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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of October, 2004
Commission File Number: 001-31819
Gold Reserve Inc.
(Exact name of registrant as specified in its charter)
926 W. Sprague Avenue, Suite 200
Spokane, Washington 99201
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F _____
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-____________
Filed with this Form 6-K is the following, which is incorporated herein by
reference:
99.1 Preliminary Short Form Prospectus
October 20, 2004
99.2 Short Form Prospectus
October 29, 2004
Forward Looking Statements
The information presented or incorporated by reference in this report
contains both historical information and forward-looking statements (within
the meaning of Section 27A of the United States Securities Act of 1933, as
amended (the Securities Act), and Section 21E of the United States Securities
Exchange Act of 1934, as amended (the Exchange Act)). These forward-looking
statements involve risks and uncertainties, as well as assumptions that, if
they never materialize, prove incorrect or materialize other than as
currently contemplated, could cause the results of the Company and its
consolidated subsidiaries to differ materially from those expressed or
implied by such forward-looking statements.
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 currency, metal prices and metal production volatility, the
concentration of operations and assets in Venezuela, the regulatory,
political and economic risks associated with Venezuelan operations, our
ability to obtain additional funding for future advancement 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," "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, other
documents filed periodically with securities regulators or documents
presented on our Company website. 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.
Investors are urged to read the Company's filings with U.S. and Canadian
regulatory agencies, which can be viewed on-line at www.sec.gov,
www.sedar.com or at the Company's website, www.goldreserveinc.com.
Additionally, you can request a copy directly from the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Gold Reserve Inc.
(Registrant)
Date: October 29, 2004
By: Robert A. McGuinness
Title: Vice President - Finance & CFO
EXHIBIT INDEX
99.1 Preliminary Short Form Prospectus
October 20, 2004
99.2 Short Form Prospectus
October 29, 2004
Exhibit 99.1 Preliminary Short Form Prospectus
A copy of this preliminary short form prospectus has been filed with the
securities regulatory authorities in each of the provinces of Canada except
for Quebec but has not yet become final for the purposes of the sale of
securities. Information contained in this preliminary short form prospectus
may not be complete and may have to be amended. The securities may not be
sold until a receipt for the short form prospectus is obtained from the
securities regulatory authorities.
This short form prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and
therein only by persons permitted to sell such securities. No securities
regulatory authority has expressed an opinion about these securities and it
is an offence to claim otherwise. The securities offered hereby have not
been, and will not be, registered under the United States Securities Act of
1933, as amended or any state securities laws, and, may not be offered, sold
or delivered within the United States of America, its territories, its
possessions and other areas subject to its jurisdiction. Any sales into the
United States shall be permitted only to designated purchasers pursuant to an
exemption from registration under the U.S. Securities Act of 1933, as
amended and in the manner as agreed to by the Company and the Underwriters.
PRELIMINARY SHORT FORM PROSPECTUS
New Issue October 20, 2004
[LOGO]
$20,020,000
3,575,000 Units
This short form prospectus qualifies the distribution of 3,575,000 ("Units")
of Gold Reserve Inc. ("Gold Reserve" or the "Company") at a price of $5.60
per Unit, each Unit consisting of one Class A Common Share in the capital of
Gold Reserve ("Common Share") and one-half of a Common Share purchase warrant
("Warrant"), each whole Warrant entitling the holder thereof to acquire one
Common Share of Gold Reserve at a price of $6.50 per Common Share (the
"Offering Price") for a period of 24 months following the closing date of
this offering (the "Offering"). The outstanding Common Shares are listed for
trading on the Toronto Stock Exchange (the "TSX") and the American Stock
Exchange (the "AMEX") under the symbol "GRZ". On October 15,2004, the last
day of trading prior to the public announcement of the Offering, the closing
sale price of the Common Shares on the TSX was $6.00 and the closing sale
price on the AMEX was US $4.80. The Offering Price was determined by
negotiation between Gold Reserve, and Orion Securities Inc., Sprott
Securities Inc. and GMP Securities Ltd., as underwriters (collectively, the
"Underwriters"). Gold Reserve has applied to list the Common Shares and the
Warrants distributed under this prospectus and the Common Shares issuable
upon exercise of the Warrants on the TSX. Application will be made to list
the Common Shares and the Common Shares issuable upon exercise of the
Warrants on AMEX. Listing will be subject to Gold Reserve fulfilling all of
the listing requirements of the TSX and AMEX.
The Units offered hereby, if issued on the date hereof, would not be
precluded as investments under certain statutes as set out under "Eligibility
for Investment".
Price: $5.60 per Unit
Price to Underwriters Net Proceeds
the Public(1) Fee to Gold Reserve(2)
Per Unit $5.60 $0.28 $5.32
Total(3) 20,020,000 $1,001,000 $19,019,000
(1) The Company has allocated $5.30 for the Common Share and $0.30 for the
one-half of one Warrant comprising each Unit.
(2) After deducting the commission payable to the Underwriters equal to 5% of
the aggregate proceeds of the Offering (the "Underwriters' Fee"), but before
deducting expenses of the Offering estimated to be $<*>, which will be paid
from the proceeds of the Offering.
(3) The Company has granted to the Underwriters an option (the "Underwriters'
Option"), exercisable in whole or in part at the sole discretion of the
Underwriters until 24 hours prior to the closing of the Offering, enabling
them to purchase up to an additional 1,786,000 Units (the "Additional Units")
at the Offering Price. If the Underwriters' Option is exercised in full, the
Price to the Public, the Underwriters' Fee and the Net Proceeds to Gold
Reserve will be $30,021,600, $1,501,080 and $28,520,520, respectively. This
prospectus also qualifies the grant of the Underwriters' Option and the
distribution of the Additional Units. See "Plan of Distribution".
Investing in the Units involves risks which potential investors should
carefully consider. See "Risk Factors".
The Underwriters, as principals, conditionally offer the Units offered
hereby, subject to prior sale, if, as and when issued by Gold Reserve and
accepted by the Underwriters in accordance with the conditions contained in
the Underwriting Agreement referred to under "Plan of Distribution", and
subject to the approval of certain legal matters by Fasken Martineau DuMoulin
LLP on behalf of Gold Reserve and by Wildeboer Dellelce LLP on behalf of the
Underwriters.
Subscriptions for Units will be received by the Underwriters subject to
rejection or allotment, in whole or in part, and the right is reserved to
close the subscription books at any time without notice. It is expected that
the closing of the Offering will take place on or about November 4, 2004 or
such earlier or later date as may be agreed by Gold Reserve and the
Underwriters. It is expected that certificates representing the Common Shares
and Warrants will be available for delivery on the closing of the Offering.
Subject to applicable laws and in connection with this Offering, the
Underwriters may effect transactions that stabilize or maintain the market
price of the Common Shares at a level other than that which might otherwise
prevail in the open market. Such transactions, if commenced, may be
discontinued at any time. See "Plan of Distribution".
TABLE OF CONTENTS
ELIGIBILITY FOR INVESTMENT
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CURRENCY
DOCUMENTS INCORPORATED BY REFERENCE
GOLD RESERVE
BRISAS MEASURED AND INDICATED RESOURCE
BRISAS INFERRED RESOURCE
BRISAS MINERAL RESERVE
RECENT DEVELOPMENTS
RESOURCE PROPERTY
USE OF PROCEEDS
CONSOLIDATED CAPITALIZATION
DESCRIPTION OF OFFERED SECURITIES
DIVIDEND POLICY
RISK FACTORS
PLAN OF DISTRIBUTION
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
EXPERTS
AUDITOR, TRANSFER AGENT AND REGISTRAR
INTERNATIONAL ISSUER
STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
AUDITORS CONSENT
CERTIFICATE OF GOLD RESERVE INC.
CERTIFICATE OF THE UNDERWRITERS
ELIGIBILITY FOR INVESTMENT
In the opinion of Fasken Martineau DuMoulin LLP, counsel to Gold Reserve, and
Wildeboer Dellelce LLP, counsel to the Underwriters, the Common Shares and
Warrants comprising the Units offered hereby, if issued on the date hereof,
would be qualified investments under the Income Tax Act (Canada) and the
regulations thereunder ("Tax Act") for trusts governed by registered
retirement savings plans, registered retirement income funds, deferred profit
sharing plans and registered education savings plans, provided that in the
case of the Warrants, Gold Reserve deals at arm's length with each person who
is an annuitant, a beneficiary, an employer or a subscriber under such plan.
Based in part on a certificate of Gold Reserve as to factual matters, the
Common Shares and warrants comprising the Units, if issued on the date of
hereof, would not constitute foreign property for the purpose of the tax
imposed under Part XI of the Tax Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This short form prospectus, and the documents incorporated herein by
reference, contain forward-looking statements which reflect management's
expectations regarding Gold Reserve's future growth, results of operations,
performance and business prospects and opportunities. Wherever possible,
words such as "anticipate", "believe", "expect", "intend" and similar
expressions have been used to identify these forward-looking statements.
These statements reflect management's current beliefs and are based on
information currently available to management. Forward-looking statements
involve significant risk, uncertainties and assumptions. A number of factors,
including those discussed under the heading "Risk Factors", could cause actual
results, performance or achievements to differ materially from the results
discussed or implied in the forward-looking statements. These factors should
be considered carefully and prospective investors should not place undue
reliance on the forward-looking statements. Although the forward-looking
statements contained in this short form prospectus, and the documents
incorporated herein by reference, are based upon what management believes, or
believed at the time, to be reasonable assumptions, Gold Reserve cannot assure
prospective purchasers that actual results will be consistent with these
forward-looking statements and neither Gold Reserve nor any other person
assumes responsibility for the accuracy and completeness of these
forward-looking statements. Gold Reserve assumes no obligation to update or
revise any such forward-looking statements to reflect new events or
circumstances.
