FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
GOLD RESERVE INC.
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(Exact name of registrant as specified in its charter)
Yukon Territory, Canada
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(Jurisdiction of incorporation)
1-8372
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(Commission File Number)
926 West Sprague Avenue
Suite 200
Spokane, Washington 99201
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(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A Common shares, no par value per share
(Title of each class)
The Toronto Stock Exchange
NASDAQ SmallCap System
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(Name of each exchange on which registered)
Securities registered pursuant to section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
section 15(d) of the Act: None
The total number of the registrant's shares outstanding as of
December 31, 1998:
Class A common shares, no par value per share 20,842,451
Class B common shares, no par value per share 2,349,316
(See Note 1 to the Consolidated Financial Statements)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period as the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X]
Registrant elected to follow financial statement Item 17.
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TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
Glossary of Significant Terms
PART I
ITEM 1. Description of Business
Overview
Corporate Reorganization
Significant Developments
Risk Factors
ITEM 2. Description of Property
The Brisas Property
Venezuelan Mining, Environment and Other Matters
ITEM 3. Legal Proceedings
ITEM 4. Control of Registrant
ITEM 5. Nature of Trading Market
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
ITEM 7. Taxation
United States Federal Income Taxation of Dividends for U.S.
Holders
Classification of the Company as a Controlled Foreign Corporation
Passive Foreign Investment Company Status
ITEM 8. Selected Financial Data
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Formation of Canadian Parent
Overview
Liquidity and Capital Resources
Results of Operations
Year 2000 Readiness
ITEM 9a. Quantitative and Qualitative Disclosures about Market Risk
ITEM 10. Directors and Officers of the Company
Section 16(a) Beneficial Ownership Reporting Compliance
ITEM 11. Compensation of Directors and Officers
ITEM 12. Options to Purchase Securities From the Registrant or
Subsidiaries
ITEM 13. Interest of Management in Certain Transactions
<PAGE>
PART II
ITEM 14. Description of Securities to be Registered
PART III
ITEM 15. Defaults Upon Senior Securities
ITEM 16. Changes in Securities, Changes in Security for Registered
Securities and Use of Proceeds
PART IV
ITEM 17. Financial Statements
Management's Report
Auditors' Report
ITEM 18. Financial Statements
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Exhibit Table and Index to Exhibits
Signatures
<PAGE>
FORWARD-LOOKING STATEMENTS
The information presented in or incorporated by reference in this
Annual Report on Form 20-F includes both historical information and
"forward-looking statements" (within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) relating to the future results of Gold Reserve Inc. (the
"Company") (including projections and business trends), which involve
risks and uncertainties. Except where the context indicates
otherwise, "Company" means Gold Reserve Inc. and its predecessor Gold
Reserve Corporation.
Numerous factors could cause actual results to differ materially from
those in the forward-looking statements, including without limitation
the risk that actual reserves may vary considerably from estimates
presently made, the impact of metals prices and metal production
volatility, the Company's concentration of operations and assets in
Venezuela, regulatory, political and economic risks associated with
Venezuelan operations, the Company's ability to obtain adequate
funding for future development of the Brisas property, dependence
upon the abilities and continued participation of certain key
employees of the Company, and the risks normally incident to the
operation and development of mining properties.
Investors are cautioned not to put undue reliance on forward-looking
statements, and should not infer that there has been no change in the
affairs of the Company since the date of this Annual Report on Form
20-F that would warrant any modification of any forward-looking
statement made in this document or other documents filed periodically
with securities regulators. All subsequent written and oral forward-
looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by this notice.
The Company disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new
information, future events or otherwise.
RESERVE ESTIMATES
The reserve and resource estimates set forth in this document have
been prepared in accordance with applicable Canadian requirements.
Such mineralization may not qualify as a commercially mineable ore
body under standards promulgated by the U.S. Securities and Exchange
Commission until the economic viability of the project is established
by the completion of a final feasibility study.
CURRENCY
All currency is in U.S. Dollars unless otherwise noted.
