the future.
Net Loss Per Share. Net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding during each year,
which has been reduced by the common shares owned by Great Basin and MGC
Ventures. As of December 31, 2001, 2000 and 1999, there were 3,421,950,
3,305,471 and 3,313,240 shares, respectively, available for issuance pursuant
to the exercise of previously granted share options. The company has adopted
the revised recommendations of the Canadian Institute of Chartered
Accountants, CICA 3500, whereby new rules are applied in the calculation of
diluted earnings per share. The revised standard has been applied on a
retroactive basis and did not result in any restatement of the company's
financial statements. The effect of potential issuances of shares under
options would be anti-dilutive, and therefore basic and diluted losses per
share are the same.
Comparative Financial Statements. Certain reclassifications of the 2000 and
1999 consolidated financial statement balances have been made to conform with
the 2001 presentation. These reclassifications had no effect on the net loss
or accumulated deficit as previously reported.
2. Marketable Securities:
Amortized Cost/ Quoted
Carrying Value Market Value
2001
Temporary:
Corporate debt securities $ 2,533,862 $ 2,562,366
Equity securities 6,472,500 6,631,750
Total $ 9,006,362 $ 9,194,116
Long-term:
Equity securities $ 2,500 $ 3,250
Total $ 2,500 $ 3,250
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 25,000 1,250
Total $ 3,518,763 $ 3,451,915
Debt securities at December 31, 2001 yield between 4% and 5%.
3. Property, Plant and Equipment:
Accumulated
Cost Depreciation Net
2001
United States
Furniture and office equipment $ 263,322 $ (176,714) $ 86,608
Leasehold improvements 35,633 (20,556) 15,077
$ 298,955 $ (197,270) $ 101,685
Foreign
Property and mineral rights $ 11,252,335 $ 11,252,335
Capitalized exploration costs 34,765,993 34,765,993
Buildings 266,141 $ (206,779) 59,362
Furniture and office equipment 400,432 (386,695) 13,737
Transportation equipment 264,790 (262,801) 1,989
Machinery and equipment 310,166 (307,833) 2,333
47,259,857 (1,164,108) 46,095,749
Total $ 47,558,812 $ (1,361,378) $ 46,197,434
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 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
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. Prior to January 1, 2002, no participant
had 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 were 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 ($40,000 in 2002), whichever is less, divided
by the original purchase price of the common shares. The Company allocated
contributions to eligible participants for the Plan years 2001, 2000 and 1999
of $133,304, $224,120 and $239,710, respectively. As of December 31, 2001,
145,371 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 predecessor plans, to officers, directors and key
individuals for terms of up to ten years. The vesting period of options
ranges from immediately to up to three years. Share option transactions for
the last three years are as follows:
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 3,305,471 $ 2.23 3,313,240 $ 2.93 3,422,784 $ 3.46
Options exercised (5,500) 0.78 (12,500) 1.19
Options canceled (128,021) 1.25 (92,769) 1.10 (653,544) 3.32
Options granted 250,000 0.71 85,000 0.68 556,500 1.31
Options outstanding at
end of year 3,421,950 $ 0.81 3,305,471 $ 2.23 3,313,240 $ 2.93
Options exercisable
at end of year 3,259,784 3,080,878 2,673,612
Price Price Price
Range Range Range
Exercise price
at end of year $ 0.50 - $ 1.50 $ 0.55 - $ 3.75 $ 0.91 - $ 3.75
Exercise price for
exercisable shares $ 0.50 - $ 1.50 $ 0.55 - $ 3.75 $ 0.91 - $ 3.75
As of December 31, 2001, the weighted average remaining contractual life of
total options outstanding was 3.6 years. The weighted average exercise price
of total options outstanding and those options which were exercisable at
December 31, 2001, was $0.81.
In December 2000, 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 2001. Under a
program, Executive Officers, Directors and other employees were permitted to
exchange certain options with exercise prices in excess of $0.72. The market
price at the date of re-pricing was $0.47 and the new exercise price of the
subject options was set at 150 percent of the market value or $0.72 per
share. 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 vested 12 months from the date the re-pricing was approved
by the Board.
6. Related Party Transactions:
MGC Ventures. The President, Executive Vice President, Vice President-Finance
and Vice President-Administration of the Company are also officers and/or
directors and shareholders of MGC Ventures. At December 31, 2001 and 2000,
the Company owned 23,304,174 common shares of MGC Ventures which represented
63% of its outstanding shares. MGC Ventures owned 276,642 common shares of
the Company at December 31, 2001 and 2000. In addition, MGC Ventures owned
280,000 common shares of Great Basin at December 31, 2001 and 2000. The
Company performs various administrative functions and sublets a portion of
its office space to MGC Ventures 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 and/or
directors and shareholders of Great Basin. At December 31, 2001 and 2000, the
Company owned 24,210,636 common shares of Great Basin which represented 58% of
its outstanding shares. Great Basin owned 516,720 common shares of the Company
at December 31, 2001 and 2000. Great Basin also owned 170,800 common shares of
MGC Ventures at December 31, 2001 and 2000. 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 2001, 2000 and 1999, the
Company incurred expenses of approximately $22,000, $16,000 and $31,000,
respectively, for services performed by the director and his firm, in which
he is a senior partner.