CURRENCY
All dollar amounts herein are in Canadian dollars, unless otherwise stated.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form prospectus
from documents filed with securities commissions or similar authorities in
Canada. Copies of the documents incorporated herein by reference may be
obtained on request without charge from the Secretary of Gold Reserve at 926
West Sprague Avenue, Suite 200, Spokane Washington 99201, U.S.A. (Telephone:
(509) 623-1500). The following documents filed with the securities
commissions or similar authorities in Canada in the offering jurisdictions,
are specifically incorporated by reference and form an integral part of this
short form prospectus:
(a) Annual Information Form of Gold Reserve in the form of Form 20-F (the
AIF) for the year ended December 31,2003;
(b) Technical Report regarding Mineral Resources and Mineral Reserves
of the Las Brisas Del Cuyuni Gold-Copper Project, Bolivar State, Venezuela,
Latitude 6( 10 North, Longitude 61( 28 West as prepared by Behre Dolbear &
Company, Inc., revised as at January 20, 2004;
(c) Audited Annual Consolidated Comparative Financial Statements of Gold
Reserve for the year ended December31,2003 and the Auditors Report thereon,
together with Managements Discussion and Analysis for the year ended December
31,2003;
(d) Interim Unaudited Consolidated Comparative Financial Statements of
Gold Reserve for the six months ended June 30, 2004 together with Managements
Discussion and Analysis for the six months ended June 30, 2004; and
(e) Management Information Circular dated April 9, 2004 prepared in
connection with Gold Reserves annual and special meeting of shareholders
held on May 27, 2004 (excluding those portions that, pursuant to National
Instrument44-101 of the Canadian Securities Administrators, are not required
to be incorporated by reference herein).
Any material change reports (excluding confidential material change reports),
any interim and annual consolidated financial statements and information
circulars (excluding those portions that, pursuant to National
Instrument44-101 of the Canadian Securities Administrators, are not required
to be incorporated by reference herein) filed by Gold Reserve with various
securities commissions or similar authorities in Canada after the date of
this short form prospectus and prior to the termination of this Offering,
shall be deemed to be incorporated by reference in this short form prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this short form prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. The modifying or superseding statement need not state that it has
modified or superseded a prior statement or include any other information set
forth in the document it modifies or supersedes. The making of a modifying or
superseding statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made. Any statement so modified or superseded shall not constitute a part of
this short form prospectus, except as so modified or superseded.
GOLD RESERVE
Overview
Gold Reserve 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. Gold Reserve's registered
agent is Austring, Fendrick, Fairman & Parkkari, The Drury Building, 3801
Third Avenue, Whitehorse, Yukon, Y1A 4Z7. Telephone and fax numbers for Gold
Reserve's registered office are 867.668.4405 and 867.668.3710, respectively.
Gold Reserve is engaged in the exploration of precious metal properties and
is currently completing the bankable feasibility study for the Brisas project
located in south-eastern Venezuela. See "Gold Reserve Primary Asset".
Organizational Structure
References to the "Company" throughout this short form prospectus refer to
Gold Reserve, Inc., and its material subsidiaries Gold Reserve Corporation
(domiciled in the U.S.), Gold Reserve de Venezuela, C.A. ("GLDRV") and
Compania Aurifera Brisas del Cuyuni, C.A. ("BRISAS") (each incorporated and
domiciled in Venezuela). Each of these subsidiaries is wholly owned.
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. Common
Share for each common share owned in Gold Reserve Corporation. Certain U.S.
holders elected, for tax reasons, to receive equity units in lieu of 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 Common Share and is generally immediately convertible into
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 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 Asset
Brisas
Gold Reserve's primary mining asset, the Brisas property, is a gold and
copper deposit located in the Kilometre 88 mining district of the State of
Bolivar in south-eastern Venezuela. Approximately US $73 million has been
expended on the Brisas property since its acquisition in 1992. The Brisas
property is a late-stage development project, which produces no revenue at
this time. Proven and probable mineral reserves on the Brisas property,
originally reported upon in early 2000 and updated as of August 2004, total
approximately 9.1 million ounces of gold and 1.15 billion pounds of copper
using US $350 per ounce gold and US $0.90 per pound copper. The total
measure and indicated mineral resource on the property, updated as of July
2004, approximates 10.97 million ounces of gold and 1.4 billion pounds of
copper, at an equivalent gold cut-off of 0.4 grams per tonne. The mineral
reserve and resource estimates set forth in this short form prospectus and
the documents incorporated by reference herein have been prepared in
accordance with the disclosure requirements of applicable Canadian and U.S.
Securities Commissions. The definitions related to reserves, used herein, are
pursuant to Canadian National Instrument 43-101, Standards of Disclosure for
Mineral Projects.
Pincock Allen and Holt of Denver, Colorado ("PAH") completed the most recent
mineral reserve analysis and geological resource estimate in accordance with
the SME Reporting Guide and CIMM Standards as adopted by CSA National
Instrument 43-101. Behre Dolbear & Company, Inc. ("Behre Dolbear") previously
audited the Company's data collection procedures and modeling and mineral
reserve methodology for the preliminary feasibility study conducted in 1998,
as well as the updated 1999 reserve. 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.
Brisas Miineral Reserve
Reserve Gold Gold Copper Copper
Tonnes Grade Ounces Grade Pounds Strip
(millions) (gpt) (millions) (%) (millions Ratio
Proven 190 0.71 4,343 0.12 516
Probable 217 0.68 4,754 0.13 638
Total 407 0.70 9,097 0.13 1,154 1.85
The mineral reserve (within a pit design) has been estimated in accordance
with the SME Reporting Guide and CIM Standards as adopted by CSA National
Instrument 43-101. The mineral reserve was estimated using metal prices of US
$350 per ounce gold and US $0.90 per pound copper with an internal revenue
cutoff of $2.76 per tonne. The qualified persons involved in the property
evaluation and the resource and reserve estimates are Raul Borrastero, C.P.G.
and Susan Poos P.E. of Pincock Allen & Holt and Brad Yonaka, Exploration
Manager for Gold Reserve.
Brisas Resource
Pincock Allen and Holt of Denver, Colorado has completed the geologic
resource estimate at various cutoff grades and it is summarized in the
following table:
Category AuEq
K tonnes Cutoff K Tonnes Gold Copper
GPT K Tonnes % M lbs.
Measured
0.3 252,937 0.641 5,212 0.114 634
0.4 217,847 0.700 4,904 0.118 566
0.5 177,400 0.774 4,417 0.126 492
0.6 139,878 0.858 3,860 0.134 412
0.7 107,944 0.950 3,297 0.141 334
Indicated
0.3 347,992 0.586 6,555 0.130 955
0.4 284,869 0.662 6,064 0.132 827
0.5 226,450 0.742 5,404 0.138 688
0.6 175,683 0.828 4,679 0.144 557
0.7 134,123 0.921 3,973 0.147 434
Measured & Indicated
0.3 600,929 0.609 11,767 0.123 1,630
0.4 502,716 0.678 10,968 0.126 1,393
0.5 403,850 0.756 9,821 0.133 1,179
0.6 315,561 0.841 8,539 0.140 969
0.7 242,067 0.934 7,270 0.144 769
Brisas Inferred Resource
The Brisas inferred resource estimate at various gold equivalent (AuEq)
cutoff grades is summarized in the following table:
Gold Copper
Category AuEq K Tonnes ------------- ----------
K tonnes Cutoff GPT K ozs. % M lbs.
Inferred
0.3 172,393 0.539 2,986 0.131 497
0.4 126,456 0.649 2,641 0.133 370
0.5 94,964 0.753 2,299 0.135 282
0.6 68,720 0.875 1,933 0.139 210
0.7 53,071 0.975 1,664 0.141 165
The geologic resource has been estimated in accordance with the SME Reporting
Guide CIMM Standards as adopted by CSA National Instrument 43-101. The gold
equivalent (AuEq) cutoff is based on $350 per gold ounce, $0.90 per pound
copper, anticipated metal recoveries and smelter costs. The qualified persons
involved in the property evaluation and resource estimate were Raul
Borrastero, C.P.G. and Susan Poos P.E. of Pincock Allen & Holt and Brad
Yonaka of Gold Reserve.
RECENT DEVELOPMENTS
Agreement for Financial Advisory Services with Endeavour Financial
International Corporation
In an agreement dated for reference October 1, 2004, Gold Reserve entered
into a financial advisory services agreement with Endeavour Financial
International Corporation ("Endeavour"). Pursuant to the agreement,
Endeavour will work closely with Gold Reserve to identify and implement
various transactions of a financing nature. The agreement has an initial term
of 12 months.
Increase in Measured and Indicated Resources and Proven and Probable Reserves
In a press release dated July 13, 2004, Gold Reserve announced an increase in
the measured and indicated gold resource to 10.97 million ounces, representing
an increase of approximately one million ounces from the last update in August
2003. The measure and indicated copper resource was approximately 1.4 billion
pounds. The resource estimates incorporated the Company's recent drill
program of 15,000 meters and is based on a 0.4 grams per tonne gold
equivalent (AuEq) cutoff grade using US $350 per ounce and US $0.90 per pound
copper. In a press release dated August 3, 2004, Gold Reserve announced an
increase in the proven and probable reserves of gold to 9.1 million ounces,
representing a 22% increase from the previous 7.48 million ounces. Proven
and probable reserves of copper increased to 1.15 billion pounds from 1.08
billion pounds. The estimates and analysis were conducted by PAH.
Board of Director's Senior Management Appointees
On January 21, 2004 Gold Reserve Inc's. Board of Directors announced the
appointment of James H. Coleman as the Chairman of the Board of Directors,
A. Douglas Belanger as President and Rockne J. Timm as Chief Executive
Officer of the Corporation.
Stock Exchange Listing
Gold Reserve's Common Shares commenced trading on AMEX on Friday, October 3,
2003 under the ticker symbol GRZ. Concurrent with the commencement of trading
on the AMEX, the TSX changed Gold Reserve's trading symbol to GRZ. Trading on
the U.S. NASD, OTC BB was discontinued at the close of market on Thursday,
October 2, 2003.
Private Placement
On September 26, 2003 Gold Reserve completed a private placement of Units for
total proceeds of $14.15 million in an offering that was led by Orion
Securities Inc. and Sprott Securities Inc. (the "Private Placement
Underwriters"). The Private Placement Underwriters purchased from the
Company 4,042,000 Units for $3.50 per Unit. Each Unit consisted of one Common
Share and one half Common Share Purchase Warrant. Each whole Common Share
Purchase Warrant entitles its holder to acquire one Common Share at a price
of $5.25 per Common Share until March 28, 2005.
USE OF PROCEEDS
The net proceeds from the Offering to Gold Reserve, after deducting the
Underwriters' Fee and estimated expenses of the Offering of $<*>, are
expected to be $<*>, assuming no exercise of the Underwriter's Option. Gold
Reserve intends to use all of the net proceeds from the Offering for the
development of the Brisas property in Bolivar State, Venezuela, and for
working capital purposes. See "Plan of Distribution".