Glossary of Significant Terms
-----------------------------
Certain terms used throughout this Annual Report on Form 20-F are
defined below.
<PAGE>
alluvial 1) Used to identify unconsolidated or clay-
like materials deposited over time by moving
water. 2) Used to describe a strata of
material that constitutes a concession, i.e.
relating to the Brisas alluvial concession.
andesite A volcanic rock of intermediate composition.
It is fine-grained and contains 55 to 60
percent silica.
Archean An era in geologic time covering the early
part of Precambrian time.
assay An analysis performed on a rock sample to
determine its metal content.
auger hole Drilling with a bit designed to drill
unconsolidated material. The material is
forced to the surface for examination using
water or compressed air. Typically faster
and cheaper than core drilling.
ball mill A steel cylinder partially filled with steel
balls into which crushed ore is fed. The
ball mill is rotated, causing the balls to
cascade and grind the ore.
batholith A mass of igneous rock with a surface area
greater than 100 square kilometers.
Bolivar The basic monetary unit of the Republic of
Venezuela. As of March 31, 1999, 581
Bolivares equaled approximately one U.S.
Dollar.
breccia A clastic rock in which angular fragments are
surrounded by a fine-grained matrix or
minerals cement.
Brisas Compania Aurifera Brisas del Cuyuni, C.A., a
Venezuelan corporation and the subsidiary of
the Company that owns the Brisas property.
Brisas alluvial The mining title granted to Brisas in 1988 by
concession the Ministry of Energy and Mines to explore
and commercially develop gold contained in
alluvial material on the Brisas property.
Brisas hardrock The mining title granted to Brisas in 1998 by
concession the MEM to explore and commercially develop
and mine gold, copper and molybdenum
contained in the veta or vein material on the
Brisas property.
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Brisas property The Brisas alluvial concession, the Brisas
hardrock concession, other applications for
mineralization in the material contained in
the alluvial concession (primarily nominal
values of copper and silver) and other
mineralization (primarily gold, copper and
molybdenum) on small land parcels contiguous
to the existing alluvial and hardrock
concessions.
commercially mineable A mineral deposit that contains ore reserves
ore body that may be mined economically.
concentrate A finely ground product of the milling
process, containing a high percentage of
valuable metal, which is typically sent to a
smelter for further processing.
concession A privilege, license or mining title granted
by the Ministry of Energy and Mines, to
explore and, if warranted, produce minerals
from a specified property.
core drilling Drilling (also referred to as diamond
drilling) with a hollow bit, which has a
diamond-cutting rim, and produces a
cylindrical core used for geologic study and
assays. Such drilling is used in exploration
and development activities to determine the
location, orientation and magnitude of a
mineral deposit.
core The long cylindrical piece of rock, in
varying diameters, brought to surface by core
or diamond drilling.
Corporacion Venezolana A Venezuelan government-owned entity formed
de Guayana (CVG) to foster industrial development and to
explore and develop mineral resources in the
Guayana region of Venezuela including the
State of Bolivar.
cyanidation A method of extracting gold or silver from a
crushed or ground ore by dissolving it in a
weak cyanide solution.
development drilling Drilling done to more accurately measure the
quantity of minerals contained in a deposit
after exploration drilling.
development stage A period of time during the life span of a
mine wherein activities related to the
preparation of a deposit for extraction,
prior to construction, are conducted.
<PAGE>
development Work carried out for the purpose of opening
up a mineral deposit and making the actual
ore extraction possible.
diamond drill A rotary type of rock drill that cuts a core
of rock that is recovered in long cylindrical
sections, two centimeters or more in
diameter.
dilution Waste rock that is, by necessity, removed
along with the ore in the mining process,
subsequently lowering the average grade of
the ore processed.
dip The angle at which a vein, structure or rock
bed is inclined from the horizontal as
measured at right angles to the strike.
dore Unparted gold and silver poured into molds
when molten to form buttons or bars. Further
refining is necessary to separate the gold
and silver.