Notes Receivable from Officers. As of December 31, 2001 and 2000, the Company
had $109,100 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, 2001. The Company's Venezuelan subsidiaries are subject to Venezuelan
income tax. All costs related to the Brisas property have been recorded as
capitalized exploration 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 2001, 2000 and 1999. The Company
has recorded a valuation allowance to reflect the estimated amount of the
future 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 future 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, 2001 and 2000 were as follows:
Future Tax Asset (Liability)
2001 2000
Accounts payable and accrued expenses $ 5,808 $ 8,846
Investment income (6,767) (18,801)
Property, plant and equipment 8,504,863 8,507,044
Total temporary differences 8,503,904 8,497,089
Net operating loss carryforward 3,950,395 3,379,888
Capital loss 1,100 132,122
Investment tax credit - 5,967
Alternative minimum tax credit 19,871 19,871
Total temporary differences, operating losses
and tax credit carryforwards 12,475,270 12,034,937
Valuation allowance (12,475,270) (12,034,937)
Net future tax asset $ - $ -
At December 31, 2001, the Company had the following U.S. and Canadian tax
basis loss carryforwards and tax credits:
U.S. Canadian Expires
Regular tax net operating loss: $ 272,248 $ 245,916 2006
1,650,395 164,576 2007
1,244,312 240,983 2008
688,808 2009
341,750 2010
645,622 2011
1,424,144 2012
1,386,674 2018
1,621,230 2019
665,664 2020
892,359 2021
$ 10,833,206 $ 651,475
Alternative minimum tax net operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
660,271 2009
304,472 2010
618,845 2011
1,399,529 2012
$ 6,115,117
Capital loss $ 3,235 2005
Alternative minimum tax credit $ 19,871
8. Geographic Segments:
United States Venezuela Consolidated
2001
Other income $ 1,199,906 $ 1,199,906
Depreciation 43,534 43,534
Net loss 762,142 $ 89,064 851,206
Identifiable assets
Property, plant and equipment, net $ 101,685 $ 46,095,749 $ 46,197,434
General corporate assets 15,040,310 1,314,870 16,355,180
Total identifiable assets $ 15,141,995 $ 47,410,619 $ 62,552,614
2000
Other income $ 884,069 $ 884,069
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 16,934,011 1,394,675 18,328,686
Total identifiable assets $ 17,069,258 $ 46,161,797 $ 63,231,055
1999
Other income $ 965,445 $ 965,445
Depreciation 42,667 42,667
Interest expense 18,968 18,968
Net loss 1,876,920 $ 169,676 2,046,596
Identifiable assets
Property, plant and equipment, net $ 147,508 $ 43,226,557 $ 43,374,065
General corporate assets 19,780,144 1,646,283 21,426,427
Total identifiable assets $ 19,927,652 $ 44,872,840 $ 64,800,492
Revenues and identifiable assets of each segment are those that are directly
identified with those operations.
9. 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.
10. Commitments:
The Company leases office space under a non-cancelable operating lease that
expires in February 2004. Rent expense under the lease during 2001 was
$106,002. Future minimum annual rent payable under the lease is $108,477 in
2002, $108,972 in 2003 and $18,162 in 2004.
11. Differences Between Canadian and U.S. GAAP:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) in Canada. The effect of the
principal measurement 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
2001
Total assets $ 62,552,614 $ 160,000 $ 62,712,614
Total shareholders' equity 61,168,980 160,000 61,328,980
Net loss (851,206) 62,368 (788,838)
2000
Total assets $ 63,231,055 $ 97,632 $ 63,328,687
Total shareholders' equity 61,858,939 97,632 61,956,571
Net 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
Net loss (2,046,596) (325,993) (2,372,589)
The Company follows APB Opinion 25 in accounting for stock options issued to
employees, recognizing compensation expense only when the option price is
less than the market price on the grant date.
12. New standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, SFAS No. 142, Goodwill and Other Intangible
Assets, and SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 141 is effective for business combinations initiated from July 1, 2001.
SFAS No. 142 and No. 143 will be adopted on January 1, 2002 and January 1,
2003, respectively. In August 2001, the FASB issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long -lived Assets. The Company expects to
adopt the standard on January 1, 2002. In November 2001 the Accounting
Standards Board of the Canadian Institute of Chartered Accountants issued new
Handbook Section 3870, Stock-based Compensation and Other Stock-based
Payments. The Company expects to adopt the Section on January 1, 2002.
Management does not expect any of the above noted new standards to materially
impact the Company's financial position and results of operations or
significantly change its financial disclosure in the future.
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, 2001 and 2000
Consolidated Statements of Operations
for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2000 and 1999
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. ** Filed herewith
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 November27, 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**
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 6, 2002
By:
Robert A. McGuinness, its Vice President of Finance
and Chief Financial Officer, its Principal Financial
and Accounting Officer
May 6, 2002
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 15, 2002 relating to the financial
statements, which appears in this Form 20-F.
s/ PricewaterhouseCoopers LLP
Spokane, Washington
May 6, 2002
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, 2002, approximately 921 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
copperprocessing 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 the Venezuelan Republic.
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 future 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
refinery to produce pure metal.
MINCA... A joint venture between CVG and Placer Dome Inc. which was
formed in early 1990 to explore and exploit the Cristinas
property. In July 2001, Placer Dome sold its interest in
the joint venture to Vannessa Ventures- two days prior to
the expiration of its agreement with CVG. CVG refused to
acknowledge the transfer and subsequently cancelled the
contract. The Venezuelan government took physical control
of the property in November 2001.
mineral... A naturally occurring homogeneous substance having fixed
physical properties and chemical composition.
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.
preliminary
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 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 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.
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 or 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