CONSOLIDATED CAPITALIZATION
The Company is authorized to issue an unlimited number of Common Shares,
Class B common shares and Class C preferred shares. As of October 15, 2004,
the Company had the following shares, equity units, warrants and share
options issued:
Class A common 28,210,895
Equity units* 1,157,397
Warrants to purchase Common Shares 2,009,300
Options to purchase Common Shares 3,290,374
*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 Common Shares of Gold Reserve Inc. on a one to one basis.
There has been no material change in the capitalization of the Company since
December 31, 2003. The Company currently has no long term debt.
Gold Reserve trades on the TSX and, since October 3, 2003, on AMEX, under the
Symbol GRZ. The following table sets out the reported price ranges and
average daily volume traded for the common shares on the TSX for the periods
indicated:
High Low Volume
2002
Fourth Quarter 2.15 1.20 16,234
2003
First Quarter 3.15 1.70 32,825
Second Quarter 2.60 2.01 20,252
Third Quarter 4.51 2.01 67,604
Fourth Quarter 7.90 4.00 106,386
2004
First Quarter 6.90 4.21 68,979
Second Quarter 5.75 3.60 51,680
July 4.98 4.00 39,976
August 5.12 4.27 85,209
September 5.90 4.68 50,076
October (to October 19) 6.23 5.30 76,500
On October 19, 2004, being the last day on which the Common Shares traded
prior to this preliminary short form prospectus, the closing price of the
Common Shares on the TSX was $5.40.
DESCRIPTION OF OFFERED SECURITIES
The Offering consists of 3,575,000 Units (assuming no exercise of the
Underwriters' Option), each Unit comprised of one Common Share and one-half
of one Warrant. The Units are separable into Common Shares and Warrants
immediately following the closing of the Offering.
Common Shares
The Company is authorised to issue an unlimited number of Common Shares. The
Common Shares rank substantially on par with the equity units, comprised of
one Gold Reserve Inc. Class B common share and one Gold Reserve Corporation
Class B common share, as described under "Corporate Reorganization" above, in
terms of voting rights, dividend rights and right to assets upon dissolution.
Holders of the Common Shares are entitled to one vote per share at any
meeting of the shareholders of the Company, to receive dividends if, as and
when declared by the Board of Directors, and to receive pro rata the
remaining property and assets of the Company upon its dissolution or winding
up, subject to the rights of outstanding equity units, if any, and the rights
of shares having priority over the Common Shares, if any.
Warrants
Each whole Warrant is transferable and entitles the holder to purchase one
Common Share at a price of $6.50 per share for a period of 24 months
following Closing, after which time the Warrants expire and become null and
void. The Warrants will be issued under an indenture (the "Warrant
Indenture") to be entered into between the Corporation and Computershare
Trust Company of Canada (the "Warrant Agent") on or before the closing of the
Offering. The Corporation will appoint the principal transfer office of the
Warrant Agent in Toronto as the location at which the Warrants may be
surrendered for exercise, transfer or exchange. Under the Warrant Indenture,
the Corporation may, subject to applicable law, purchase in the market, by
private contract or otherwise, any of the Warrants then outstanding, and any
Warrants so purchased will be cancelled.
The Warrant Indenture will provide for adjustment in the number of Common
Shares issuable upon the exercise of the Warrants and/or the exercise price
per Common Share upon the occurrence of certain events, including:
(i) the issuance of Common Shares or securities exchangeable for or
convertible into Common Shares or Class B common shares to all or
substantially all of the holders of the common shares by way of a stock
dividend or other distribution (other than a "dividend paid in the ordinary
course", as defined in the Warrant Indenture, or a distribution of common
shares upon the exercise of the Warrants or pursuant to the exercise of
directors, officers or employee stock options granted under the Company's
stock option plan);
(ii) the subdivision, redivision or change of the common shares into a
greater number of shares;
(iii) the consolidation, reduction or combination of the common shares into a
lesser number of shares;
(iv) the issuance to all or substantially all of the holders of the common
shares of rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date for such
issuance, to subscribe for or purchase common shares, or securities
exchangeable for or convertible into common shares, at a price per share to
the holder (or at an exchange or conversion price per share) of less than 95%
of the "current market price", as defined in the Warrant Indenture, for the
Common Shares on such record date; and
(v) the issuance or distribution to all or substantially all of the holders
of the common shares of securities of the Company including rights, options
or warrants to acquire shares of any class or securities exchangeable or
convertible into any such shares or property or assets and including
evidences of indebtedness, or any property or other assets.
The Warrant Indenture will also provide for adjustment in the class and/or
number of securities issuable upon the exercise of the Warrants and/or
exercise price per security in the event of the following additional events:
(i) reclassifications of the common shares;
(ii) consolidations, amalgamations, arrangements or mergers of the Company
with or into any other corporation or other entity (other than
consolidations, amalgamations, arrangements or mergers which do not result in
any reclassification of the outstanding common shares or a change of the
common shares into other shares); or
(iii) the transfer of the undertaking or assets of the Company as an entirety
or substantially as an entirety to another corporation or other entity.
No adjustment in the exercise price or the number of Common Shares
purchasable upon the exercise of the Warrants will be required to be made
unless the cumulative effect of such adjustment or adjustments would result
in a change of at least 1% in the prevailing exercise price or a change in
the number of Common Shares purchasable upon exercise by at least one
one-hundredth of a Common Share, as the case may be.
The Company will covenant in the Warrant Indenture that, during the period in
which the Warrants are exercisable, it will give notice to Warrantholders of
certain stated events, including events that would result in an adjustment to
the exercise price for the Warrants or the number of Common Shares issuable
upon exercise of the Warrants, at least 10 business days prior to the record
date or effective date, as the case may be, of such event.
No fractional Common Shares will be issuable upon the exercise of any
Warrants. Warrantholders will not have any voting or pre-emptive rights or
any other rights which a holder of Common Shares would have.
The Warrant Indenture will provide that, from time to time, the Corporation
and the Warrant Agent, without the consent of the Warrantholders, may amend
or supplement the Warrant Indenture for certain purposes, including curing
defects or inconsistencies or making any change that does not prejudice the
rights of any Warrrantholder. Any amendment or supplement to the Warrant
Indenture that would prejudice the interests of the Warrantholders may only
be made by "extraordinary resolution", which is defined in the Warrant
Indenture as a resolution either (1) passed at a meeting of the
Warrantholders at which there are Warrantholders present in person or
represented by proxy representing at least 25% of the aggregate number of the
then outstanding Warrants (unless such meeting is adjourned to a prescribed
later date due to a lack of quorum, at which adjourned meeting the
Warrantholders present in person or by proxy shall form a quorum) and passed
by the affirmative vote of Warrantholders representing not less than 66 2/3%
of the aggregate number of all the then outstanding Warrants represented at
the meeting and voted on the poll upon such resolution, or (2) adopted by an
instrument in writing signed by the Warrantholders representing not less than
66 2/3% of the aggregate number of all the then outstanding Warrants.
The foregoing summary of certain provisions of the Warrant Indenture does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Warrant Indenture in the form to be agreed by the parties.
DIVIDEND POLICY
Gold Reserve has not declared cash or share dividends since 1984 and have no
present plans to pay any cash or share dividends. Gold Reserve 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
The operations of the Company are speculative due to the high-risk nature of
its business, which is the exploration and development of mining
properties. An investment in securities of the Company involves significant
risks, which should be carefully considered by prospective investors before
purchasing such securities. In addition to the information set out elsewhere
in this prospectus, investors should carefully consider the risk factors set
out in the AIF that is incorporated by reference in this prospectus. Such
risk factors could materially affect the Company's future operating results
and could cause actual events to differ materially from those described in
forward-looking statements relating to the Company.
PLAN OF DISTRIBUTION
Pursuant to an agreement (the "Underwriting Agreement") dated as of October
18,2004 between Gold Reserve and the Underwriters, Gold Reserve has agreed to
sell and the Underwriters have severally agreed to purchase, as principals, on
or about November 4,2004 or such earlier or later date as may be agreed by
Gold Reserve and the Underwriters, all but not less than all of the 3,575,000
Units offered hereby at a price of $5.60 per Unit, payable in cash to Gold
Reserve against delivery of certificates representing the Common Shares and
Warrants comprising the Units, subject to compliance with all necessary legal
requirements and to the conditions contained in the Underwriting Agreement.
The obligations of the Underwriters under the Underwriting Agreement may be
terminated at their discretion on the basis of their assessment of the state
of the financial markets and may also be terminated upon the occurrence of
certain stated events. The Underwriters are, however, obligated to take up
and pay for all of the Units offered by this short form prospectus if any of
such Units are purchased under the Underwriting Agreement.
The Underwriting Agreement provides that Gold Reserve will pay the
Underwriters a fee of $0.28 per Unit sold. The offering price of the Units
was determined by negotiation between Gold Reserve and the Underwriters.
Gold Reserve has granted the Underwriters the Underwriters' Option,
exercisable in whole or in part at the sole discretion of the Underwriters
until 24 hours prior to the closing of the Offering, enabling them to
purchase the Additional Units at the Offering Price. If the Underwriters'
Option is exercised in full the Price to the Public, the Underwriters' Fee
and the Net Proceeds to Gold Reserve will be $30,021,600, $1,501,080 and
$28,520,520, respectively. Gold Reserve will pay to the Underwriters a fee
of $0.28 per Additional Unit. This prospectus also qualifies the grant of
the Underwriters' Option and the distribution of the Additional Units.
In the Underwriting Agreement, Gold Reserve has agreed to indemnify the
Underwriters and their respective directors, officers, employees and agents
in respect of certain liabilities, including liabilities under Canadian
securities legislation, and expenses or will contribute to payments that the
Underwriters and their directors, officers, employees and agents may be
required to make in respect thereof.
Pursuant to policy statements of the Ontario Securities Commission, the
Underwriters may not, throughout the period of distribution under this short
form prospectus, bid for or purchase Common Shares. The foregoing restriction
is subject to certain exceptions, including (i) a bid or purchase permitted
under the by-laws and rules of the TSX relating to market stabilization and
passive market-making activities; and (ii) a bid or purchase made for and on
behalf of a customer where the order was not solicited during the period of
the distribution, provided that the bid or purchase was not engaged in for
the purpose of creating actual or apparent active trading in, or raising the
price of, such securities. In connection with this Offering, the Underwriters
may over-allot or effect transactions which stabilize or maintain the market
price of the Common Shares at a level other than that which might otherwise
prevail in the open market. Such transactions, if commenced, may be
discontinued at any time.