drift A horizontal underground opening that follows
along the length of a vein or rock formation
as opposed to a crosscut which crosses the
rock formation.
environmental impact A report, compiled prior to a production
statement (EIS) decision that examines the effects of
proposed mining activities on the natural
surroundings.
exploration drilling Drilling performed in searching for
mineralization.
exploration Work involved in searching for
mineralization, including sampling, assaying,
drilling or driving a drift.
feasibility study An analysis and compilation of technical and
economic data with the objective of proving
the economic and technical feasibility of the
project. Prepared to support a production
decision on a proposed mining and milling
operation.
flotation A process for concentrating minerals based on
the selective adhesion of certain minerals to
air bubbles in a mixture of water and ground
up ore. When the right chemicals are added
to a frothy water bath of ore that has been
ground to the consistency of talcum powder,
<PAGE>
the minerals will float to the surface. The
metal rich flotation concentrate is then
skimmed off the surface.
geophysical survey Indirect methods of investigating the
subsurface geology using the applications of
physics including electric, gravimetric,
magnetic, electromagnetic, seismic, and
radiometric principles.
gold equivalent Gross value of copper at a stated value per
pound divided by the gross price of gold at a
stated value per ounce.
Gold Reserve de A Venezuelan corporation and a foreign
Venezuela C.A., (GLDRV) subsidiary of the Company. GLDRV was
organized in September 1992 to manage the
exploration and development activities on the
Brisas property.
grade The relative quantity or the percentage of
ore-mineral content in a mineralized body,
i.e. grams of gold per tonne or percent of
copper per tonne.
gravity separation Recovery of gold from crushed rock or gravel
using gold's high specific gravity to
separate it from the lighter material.
Guayana Shield A large area of exposed basement rocks in
central and eastern Venezuela comprised of
Precambrian rocks.
hardrock Solid rock underlying an alluvial deposit.
Also referred to as bedrock.
hectare A metric measurement of area equivalent to
10,000 square meters or 2.4711 acres.
high grade Rich mineralization. As an adjective, it
refers to selective mining of the best
mineralization in a deposit.
igneous Rocks formed by the cooling and solidifying
of magma.
Imataca Forest Reserve A 3.6 million hectare area of tropical forest
located in the State of Bolivar in
southeastern Venezuela that was set aside as
an environmentally protected region by the
Venezuelan government in the 1960's. The
Company's Brisas property is located in an
area within the reserve which was previously
designated for mining activities.
<PAGE>
indicated resource The estimated quantity and grade of that part
of a deposit for which the continuity of
grade, together with the extent and shape,
are so well-established that a reliable grade
and tonnage estimate can be made.
inferred resource The estimated quantity and grade of a
deposit, or a part thereof, that is
determined on the basis of limited sampling,
but for which there is sufficient geological
information and a reasonable understanding of
the continuity and distribution of metal
values to outline a deposit of potential
economic merit.
intrusive Rock which while molten penetrated into or
between other rocks, but solidified before
reaching the surface.
Kilometer 88 mining An area in the State of Bolivar in
district (KM 88) southeastern Venezuela containing significant
alluvial and hardrock deposits. The
Company's Brisas property is located in this
district.
Las Cristinas Gold and copper properties which are north of
and contiguous to the Brisas property and are
held by MINCA, a Venezuelan company 30%
owned by CVG and 70% owned by Placer Dome
Inc.
measured resource The estimated quantity and grade of that part
of a deposit for which size, configuration,
and grade have been very well-established by
observation and sampling of outcrops, drill
holes, trenches, and mine workings.
metamorphism Rock of sedimentary or igneous origin that
has been altered by high temperature and/or
pressure.
mill A processing plant where ore is crushed and
ground, usually to fine powder, and the
metals are extracted by physical and/or
chemical means. Output from a mill usually
requires further processing in a smelter or
refining to produce pure metal.
mineral resource A deposit or concentration of natural, solid,
inorganic or fossilized organic substance in
such quantity and at such grade or quality
that extraction of the material at a profit
is currently or potentially possible.