The Common Shares and Warrants offered hereby have not been and will not be
registered under the United States Securities Act of 1933, as amended (the
U.S. Securities Act) or any state securities laws, and may not be offered or
sold within the United States of America, its territories, its possessions
and other areas subject to its jurisdiction. All sales into the United
States shall be permitted only to designated purchasers pursuant to an
exemption from registration under the U.S. Securities Act of 1933, as
amended and in the manner as agreed to by the Company and the Underwriters.
Gold Reserve has agreed in the Underwriting Agreement that, subject to
certain exceptions, it will not authorize, issue or sell any Class A common
shares of the Company or securities convertible into common shares of the
Company (other than the Common Shares offered hereby) for a period of 90 days
following the closing of this Offering, without the prior consent of the
Underwriter acting reasonably.
It is a condition of the Offering that the directors and senior officers of
Gold Reserve execute and deliver written undertakings in favour of the
Underwriters agreeing not to sell, transfer, assign, or otherwise dispose of
any securities of Gold Reserve owned, directly or indirectly, by such
directors or officers for a period of 90 days following the closing of the
Offering, without the prior consent of the Underwriters acting reasonably.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Fasken Martineau DuMoulin LLP, counsel to Gold Reserve, and
Wildeboer Dellelce LLP, counsel to the Underwriters, the following is, as of
the date hereof, a general summary of the principal Canadian federal income
tax considerations applicable to a prospective purchaser of Common Shares and
Warrants comprising the Units to be issued pursuant to this Offering. This
summary is applicable only to a purchaser who, at all relevant times, is
resident in Canada, deals at arm's length and is not affiliated with Gold
Reserve, and who will acquire and hold such Common Shares and Warrants as
capital property (a "Holder"), all within the meaning of the Tax Act. Any
Common Shares and Warrants will generally be considered to be capital
property to a Holder unless the Holder holds such securities in the course of
carrying on a business or has acquired them in a transaction or transactions
considered to be an adventure in the nature of trade. Certain Holders whose
Common Shares might not otherwise qualify as capital property may be entitled
to make the irrevocable election provided by subsection 39(4) of the Tax Act
to have the Common Shares and every other "Canadian security" (as defined by
the Tax Act), which would not include the Warrants, owned by such Holder in
the taxation year of the election and in all subsequent taxation years deemed
to be capital property.
This summary does not apply to a Holder that is a "financial institution" for
purposes of the mark-to-market provisions of the Tax Act or a "specified
financial institution" for purposes of the Tax Act.
This summary is based upon the current provisions of the Tax Act and the
regulations thereunder, specific proposals to amend the Tax Act (the "Tax
Proposals") which have been announced by or on behalf the Minister of Finance
(Canada) prior to the date hereof, and counsel's understanding of the current
published administrative policies and assessing practices of the Canada
Customs and Revenue Agency (the "CCRA"). This summary assumes that the Tax
Proposals will be enacted in the form proposed and does not take into account
or anticipate any other changes in law, whether by way of judicial,
legislative or governmental decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations
discussed herein. No assurances can be given that such Tax Proposals will be
enacted as proposed or at all, or that legislative, judicial or administrative
changes will not modify or change the statements expressed herein.
This summary is not exhaustive of all possible Canadian federal income tax
considerations applicable to an investment in Common Shares and Warrants, and
does not describe the income tax considerations relating to the deductibility
of interest on money borrowed by a Holder. The following description of
income tax matters is of a general nature only and is not intended to be, nor
should it be construed to be, legal or income tax advice to any particular
Holder. Holders are urged to consult their own income tax advisors with
respect to the tax consequences applicable to them based on their own
particular circumstances.
Allocation of Purchase Price
Holders will be required to allocate the purchase price of each Unit between
the Common Share and the one-half of one Warrant on a reasonable basis in
order to determine their respective costs for purposes of the Tax Act. Gold
Reserve intends to allocate $5.30 of the issue price of each Unit as
consideration for the issue of each Common Share and $0.30 for the issue of
each one-half of one Warrant. Although Gold Reserve believes such allocation
is reasonable, such allocation will not be binding on the CCRA.
The adjusted cost base to a Holder of a Common Share acquired hereunder will
be determined by averaging the cost of that Common Share with the adjusted
cost base (determined immediately before the acquisition of the Common Share)
of all other Common Shares held as capital property at the time of acquisition
by the Holder.
Exercise or Expiry of Warrants
A Holder will not realize a gain or loss upon the exercise of a Warrant. The
Holder's cost of Common Shares acquired by exercising Warrants will be equal
to the aggregate of the Holder's adjusted cost base of the Warrants exercised
plus the exercise price paid for the Common Shares. The Holder's adjusted
cost base of the Common Shares so acquired will be determined by averaging
the cost of those Common Shares with the adjusted cost base (determined
immediately before the acquisition of the Common Shares) of all other Common
Shares held as capital property by such Holder at the time of acquisition.
In the event of the expiry of an unexercised Warrant, the Holder will realize
a capital loss equal to the Holder's adjusted cost base of such Warrant.
Disposition of Common Shares and Warrants
A Holder who disposes of or is deemed to have disposed of a Common Share or a
Warrant (other than a disposition arising on the exercise or expiry of a
Warrant) will realize a capital gain (or incur a capital loss) equal to the
amount by which the proceeds of disposition in respect of the Common Share or
the Warrant exceed (or are exceeded by) the aggregate of the adjusted cost
base of such Common Share or Warrant, as the case may be, and any reasonable
expenses associated with the disposition.
Generally, one-half of any capital gain (a "taxable capital gain") must be
included in income and one-half of any capital loss may be used to offset
taxable capital gains incurred in the year, in any of the three prior years
or in any subsequent year in the circumstances and to the extent provided in
the Tax Act. A capital loss realized from the disposition of a Common Share
by a Holder that is a corporation may in certain circumstances be reduced by
the amount of dividends which have been previously received or deemed to have
been received by the Holder on such shares. Similar rules may apply where a
corporation is, directly or through a trust or partnership, a member of a
partnership or a beneficiary of a trust that owns Common Shares.
Capital gains realized by an individual and certain trusts may result in the
individual or trust paying alternative minimum tax under the Tax Act.
A Holder that is, throughout the relevant taxation year, a
"Canadian-controlled private corporation" (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains.
Taxation of Dividends Received by Holders of Common Shares
A Holder of Common Shares will be subject to the normal treatment under the
Tax Act applicable to dividends received from a taxable Canadian corporation.
Dividends (including deemed dividends) received on Common Shares by a Holder
who is an individual (and certain trusts) will be included in income and be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received by an individual from taxable Canadian
corporations. Taxable dividends received by such Holders may give rise to
alternative minimum tax under the Tax Act.
Dividends (including deemed dividends) received on Common Shares by a Holder
that is a corporation will be included in income and normally deductible in
computing such corporation's taxable income. However, the Tax Act will
generally impose a 331/3 % refundable tax on such dividends received by a
corporation which is a private corporation or a subject corporation for
purposes of Part IV of the Tax Act to the extent that such dividends are
deductible in computing the corporation's taxable income.
EXPERTS
Opinions
The matters referred to under "Eligibility for Investment", "Canadian Federal
Income Tax Considerations" and certain other legal matters relating to the
Common Shares offered under this short form prospectus will be passed upon at
the closing of the Offering by Fasken Martineau DuMoulin LLP, on behalf of
Gold Reserve, and by Wildeboer Dellelce LLP, on behalf of the Underwriters.
Interest of Experts
As of <*>, 2004, the partners and associates of Fasken Martineau DuMoulin LLP
beneficially owned, directly or indirectly, less than 1% of the outstanding
Common Shares. As of <*>, 2004, the partners and associates of Wildeboer
Dellelce LLP beneficially owned, directly or indirectly, less than 1% of the
outstanding Common Shares.
AUDITOR, TRANSFER AGENT AND REGISTRAR
The auditor of Gold Reserve is PricewaterhouseCoopers LLP, Chartered
Accountants, of Vancouver B.C. The transfer agent and registrar for the
Common Shares is Computershare Trust Company of Canada at its principal
office in Toronto, Ontario.
INTERNATIONAL ISSUER
Although incorporated in Canada, Gold Reserve resides outside of Canada.
Although Gold Reserve has appointed Austring, Fendrick, Fairman & Pakkari,
The Drury Building, 3801 Third Avenue, Whitehorse, Yukon, Y1A 4Z7 as its
agent for service of process in Canada, it may not be possible for investors
to collect from Gold Reserve judgements obtained in Canadian courts
predicated on the civil liability provisions of securities legislation.
STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase
securities. This right may be exercised within two business days after
receipt or deemed receipt of a prospectus and any amendment. In several of
the provinces of Canada, the securities legislation further provides a
purchaser with remedies for rescission or, in some jurisdictions, damages if
the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by
the securities legislation of the purchaser's province. The purchaser should
refer to any applicable provisions of the securities legislation of the
purchaser's province for the particulars of these rights or consult with a
legal adviser.
AUDITOR'S CONSENT
We have read the short form prospectus of Gold Reserve Inc. (the
"Corporation") dated <*>, 2004, qualifying the distribution of up to
5,361,000 Units of the Corporation, each Unit comprised of one Class A common
share in the capital of the Corporation and one-half of one warrant, each
whole warrant entitling the bearer thereof to purchase one Class A common
share for a period of 24 months following the closing date of the offering.
We have complied with Canadian generally accepted standards for an auditor's
involvement with the offering documents.
We consent to the incorporation by reference in the above-mentioned
prospectus of our report to the shareholders of the Corporation on the
consolidated balance sheets of the Corporation as at December 31, 2003 and
2002 and the consolidated financial statements of income, retained earnings
and cash flow for the years then ended. Our report is dated February 17,
2004.
Signed <*>Chartered Accountants
A-1
CERTIFICATE OF GOLD RESERVE INC.
Dated: October 20, 2004
This short form prospectus, together with the documents incorporated herein
by reference, constitutes full, true and plain disclosure of all material
facts relating to the securities offered by this prospectus as required by
the securities legislation of each of the provinces of Canada except Quebec.
(Signed) ROCKNE J. TIMM (Signed) ROBERT A. McGUINNESS
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) JAMES H. COLEMAN (Signed) CHRIS D. MIKKELSEN
Director Director
C-1
CERTIFICATE OF THE UNDERWRITERS
Dated: October 20, 2004
To the best of our knowledge, information and belief, this short form
prospectus, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this prospectus as required by the securities
legislation of each of the provinces of Canada except Quebec.
ORION SECURITIES INC. SPROTT SECURITIES INC.
By: (Signed) DOUGLAS BELL By: (Signed) DARREN WALLACE
GMP SECURITIES LTD.
By: (Signed) MARK WELLINGS
C-2
Exhibit 99.2 Short Form Prospectus
This short form prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and
therein only by persons permitted to sell such securities. No securities
regulatory authority has expressed an opinion about these securities and it
is an offence to claim otherwise.
The securities offered hereby have not been, and will not be, registered
under the United States Securities Act of 1933, as amended or any state
securities laws, and, may not be offered, sold or delivered within the
United States of America, its territories, its possessions and other areas
subject to its jurisdiction. Any sales into the United States shall be
permitted only to designated purchasers pursuant to an exemption from
registration under the U.S. Securities Act of 1933, as amended and in the
manner as agreed to by the Company and the Underwriters.
SHORT FORM PROSPECTUS
New Issue October 29, 2004
[LOGO]
$20,020,000
3,575,000 Units
This short form prospectus qualifies the distribution of 3,575,000 units
(Units) of Gold Reserve Inc. (Gold Reserve or the Company) at a price of
$5.60 per Unit, each Unit consisting of one Class A Common Share in the
capital of Gold Reserve (Common Share) and one-half of a Common Share
purchase warrant (Warrant), each whole Warrant entitling the holder thereof
to acquire one Common Share of Gold Reserve at a price of $6.50 per Common
Share (the Offering Price) for a period of 24 months following the closing
date of this offering (the Offering). The outstanding Common Shares are
listed for trading on the Toronto Stock Exchange (the TSX) and the American
Stock Exchange (the AMEX) under the symbol GRZ. On October 28, 2004, the
closing sale price of the Common Shares on the TSX was $5.59 and the closing
sale price on the AMEX was US $4.61. The Offering Price was determined by
negotiation between Gold Reserve, and Orion Securities Inc., Sprott
Securities Inc. and GMP Securities Ltd., as underwriters (collectively, the
Underwriters). The TSX has conditionally approved the listing of the Common
Shares and the Warrants distributed under this prospectus and the Common
Shares issuable upon exercise of the Warrants. Listing is subject to Gold
reserve fulfilling all of the requirements of the TSX on or before January
17, 2004 including, in the case of the Warrants, distribution of the Warrants
to a minimum number of holders. Application will be made to list the Common
Shares and the Common Shares issuable upon exercise of the Warrants on AMEX.
The Units offered hereby, if issued on the date hereof, would not be
precluded as investments under certain statutes as set out under Eligibility
for Investment.
Price: $5.60 per Unit
Price to Underwriters Net Proceeds
the Public(1) Fee to Gold Reserve(2)
Per Unit $5.60 $0.28 $5.32
Total(3) 20,020,000 $1,001,000 $19,019,000
(1) The Company has allocated $5.30 for the Common Share and $0.30 for the
one-half of one Warrant comprising each Unit. (2) After deducting the
commission payable to the Underwriters equal to 5% of the aggregate proceeds
of the Offering (the Underwriters Fee), but before deducting expenses of the
Offering estimated to be $619,000, which will be paid from the proceeds of
the Offering. (3) The Company has granted to the Underwriters an option (the
Underwriters Option), exercisable in whole or in part at the sole discretion
of the Underwriters until 24 hours prior to the closing of the Offering,
enabling them to purchase up to an additional 1,786,000 Units (the Additional
Units) at the Offering Price. If the Underwriters Option is exercised in
full, the Price to the Public, the Underwriters Fee and the Net Proceeds to
Gold Reserve will be $30,021,600, $1,501,080 and $28,520,520, respectively.
This prospectus also qualifies the grant of the Underwriters Option and the
distribution of the Additional Units. See Plan of Distribution.
Investing in the Units involves risks which potential investors should
carefully consider. See Risk Factors.
The Underwriters, as principals, conditionally offer the Units offered
hereby, subject to prior sale, if, as and when issued by Gold Reserve and
accepted by the Underwriters in accordance with the conditions contained in
the Underwriting Agreement referred to under Plan of Distribution, and
subject to the approval of certain legal matters by Fasken Martineau DuMoulin
LLP on behalf of Gold Reserve and by Wildeboer Dellelce LLP on behalf of the
Underwriters.
Subscriptions for Units will be received by the Underwriters subject to
rejection or allotment, in whole or in part, and the right is reserved to
close the subscription books at any time without notice. It is expected that
the closing of the Offering will take place on or about November 4, 2004 or
such earlier or later date as may be agreed by Gold Reserve and the
Underwriters but in any event no later than November 18, 2004. It is expected
that certificates representing the Common Shares and Warrants will be
available for delivery on the closing of the Offering.
Subject to applicable laws and in connection with this Offering, the
Underwriters may effect transactions that stabilize or maintain the market
price of the Common Shares at a level other than that which might otherwise
prevail in the open market. Such transactions, if commenced, may be
discontinued at any time. See Plan of Distribution.
TABLE OF CONTENTS
ELIGIBILITY FOR INVESTMENT
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
CURRENCY
DOCUMENTS INCORPORATED BY REFERENCE
GOLD RESERVE
BRISAS MEASURED AND INDICATED RESOURCE
BRISAS INFERRED RESOURCE
BRISAS MINERAL RESERVE
RECENT DEVELOPMENTS
RESOURCE PROPERTY
USE OF PROCEEDS
CONSOLIDATED CAPITALIZATION
DESCRIPTION OF OFFERED SECURITIES
DIVIDEND POLICY
RISK FACTORS
PLAN OF DISTRIBUTION
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
EXPERTS
AUDITOR, TRANSFER AGENT AND REGISTRAR
INTERNATIONAL ISSUER
STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
AUDITORS CONSENT
CERTIFICATE OF GOLD RESERVE INC.
CERTIFICATE OF THE UNDERWRITERS
ELIGIBILITY FOR INVESTMENT
In the opinion of Fasken Martineau DuMoulin LLP, counsel to Gold Reserve, and
Wildeboer Dellelce LLP, counsel to the Underwriters, the Common Shares and
Warrants comprising the Units offered hereby, if issued on the date hereof,
would be qualified investments under the Income Tax Act (Canada) and the
regulations thereunder ("Tax Act") for trusts governed by registered
retirement savings plans, registered retirement income funds, deferred profit
sharing plans and registered education savings plans, provided that in the
case of the Warrants, Gold Reserve deals at arm's length with each person who
is an annuitant, a beneficiary, an employer or a subscriber under such plan.
Based in part on a certificate of Gold Reserve as to factual matters, the
Common Shares and Warrants comprising the Units, if issued on the date of
hereof, would not constitute foreign property for the purpose of the tax
imposed under Part XI of the Tax Act.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This short form prospectus, and the documents incorporated herein by
reference, contain forward-looking statements which reflect managements
expectations regarding Gold Reserves future growth, results of operations,
performance and business prospects and opportunities. Wherever possible,
words such as anticipate, believe, expect, intend and similar expressions
have been used to identify these forward-looking statements. These statements
reflect managements current beliefs and are based on information currently
available to management. Forward-looking statements involve significant risk,
uncertainties and assumptions. A number of factors, including those discussed
under the heading Risk Factors, could cause actual results, performance or
achievements to differ materially from the results discussed or implied in
the forward-looking statements. These factors should be considered carefully
and prospective investors should not place undue reliance on the
forward-looking statements. Although the forward-looking statements contained
in this short form prospectus, and the documents incorporated herein by
reference, are based upon what management believes, or believed at the time,
to be reasonable assumptions, Gold Reserve cannot assure prospective
purchasers that actual results will be consistent with these forward-looking
statements and neither Gold Reserve nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Gold Reserve assumes no obligation to update or revise any such
forward-looking statements to reflect new events or circumstances.
CURRENCY
All dollar amounts herein are in Canadian dollars, unless otherwise stated.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form prospectus
from documents filed with securities commissions or similar authorities in
Canada. Copies of the documents incorporated herein by reference may be
obtained on request without charge from the Secretary of Gold Reserve at 926
West Sprague Avenue, Suite 200, Spokane Washington 99201, U.S.A. (Telephone:
(509) 623-1500). The following documents filed with the securities
commissions or similar authorities in Canada in the offering jurisdictions,
are specifically incorporated by reference and form an integral part of this
short form prospectus:
(a) Annual Information Form of Gold Reserve in the form of Form 20-F (the
AIF) for the year ended December 31,2003;
(b) Technical Report regarding Mineral Resources and Mineral Reserves of the
Las Brisas Del Cuyuni Gold-Copper Project, Bolivar State, Venezuela, Latitude
6( 10 North, Longitude 61( 28 West as prepared by Behre Dolbear & Company,
Inc., revised as at January 20, 2004;
(c) Audited Annual Consolidated Comparative Financial Statements of Gold
Reserve for the year ended December31,2003 and the Auditors Report thereon,
together with Managements Discussion and Analysis for the year ended December
31,2003;
(d) Interim Unaudited Consolidated Comparative Financial Statements of Gold
Reserve for the six months ended June 30, 2004 together with Managements
Discussion and Analysis for the six months ended June 30, 2004; and
(e) Management Information Circular dated April 9, 2004 prepared in
connection with Gold Reserve's annual and special meeting of shareholders
held on May 27, 2004 (excluding those portions that, pursuant to National
Instrument44-101 of the Canadian Securities Administrators, are not required
to be incorporated by reference herein).
Any material change reports (excluding confidential material change reports),
any interim and annual consolidated financial statements and information
circulars (excluding those portions that, pursuant to National
Instrument44-101 of the Canadian Securities Administrators, are not required
to be incorporated by reference herein) filed by Gold Reserve with various
securities commissions or similar authorities in Canada after the date of
this short form prospectus and prior to the termination of this Offering,
shall be deemed to be incorporated by reference in this short form prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this short form prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. The modifying or superseding statement need not state that it has
modified or superseded a prior statement or include any other information set
forth in the document it modifies or supersedes. The making of a modifying or
superseding statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made. Any statement so modified or superseded shall not constitute a part of
this short form prospectus, except as so modified or superseded.
GOLD RESERVE
Overview
Gold Reserve 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. Gold Reserve's registered
agent is Austring, Fendrick, Fairman & Parkkari, The Drury Building, 3801
Third Avenue, Whitehorse, Yukon, Y1A 4Z7. Telephone and fax numbers for Gold
Reserve's registered office are 867.668.4405 and 867.668.3710, respectively.