<PAGE>
mineral A naturally occurring homogeneous substance
having fixed physical properties and chemical
composition and, if formed under favorable
conditions, a defined crystal form.
mineralization The presence of economic minerals in a
specific area or geological formation.
Ministry of Ambiente Venezuelan governmental entity, which
and Renewable Natural exercises supervisory jurisdiction over the
Resources (MARNR) environment.
Ministry of Energy and Venezuelan governmental entity, which
Mines (MEM) exercises supervisory jurisdiction over the
Brisas property and the Company's activities
thereon.
molybdenum An element (Mo), usually in the form of
molybdenite, primarily used in alloys and
lubricants.
monzonite A medium to coarse-ground intrusive rock
containing less than 20% quartz.
open pit A mine that is entirely on surface. Also
referred to as open-cut or open-cast mine.
possible reserve The estimated quantity and grade of that part
of an inferred resource that are determined
from limited sample data for which geology,
grade continuity, and operating parameters
are based, to a large extent, on reasonable
extrapolations, assumptions, and
interpretations. A possible reserve does not
stand alone, and must be an extension or
addition to probable or proven reserves.
Also, a possible reserve may not be used in
an economic analysis or feasibility study.
Precambrian All geologic time before 570 million years
ago.
pre-feasibility report A preliminary analysis and compilation of
technical and economic data conducted to
determine whether the Company should proceed
with the feasibility study.
probable reserve The estimated quantity and grade of that part
of an indicated resource for which the
economic viability has been demonstrated by
adequate information on engineering operating
and legal factors, at a confidence level that
will allow positive decisions on major
expenditures.
<PAGE>
Proterozoic That part of the Precambrian time represented
by rocks in which traces of life appear or
the younger part of Precambrian time.
proven reserve The estimated quantity and grade of that part
of a measured resource for which the size,
grade and distribution of values, together
with technical and economic factors, are so
well-established that there is the highest
degree of confidence in the estimate. The
term should be restricted to that part of a
deposit being mined, or being developed and
for which there is a mining plan.
reclamation The restoration of a site after mining or
exploration activity is completed.
recovery The percentage of valuable metal in the ore
that is recovered by metallurgical treatment.
reserve That part of a resource which can be legally
mined and at a profit under economic
conditions that are specified and are
generally accepted as reasonable. Economic
viability must be demonstrated by at least a
preliminary feasibility study based on
indicated and measured resources.
resource The calculated amount of material in a
mineral deposit, based on limited drill
information.
sample A small portion of rock or a mineral deposit,
taken so that the metal content can be
determined by assaying.
schists A strongly foliated crystalline rock which
readily splits into sheets or slabs as a
result of the planar alignment of the
constituent crystals.
stock An igneous body smaller than a batholith with
a subcircular section.
stratabound Used to describe mineral deposits that are
restricted to a single stratagraphic unit.
strataform Mineral deposits whose geometry is similar to
that of its host rock.
strike The direction, or bearing from true north, of
a vein or rock formation measured along a
horizontal line on the surface of the vein or
rock.
<PAGE>
strip ratio The tonnage of non-mineralized waste material
removed to allow the mining of one tonne of
ore in an open pit. Also referred to as
waste-to-ore ratio.
tailings The material removed from the milling circuit
after separation of the valuable metals.
troy ounce Unit of weight measurement used for all
precious metals. The familiar 16-ounce
avoirdupois pound equals 14.583 troy ounces.
One troy ounce is equivalent to 31.1034
grams.
vein A sheet-like or tabular discordant
mineralized body formed by complete or
partial infilling of a fracture or fault
within a rock.
veta 1) Used to describe veins of mineralization
and/or deeper, hardrock mineralization, 2)
used to describe a strata of material that
constitutes a concession, i.e. relating to
the Brisas hardrock concession.
Whittle Pit Mathematical method for determining the
optimal shape for an open pit in three
dimensions utilizing a block model of an ore
body. A Whittle pit only approximates
certain aspects of open pit design and does
not include final detailed design parameters.