Gold Reserve is engaged in the exploration of precious metal properties and
is currently completing the bankable feasibility study for the Brisas project
located in south-eastern Venezuela. See Gold Reserve Primary Asset.
Organizational Structure
References to the Company throughout this short form prospectus refer to Gold
Reserve, Inc., and its material subsidiaries Gold Reserve Corporation
(domiciled in the U.S.), Gold Reserve de Venezuela, C.A. (GLDRV) and Compania
Aurifera Brisas del Cuyuni, C.A. (BRISAS) (each incorporated and domiciled in
Venezuela). Each of these subsidiaries is wholly owned.
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. Common
Share for each common share owned in Gold Reserve Corporation. Certain U.S.
holders elected, for tax reasons, to receive equity units in lieu of 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 Common Share and is generally immediately convertible into
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 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 Asset
Brisas
Gold Reserve's primary mining asset, the Brisas property, is a gold and
copper deposit located in the Kilometre 88 mining district of the State of
Bolivar in south-eastern Venezuela. Approximately US $73 million has been
expended on the Brisas property since its acquisition in 1992. The Brisas
property is a late-stage development project, which produces no revenue at
this time. Proven and probable mineral reserves on the Brisas property,
originally reported upon in early 2000 and updated as of August 2004, total
approximately 9.1 million ounces of gold and 1.15 billion pounds of copper
using US $350 per ounce gold and US $0.90 per pound copper. The total
measure and indicated mineral resource on the property, updated as of July
2004, approximates 10.97 million ounces of gold and 1.4 billion pounds of
copper, at an equivalent gold cut-off of 0.4 grams per tonne. The mineral
reserve and resource estimates set forth in this short form prospectus and
the documents incorporated by reference herein have been prepared in
accordance with the disclosure requirements of applicable Canadian and U.S.
Securities Commissions. The definitions related to reserves, used herein, are
pursuant to Canadian National Instrument 43-101, Standards of Disclosure for
Mineral Projects.
Pincock Allen and Holt of Denver, Colorado (PAH) completed the most recent
mineral reserve analysis and geological resource estimate in accordance with
the SME Reporting Guide and CIMM Standards as adopted by CSA National
Instrument 43-101. Behre Dolbear & Company, Inc. (Behre Dolbear) previously
audited the Company's data collection procedures and modeling and mineral
reserve methodology for the preliminary feasibility study conducted in 1998,
as well as the updated 1999 reserve. 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.
Brisas Mineral Reserve AS AT JULY 2004
Reserve Gold Gold Copper Copper
Tonnes Grade Ounces Grade Pounds Strip
(millions) (gpt) (millions) (%) (millions) Ratio
Proven 190 0.71 4,343 0.12 516
Probable 217 0.68 4,754 0.13 638
Total 407 0.70 9,097 0.13 1,154 1.85
The mineral reserve (within a pit design) has been estimated in accordance
with the SME Reporting Guide and CIM Standards as adopted by CSA National
Instrument 43 101. The mineral reserve was estimated using metal prices of
US $350 per ounce gold and US $0.90 per pound copper with an internal revenue
cutoff of US$2.76 per tonne. The qualified persons involved in the property
evaluation and the resource and reserve estimates are Raul Borrastero, C.P.G.
and Susan Poos P.E. of Pincock Allen & Holt and Brad Yonaka, Exploration
Manager for Gold Reserve.
Brisas Resource AS AT JULY 2004
Pincock Allen and Holt of Denver, Colorado has completed the geologic
resource estimate at various cutoff grades and it is summarized in the
following table:
Category AuEq
K tonnes Cutoff K Tonnes Gold Copper
GPT K Tonnes % M lbs.
Measured
0.3 252,937 0.641 5,212 0.114 634
0.4 217,847 0.700 4,904 0.118 566
0.5 177,400 0.774 4,417 0.126 492
0.6 139,878 0.858 3,860 0.134 412
0.7 107,944 0.950 3,297 0.141 334
Indicated
0.3 347,992 0.586 6,555 0.130 955
0.4 284,869 0.662 6,064 0.132 827
0.5 226,450 0.742 5,404 0.138 688
0.6 175,683 0.828 4,679 0.144 557
0.7 134,123 0.921 3,973 0.147 434
Measured & Indicated
0.3 600,929 0.609 11,767 0.123 1,630
0.4 502,716 0.678 10,968 0.126 1,393
0.5 403,850 0.756 9,821 0.133 1,179
0.6 315,561 0.841 8,539 0.140 969
0.7 242,067 0.934 7,270 0.144 769
The preferred cut-off grade for this resource estimate from Pincock Allen and
Holt of Denver is 0.4 grams per tonne gold equivalent (AuEq).
Brisas Inferred Resource AS AT JULY 2004
The Brisas inferred resource estimate at various gold equivalent (AuEq)
cutoff grades is summarized in the following table:
Gold Copper
Category AuEq K Tonnes ------------- ----------
K tonnes Cutoff GPT K ozs. % M lbs.
Inferred
0.3 172,393 0.539 2,986 0.131 497
0.4 126,456 0.649 2,641 0.133 370
0.5 94,964 0.753 2,299 0.135 282
0.6 68,720 0.875 1,933 0.139 210
0.7 53,071 0.975 1,664 0.141 165
The geologic resource has been estimated in accordance with the SME Reporting
Guide CIMM Standards as adopted by CSA National Instrument 43-101. The gold
equivalent (AuEq) cutoff is based on US$350 per gold ounce, US$0.90 per pound
copper, anticipated metal recoveries and smelter costs. The qualified persons
involved in the property evaluation and resource estimate were Raul
Borrastero, C.P.G. and Susan Poos P.E. of Pincock Allen & Holt and Brad
Yonaka of Gold Reserve.
RECENT DEVELOPMENTS
Agreement for Financial Advisory Services with Endeavour Financial
International Corporation
In an agreement dated for reference October 1, 2004, Gold Reserve entered
into a financial advisory services agreement with Endeavour Financial
International Corporation (Endeavour). Pursuant to the agreement, Endeavour
will work closely with Gold Reserve to identify and implement various
transactions of a financing nature. The agreement has an initial term of 12
months.
Increase in Measured and Indicated Resources and Proven and Probable Reserves
In a press release dated July 13, 2004, Gold Reserve announced an increase in
the measured and indicated gold resource to 10.97 million ounces contained in
502.7 million tonnes at a grade of 0.678 grams per tonne representing an
increase of approximately one million ounces from the last update in August
2003. The measure and indicated copper resource was approximately 1.4 billion
pounds, contained in 502.7 million tonnes at a grade of 0.126%. The resource
estimates incorporated the Company's recent drill program of 15,000 meters
and is based on a 0.4 grams per tonne gold equivalent (AuEq) cutoff grade
using US $350 per ounce and US $0.90 per pound copper. In a press release
dated August 3, 2004, Gold Reserve announced an increase in the proven and
probable reserves of gold to 9.1 million ounces, contained in 407 million
tonnes at a grade of 0.7 grams per tonne, representing a 22% increase from
the previous 7.48 million ounces contained in 328.5 million tonnes at a grade
of 0.708 grams per tonne. Proven and probable reserves of copper increased to
1.15 billion pounds contained in 407 million tonnes at a grade of 0.13% up
from 1.08 billion pounds, contained in 328.5 million tonnes at a grade of
0.15% copper. The estimates and analysis were conducted by PAH.
Board of Directors Senior Management Appointees
On January 21, 2004 Gold Reserve Inc's. Board of Directors announced the
appointment of James H. Coleman as the Chairman of the Board of Directors,
A. Douglas Belanger as President and Rockne J. Timm as Chief Executive
Officer of the Company.
Stock Exchange Listing
Gold Reserve's Common Shares commenced trading on AMEX on Friday, October 3,
2003 under the ticker symbol GRZ. Concurrent with the commencement of trading
on the AMEX, the TSX changed Gold Reserve's trading symbol to GRZ. Trading on
the U.S. NASD, OTC BB was discontinued at the close of market on Thursday,
October 2, 2003.
Private Placement
On September 26, 2003 Gold Reserve completed a private placement of Units for
total proceeds of $14.15 million in an offering that was led by Orion
Securities Inc. and Sprott Securities Inc. (the Private Placement
Underwriters). The Private Placement Underwriters purchased from the Company
4,042,000 Units for $3.50 per Unit. Each Unit consisted of one Common Share
and one half Common Share Purchase Warrant. Each whole Common Share Purchase
Warrant entitles its holder to acquire one Common Share at a price of $5.25
per Common Share until March 28, 2005.
USE OF PROCEEDS
The net proceeds from the Offering to Gold Reserve, after deducting the
Underwriters Fee and estimated expenses of the Offering of $1,620,000, are
expected to be $18,400,000, assuming no exercise of the Underwriters
Option. Gold Reserve intends to use all of the net proceeds from the
Offering for the development of the Brisas property in Bolivar State,
Venezuela, and for working capital purposes as follows:
BRISAS
Feasibility Study $ 6,000,000
Post Feasibility Development $ 3,000,000
Other
Port Facility $ 2,000,000
Site Infrastructure $ 1,500,000
Social Programs $ 400,000
General & Administrative & Legal $ 4,750,000
General Exploration &
Property Acquisition $ 750,000
Total $ 18,400,000
Should the Underwriters Option be exercised in full or in part, the
additional funds will be used to enhance and expedite project development and
for general working capital purposes. See Plan of Distribution.
CONSOLIDATED CAPITALIZATION
The Company is authorized to issue an unlimited number of Common Shares,
Class B common shares and Class C preferred shares. As of October 15, 2004,
the Company had the following shares, equity units, warrants and share
options issued:
Class A common 28,210,895
Equity units* 1,157,397
Warrants to purchase Common Shares 2,009,300
Options to purchase Common Shares 3,290,374
*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 Common Shares of Gold Reserve Inc. on a one to one basis.
There has been no material change in the capitalization of the Company since
December 31, 2003. The Company currently has no long term debt.