CONVERSION FACTORS: 1 Troy ounce = 31.1034 Grams
1 Tonne = 1.1023 Short tons
1 Tonne = 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
SYMBOLS: Au = Gold
Cu = Copper
gpt = Grams per tonne
kt = Thousand tonnes
Au Eq = Gold equivalent
<PAGE>
PART I
ITEM 1. Description of Business
OVERVIEW
Gold Reserve Inc. (the "Company") is a mining company incorporated in
1998 under the laws of the Yukon Territory, Canada and is the
successor issuer to Gold Reserve Corporation. The Company's primary
mining asset, the Brisas property, is a development-stage gold and
copper deposit located in the KM 88 mining district of the State of
Bolivar in southeastern Venezuela. The Brisas property was acquired
in 1992 and since then extensive exploration activities have been
completed. In total, approximately $64 million has been expended on
the Brisas property since its acquisition. The Company has no revenue
producing mining operations at this time.
Completion of a feasibility study and permitting on the Brisas
property as well as the acquisition of additional land for future
infrastructure needs is management's primary focus. An initial pre-
feasibility report was originally completed in early 1998 and
subsequently supplemented in August of 1998. This supplement included
an assessment of the potential economic benefits of a revised mine
plan and on-site production of copper. In March 1999, the Company
announced proven and probable reserves on the Brisas property of
approximately 5.6 million ounces of gold and 654 million pounds of
copper using US $300 per ounce gold and US $0.80 per pound copper.
At March 31, 1999, the price of gold and copper approximated $280 per
ounce and $0.62 per pound, respectively.
Concurrent with the Company's reserve estimate update, an audit was
conducted by Behre Dolbear & Company Inc. ("Behre Dolbear") of Denver,
Colorado that confirmed the Company's reserve estimate and the Brisas
property total mineral resource of approximately 8.71 million ounces
of gold and 1.06 billion pounds of copper.
A modest 1999 exploration program on the Brisas property is being
evaluated, which management currently believes could add as much as
750,000 to 1 million additional ounces of gold to the reserve
estimate. In addition, management continues to actively evaluate
exploration opportunities in Venezuela, elsewhere in Latin America and
the world.
Revisions to the pre-feasibility report are ongoing. Completion of a
feasibility study on the Brisas property is currently expected in
2000.
Cash and investments held by the Company at March 31, 1999 approximate
$22.5 million. The Company presently has no long-term debt.
Management anticipates that current cash and investment balances will
be sufficient to cover estimated operating and capital expenditures,
including those associated with the completion of the feasibility
study of the Brisas property, into 2000.
<PAGE>
As of March 31, 1999, the Company employed 10 people in its Spokane,
Washington office and approximately 50 people in Venezuela, of which
approximately 30 are located at the Brisas property. The day-to-day
activities of the Company's Venezuelan operations are managed from its
offices in Caracas and Puerto Ordaz.
Unless the context indicates otherwise, the term "Brisas property"
used throughout this report includes the Brisas alluvial concession,
the Brisas hardrock concession and applications for other
mineralization in the alluvial material and areas contiguous to the
alluvial and hardrock concessions.
Unless the context indicates otherwise, references to the Company used
throughout this report refer primarily to Gold Reserve, Inc., Gold
Reserve Corporation, Compania Aurifera Brisas del Cuyuni, C.A.
("Brisas"); Gold Reserve de Venezuela, C.A. ("GLDRV"); Great Basin
Energies, Inc. ("Great Basin") and MegaGold Corporation ("MegaGold").
The consolidated group also consist of seven Aruban subsidiaries and
five Venezuelan subsidiaries formed to hold the Company's current
investments or for future transactions. The Company wholly owns all
subsidiaries except for Great Basin and MegaGold of which it owns 58%
and 63%, respectively.