Gold Reserve trades on the TSX and, since October 3, 2003, on AMEX, under the
Symbol GRZ. The following table sets out the reported price ranges and
average daily volume traded for the common shares on the TSX for the periods
indicated:
High Low Volume
2002
Fourth Quarter 2.15 1.20 16,234
2003
First Quarter 3.15 1.70 32,825
Second Quarter 2.60 2.01 20,252
Third Quarter 4.51 2.01 67,604
Fourth Quarter 7.90 4.00 106,386
2004
First Quarter 6.90 4.21 68,979
Second Quarter 5.75 3.60 51,680
July 4.98 4.00 39,976
August 5.12 4.27 85,209
September 5.90 4.68 50,076
October (to October 28) 6.23 5.30 97,411
October 28, 2004, being the last day on which the Common Shares traded prior
to this short form prospectus, the closing price of the Common Shares on the
TSX was $5.59 and on the AMEX was US$4.61.
DESCRIPTION OF OFFERED SECURITIES
The Offering consists of 3,575,000 Units (assuming no exercise of the
Underwriters Option), each Unit comprised of one Common Share and one-half of
one Warrant. The Units are separable into Common Shares and Warrants
immediately following the closing of the Offering.
Common Shares
The Company is authorised to issue an unlimited number of Common Shares. The
Common Shares rank substantially on par with the equity units, comprised of
one Gold Reserve Inc. Class B common share and one Gold Reserve Corporation
Class B common share, as described under Gold Reserve-Corporate
Reorganization above, in terms of voting rights, dividend rights and right to
assets upon dissolution. Holders of the Common Shares are entitled to one vote
per share at any meeting of the shareholders of the Company, to receive
dividends if, as and when declared by the Board of Directors, and to receive
pro rata the remaining property and assets of the Company upon its
dissolution or winding up, subject to the rights of outstanding equity
units, if any, and the rights of shares having priority over the Common
Shares, if any.
Warrants
Each whole Warrant is transferable and entitles the holder to purchase one
Common Share at a price of $6.50 per share for a period of 24 months
following Closing, after which time the Warrants expire and become null and
void. The Warrants will be issued under an indenture (the Warrant Indenture)
to be entered into between the Company and Computershare Trust Company of
Canada (the Warrant Agent) on or before the closing of the Offering. The
Company will appoint the principal transfer office of the Warrant Agent in
Toronto as the location at which the Warrants may be surrendered for
exercise, transfer or exchange. Under the Warrant Indenture, the Company
may, subject to applicable law, purchase in the market, by private contract
or otherwise, any of the Warrants then outstanding, and any Warrants so
purchased will be cancelled.
The Warrant Indenture will provide for adjustment in the number of Common
Shares issuable upon the exercise of the Warrants and/or the exercise price
per Common Share upon the occurrence of certain events, including:
(i) the issuance of Common Shares or securities exchangeable for or
convertible into Common Shares or Class B common shares to all or
substantially all of the holders of the common shares by way of a stock
dividend or other distribution (a distribution of common shares upon the
exercise of the Warrants or pursuant to the exercise of directors, officers
or employee stock options granted under the Company's stock option plan);
(ii) the subdivision, redivision or change of the common shares into a
greater number of shares;
(iii) the consolidation, reduction or combination of the common shares into a
lesser number of shares;
(iv) the issuance to all or substantially all of the holders of the common
shares of rights, options or warrants under which such holders are entitled,
during a period expiring not more than 45 days after the record date for such
issuance, to subscribe for or purchase common shares, or securities
exchangeable for or convertible into common shares, at a price per share to
the holder (or at an exchange or conversion price per share) of less than 95%
of the current market price, as defined in the Warrant Indenture, for the
Common Shares on such record date; and
(v) the issuance or distribution to all or substantially all of the holders
of the common shares of securities of the Company including rights, options
or warrants to acquire shares of any class or securities exchangeable or
convertible into any such shares or property or assets and including
evidences of indebtedness, or any property or other assets.
The Warrant Indenture will also provide for adjustment in the class and/or
number of securities issuable upon the exercise of the Warrants and/or
exercise price per security in the event of the following additional events:
(i) reclassifications of the Common Shares;
(ii) consolidations, amalgamations, arrangements or mergers of the Company
with or into any other corporation or other entity (other than
consolidations, amalgamations, arrangements or mergers which do not result in
any reclassification of the outstanding Common Shares or a change of the
Common Shares into other shares); or
(iii) the transfer of the undertaking or assets of the Company as an entirety
or substantially as an entirety to another corporation or other entity.
No adjustment in the exercise price or the number of Common Shares
purchasable upon the exercise of the Warrants will be required to be made
unless the cumulative effect of such adjustment or adjustments would result
in a change of at least 1% in the prevailing exercise price or a change in
the number of Common Shares purchasable upon exercise by at least one
one-hundredth of a Common Share, as the case may be.
The Company will covenant in the Warrant Indenture that, during the period in
which the Warrants are exercisable, it will give notice to Warrantholders of
certain stated events, including events that would result in an adjustment to
the exercise price for the Warrants or the number of Common Shares issuable
upon exercise of the Warrants, at least 10 business days prior to the record
date or effective date, as the case may be, of such event.
No fractional Common Shares will be issuable upon the exercise of any
Warrants. Warrantholders will not have any voting or pre-emptive rights or
any other rights which a holder of Common Shares would have.
The Warrant Indenture will provide that, from time to time, the Company and
the Warrant Agent, without the consent of the Warrantholders, may amend or
supplement the Warrant Indenture for certain purposes, including curing
defects or inconsistencies or making any change that does not prejudice the
rights of any Warrrantholder. Any amendment or supplement to the Warrant
Indenture that would prejudice the interests of the Warrantholders may only
be made by extraordinary resolution, which is defined in the Warrant
Indenture as a resolution either (1) passed at a meeting of the
Warrantholders at which there are Warrantholders present in person or
represented by proxy representing at least 25% of the aggregate number of the
then outstanding Warrants (unless such meeting is adjourned to a prescribed
later date due to a lack of quorum, at which adjourned meeting the
Warrantholders present in person or by proxy shall form a quorum) and passed
by the affirmative vote of Warrantholders representing not less than 66 2/3%
of the aggregate number of all the then outstanding Warrants represented at
the meeting and voted on the poll upon such resolution, or (2) adopted by an
instrument in writing signed by the Warrantholders representing not less than
66 2/3% of the aggregate number of all the then outstanding Warrants.
The foregoing summary of certain provisions of the Warrant Indenture does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Warrant Indenture in the form to be agreed by the parties.
DIVIDEND POLICY
Gold Reserve has not declared cash or share dividends since 1984 and have no
present plans to pay any cash or share dividends. Gold Reserve 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
The operations of the Company are speculative due to the high-risk nature of
its business, which is the exploration and development of mining
properties. An investment in securities of the Company involves significant
risks, which should be carefully considered by prospective investors before
purchasing such securities. In addition to the information set out elsewhere
in this prospectus, investors should carefully consider the risk factors set
out in the AIF that is incorporated by reference in this prospectus. Such
risk factors could materially affect the Company's future operating results
and could cause actual events to differ materially from those described in
forward-looking statements relating to the Company.
PLAN OF DISTRIBUTION
Pursuant to an agreement (the Underwriting Agreement) dated as of October
18,2004 between Gold Reserve and the Underwriters, Gold Reserve has agreed to
sell and the Underwriters have severally agreed to purchase, as principals, on
or about November 4,2004 or such earlier or later date as may be agreed by
Gold Reserve and the Underwriters, but in any event no later than November
18, 2004, not less than all of the 3,575,000 Units offered hereby at a price
of $5.60 per Unit, payable in cash to Gold Reserve against delivery of
certificates representing the Common Shares and Warrants comprising the
Units, subject to compliance with all necessary legal requirements and to the
conditions contained in the Underwriting Agreement. The obligations of the
Underwriters under the Underwriting Agreement may be terminated at their
discretion on the basis of their assessment of the state of the financial
markets and may also be terminated upon the occurrence of certain stated
events. The Underwriters are, however, obligated to take up and pay for all
of the Units offered by this short form prospectus if any of such Units are
purchased under the Underwriting Agreement.
The Underwriting Agreement provides that Gold Reserve will pay the
Underwriters a fee of $0.28 per Unit sold. The offering price of the Units
was determined by negotiation between Gold Reserve and the Underwriters.
Gold Reserve has granted the Underwriters the Underwriters Option,
exercisable in whole or in part at the sole discretion of the Underwriters
until 24 hours prior to the closing of the Offering, enabling them to
purchase the Additional Units at the Offering Price. If the Underwriters
Option is exercised in full the Price to the Public, the Underwriters Fee and
the Net Proceeds to Gold Reserve will be $30,021,600, $1,501,080 and
$28,520,520, respectively. Gold Reserve will pay to the Underwriters a fee
of $0.28 per Additional Unit. This prospectus also qualifies the grant of
the Underwriters Option and the distribution of the Additional Units.
In the Underwriting Agreement, Gold Reserve has agreed to indemnify the
Underwriters and their respective directors, officers, employees and agents
in respect of certain liabilities, including liabilities under Canadian
securities legislation, and expenses or will contribute to payments that the
Underwriters and their directors, officers, employees and agents may be
required to make in respect thereof.
Pursuant to policy statements of the Ontario Securities Commission, the
Underwriters may not, throughout the period of distribution under this short
form prospectus, bid for or purchase Common Shares. The foregoing restriction
is subject to certain exceptions, including (i) a bid or purchase permitted
under the by-laws and rules of the TSX relating to market stabilization and
passive market-making activities; and (ii) a bid or purchase made for and on
behalf of a customer where the order was not solicited during the period of
the distribution, provided that the bid or purchase was not engaged in for
the purpose of creating actual or apparent active trading in, or raising the
price of, such securities. In connection with this Offering, the Underwriters
may over-allot or effect transactions which stabilize or maintain the market
price of the Common Shares at a level other than that which might otherwise
prevail in the open market. Such transactions, if commenced, may be
discontinued at any time.
The Common Shares and Warrants offered hereby have not been and will not be
registered under the United States Securities Act of 1933, as amended (the
U.S. Securities Act) or any state securities laws, and may not be offered or
sold within the United States of America, its territories, its possessions
and other areas subject to its jurisdiction. All sales into the United
States shall be permitted only to designated purchasers pursuant to an
exemption from registration under the U.S. Securities Act of 1933, as
amended and in the manner as agreed to by the Company and the Underwriters.
The TSX has conditionally approved the listing of the Common Shares and the
Warrants distributed under this prospectus and the Common Shares issuable
upon exercise of the Warrants. Listing is subject to Gold reserve fulfilling
all of the requirements of the TSX on or before January 17, 2004 including,
in the case of the Warrants, distribution of the Warrants to a minimum number
of holders. Application will be made to list the Common Shares and the Common
Shares issuable upon exercise of the Warrants on AMEX.
Gold Reserve has agreed in the Underwriting Agreement that, subject to
certain exceptions, it will not authorize, issue or sell any Class A common
shares of the Company or securities convertible into common shares of the
Company (other than the Common Shares offered hereby) for a period of 90 days
following the closing of this Offering, without the prior consent of the
Underwriters acting reasonably.
It is a condition of the Offering that the directors and senior officers of
Gold Reserve execute and deliver written undertakings in favour of the
Underwriters agreeing not to sell, transfer, assign, or otherwise dispose of
any securities of Gold Reserve owned, directly or indirectly, by such
directors or officers for a period of 90 days following the closing of the
Offering, without the prior consent of the Underwriters acting reasonably.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Fasken Martineau DuMoulin LLP, counsel to Gold Reserve, and
Wildeboer Dellelce LLP, counsel to the Underwriters, the following is, as of
the date hereof, a general summary of the principal Canadian federal income
tax considerations applicable to a prospective purchaser of Common Shares and
Warrants comprising the Units to be issued pursuant to this Offering. This
summary is applicable only to a purchaser who, at all relevant times, is
resident in Canada, deals at arms length and is not affiliated with Gold
Reserve, and who will acquire and hold such Common Shares and Warrants as
capital property (a Holder), all within the meaning of the Tax Act. Any
Common Shares and Warrants will generally be considered to be capital
property to a Holder unless the Holder holds such securities in the course of
carrying on a business or has acquired them in a transaction or transactions
considered to be an adventure in the nature of trade. Certain Holders whose
Common Shares might not otherwise qualify as capital property may be entitled
to make the irrevocable election provided by subsection 39(4) of the Tax Act
to have the Common Shares and every other Canadian security (as defined by
the Tax Act), which would not include the Warrants, owned by such Holder in
the taxation year of the election and in all subsequent taxation years deemed
to be capital property.
This summary does not apply to a Holder that is a financial institution for
purposes of the mark-to-market provisions of the Tax Act or a specified
financial institution for purposes of the Tax Act.
This summary is based upon the current provisions of the Tax Act and the
regulations thereunder, specific proposals to amend the Tax Act (the Tax
Proposals) which have been announced by or on behalf the Minister of Finance
(Canada) prior to the date hereof, and counsels understanding of the current
published administrative policies and assessing practices of the Canada
Customs and Revenue Agency (the CCRA). This summary assumes that the Tax
Proposals will be enacted in the form proposed and does not take into account
or anticipate any other changes in law, whether by way of judicial,
legislative or governmental decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations
discussed herein. No assurances can be given that such Tax Proposals will be
enacted as proposed or at all, or that legislative, judicial or administrative
changes will not modify or change the statements expressed herein.
This summary is not exhaustive of all possible Canadian federal income tax
considerations applicable to an investment in Common Shares and Warrants, and
does not describe the income tax considerations relating to the deductibility
of interest on money borrowed by a Holder. The following description of
income tax matters is of a general nature only and is not intended to be, nor
should it be construed to be, legal or income tax advice to any particular
Holder. Holders are urged to consult their own income tax advisors with
respect to the tax consequences applicable to them based on their own
particular circumstances.
Allocation of Purchase Price
Holders will be required to allocate the purchase price of each Unit between
the Common Share and the one-half of one Warrant on a reasonable basis in
order to determine their respective costs for purposes of the Tax Act. Gold
Reserve intends to allocate $5.30 of the issue price of each Unit as
consideration for the issue of each Common Share and $0.30 for the issue of
each one-half of one Warrant. Although Gold Reserve believes such allocation
is reasonable, such allocation will not be binding on the CCRA.
The adjusted cost base to a Holder of a Common Share acquired hereunder will
be determined by averaging the cost of that Common Share with the adjusted
cost base (determined immediately before the acquisition of the Common Share)
of all other Common Shares held as capital property at the time of acquisition
by the Holder.
Exercise or Expiry of Warrants
A Holder will not realize a gain or loss upon the exercise of a Warrant. The
Holder's cost of Common Shares acquired by exercising Warrants will be equal
to the aggregate of the Holders adjusted cost base of the Warrants exercised
plus the exercise price paid for the Common Shares. The Holders adjusted
cost base of the Common Shares so acquired will be determined by averaging
the cost of those Common Shares with the adjusted cost base (determined
immediately before the acquisition of the Common Shares) of all other Common
Shares held as capital property by such Holder at the time of acquisition.
In the event of the expiry of an unexercised Warrant, the Holder will realize
a capital loss equal to the Holders adjusted cost base of such Warrant.
Disposition of Common Shares and Warrants
A Holder who disposes of or is deemed to have disposed of a Common Share or a
Warrant (other than a disposition arising on the exercise or expiry of a
Warrant) will realize a capital gain (or incur a capital loss) equal to the
amount by which the proceeds of disposition in respect of the Common Share or
the Warrant exceed (or are exceeded by) the aggregate of the adjusted cost
base of such Common Share or Warrant, as the case may be, and any reasonable
expenses associated with the disposition.
Generally, one-half of any capital gain (a taxable capital gain) must be
included in income and one-half of any capital loss may be used to offset
taxable capital gains incurred in the year, in any of the three prior years
or in any subsequent year in the circumstances and to the extent provided in
the Tax Act. A capital loss realized from the disposition of a Common Share
by a Holder that is a corporation may in certain circumstances be reduced by
the amount of dividends which have been previously received or deemed to have
been received by the Holder on such shares. Similar rules may apply where a
corporation is, directly or through a trust or partnership, a member of a
partnership or a beneficiary of a trust that owns Common Shares.
Capital gains realized by an individual and certain trusts may result in the
individual or trust paying alternative minimum tax under the Tax Act.
A Holder that is, throughout the relevant taxation year, a
Canadian-controlled private corporation (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on its aggregate
investment income for the year, which is defined to include an amount in
respect of taxable capital gains.
Taxation of Dividends Received by Holders of Common Shares
A Holder of Common Shares will be subject to the normal treatment under the
Tax Act applicable to dividends received from a taxable Canadian corporation.
Dividends (including deemed dividends) received on Common Shares by a Holder
who is an individual (and certain trusts) will be included in income and be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received by an individual from taxable Canadian
corporations. Taxable dividends received by such Holders may give rise to
alternative minimum tax under the Tax Act.
Dividends (including deemed dividends) received on Common Shares by a Holder
that is a corporation will be included in income and normally deductible in
computing such corporation's taxable income. However, the Tax Act will
generally impose a 33 1/3% refundable tax on such dividends received by a
corporation which is a private corporation or a subject corporation for
purposes of Part IV of the Tax Act to the extent that such dividends are
deductible in computing the corporation's taxable income.
EXPERTS
Opinions
The matters referred to under Eligibility for Investment, Canadian Federal
Income Tax Considerations and certain other legal matters relating to the
Common Shares offered under this short form prospectus will be passed upon at
the closing of the Offering by Fasken Martineau DuMoulin LLP, on behalf of
Gold Reserve, and by Wildeboer Dellelce LLP, on behalf of the Underwriters.
Interest of Experts
As of October 29, 2004, the partners and associates of Fasken Martineau DuMoulin
LLP beneficially owned, directly or indirectly, less than 1% of the outstanding
Common Shares. As of October 29, 2004, the partners and associates of Wildeboer
Dellelce LLP beneficially owned, directly or indirectly, less than 1% of the
outstanding Common Shares.
AUDITOR, TRANSFER AGENT AND REGISTRAR
The auditor of Gold Reserve is PricewaterhouseCoopers LLP, Chartered
Accountants, of Vancouver B.C. The transfer agent and registrar for the
Common Shares is Computershare Trust Company of Canada at its principal
office in Toronto, Ontario.
INTERNATIONAL ISSUER
Although incorporated in Canada, Gold Reserve resides outside of Canada.
Although Gold Reserve has appointed Austring, Fendrick, Fairman & Pakkari,
The Drury Building, 3801 Third Avenue, Whitehorse, Yukon, Y1A 4Z7 as its
agent for service of process in Canada, it may not be possible for investors
to collect from Gold Reserve judgements obtained in Canadian courts
predicated on the civil liability provisions of securities legislation.
STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces of Canada provides
purchasers with the right to withdraw from an agreement to purchase
securities. This right may be exercised within two business days after
receipt or deemed receipt of a prospectus and any amendment. In several of
the provinces of Canada, the securities legislation further provides a
purchaser with remedies for rescission or, in some jurisdictions, damages if
the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by
the securities legislation of the purchaser's province. The purchaser should
refer to any applicable provisions of the securities legislation of the
purchasers province for the particulars of these rights or consult with a
legal adviser.
AUDITORS CONSENT
We have read the short form prospectus of Gold Reserve Inc. (the Corporation)
dated October 29, 2004, 2004, qualifying the distribution of up to 5,361,000
Units of the Corporation, each Unit comprised of one Class A common share in
the capital of the Corporation and one-half of one warrant, each whole
warrant entitling the bearer thereof to purchase one Class A common share for
a period of 24 months following the closing date of the offering. We have
complied with Canadian generally accepted standards for an auditors
involvement with the offering documents.
We consent to the incorporation by reference in the above-mentioned
prospectus of our report to the shareholders of the Corporation on the
consolidated balance sheets of the Corporation as at December 31, 2003 and
2002 and the consolidated financial statements of income, retained earnings
and cash flow for each of the years in the number of three ended December
31, 2004. Our report is dated February 17, 2004.
Signed PricewaterhouseCoopers LLP
Chartered Accountants
CERTIFICATE OF GOLD RESERVE INC.
Dated: October 29, 2004
This short form prospectus, together with the documents incorporated herein
by reference, constitutes full, true and plain disclosure of all material
facts relating to the securities offered by this prospectus as required by
the securities legislation of each of the provinces of Canada except Quebec.
(Signed) ROCKNE J. TIMM (Signed) ROBERT A. McGUINNESS
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) JAMES H. COLEMAN (Signed) CHRIS D. MIKKELSEN
Director Director
CERTIFICATE OF THE UNDERWRITERS
Dated: October 29, 2004
To the best of our knowledge, information and belief, this short form
prospectus, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this prospectus as required by the securities
legislation of each of the provinces of Canada except Quebec.
ORION SECURITIES INC. SPROTT SECURITIES INC.
By: (Signed) DOUGLAS BELL By: (Signed) DARREN WALLACE
GMP SECURITIES LTD.
By: (Signed) MARK WELLINGS