CORPORATE REORGANIZATION
In February 1999, the shareholders of Gold Reserve Corporation, a
Montana corporation formed in 1956, approved a plan of reorganization
whereby Gold Reserve Corporation became a subsidiary of Gold Reserve
Inc., the successor issuer. The primary purpose of the formation of a
Canadian parent was to expand the group's profile among Canadian
investors who generally are significant investors in resource
companies. Gold Reserve Corporation previously made filings with the
U.S. Securities and Exchange Commission under the Securities Act and
Exchange Act.
Except for certain electing U.S. shareholders, each shareholder of
Gold Reserve Corporation received one Gold Reserve Inc. Class A common
share for each common share owned of Gold Reserve Corporation. After
the reorganization, a shareholder of Gold Reserve Inc. continues to
own an interest in the business, through subsidiary companies, that in
aggregate is essentially the same as before the reorganization.
As part of the reorganization, U.S. holders of Gold Reserve
Corporation could elect to receive equity units in lieu of Gold
Reserve Inc. Class A common shares. An equity unit is comprised of
one Gold Reserve Inc. Class B common share and one Gold Reserve
Corporation Class B common share. Equity units were provided to U.S.
holders who would have had a substantial taxable gain upon receipt of
Gold Reserve Inc. Class A common shares so they might defer a
significant portion of such gain. The equity units have voting and
dividend rights similar to the Gold Reserve Inc. Class A common
shares, are substantially equivalent to a Class A common share and are
immediately convertible into Gold Reserve Inc. Class A common shares
<PAGE>
upon compliance with certain procedures. Equity units are not listed
for trading on any stock exchange, but, subject to compliance with
applicable federal, provincial and state securities laws, may be
transferred. Unless otherwise noted, general references to common
shares of the company include Class A common shares and Class B common
shares as a combined group.
Because the reorganization did not take place until February 1999, the
financial statements that are presented in this annual report on Form
20-F are those of Gold Reserve Corporation as of and for the years
ended December 31, 1998, 1997 and 1996. The financial position of the
consolidated group subsequent to the reorganization was substantially
the same as prior to the reorganization except for the exchange of
approximately 2.3 million Gold Reserve Corporation common shares for
an equal number of equity units in lieu of Gold Reserve Inc. Class A
common shares. The proforma effect of the reorganization is
summarized in Note 1 to the consolidated financial statements of Gold
Reserve Corporation.
SIGNIFICANT DEVELOPMENTS
Updated Pre-Feasibility Report
------------------------------
The Company and its consultants continue to develop refinements to the
data and alternatives to the assumptions utilized in the initial pre-
feasibility report. In August 1998, a supplement to the original pre-
feasibility report was completed which included a revised mine
operating plan and an on-site copper production process, resulting in
a 7% and 24% reduction in cash operating costs, respectively.
Cash operating costs per ounce of gold (net of a $1 per pound copper
credit) and pre-tax all-in-costs, exclusive of costs incurred to-date,
for the revised mine plan and on-site copper production were
estimated at $169 and $262, respectively. Cash operating costs per
ounce of gold (net of copper credit) and pre-tax all-in-costs
exclusive of costs incurred to date for the revised mine plan
independent of on-site copper production were estimated at $206 and
$288, respectively.
This supplement to the pre-feasibility report, more limited in scope
than the original pre-feasibility report, was prepared by the Company
and JE MinCorp, a division of Jacobs Engineering Group Inc. As a
result of the new reserve estimates announced by the Company in March
1999 and ongoing analysis, the pre-feasibility report is expected to
be the subject of further updates and refinements prior to its
completion in early 2000.
Proven and Probable Reserves and Total Mineral Resource
-------------------------------------------------------
In March 1999, the Company announced proven and probable reserves on
the Brisas property of 5.6 million ounces of gold and 654 million
pounds of copper using US $300 per ounce gold and US $0.80 per pound
copper. An audit conducted by Behre Dolbear confirmed the Company's
<PAGE>
reserve estimate and the Brisas property total mineral resource of
approximately 8.71 million ounces of gold and 1.06 billion pounds of
copper, which is comprised of a measured and indicated resource
estimated at 7.02 million ounces of gold and approximately 829 million
pounds of copper and an inferred resource of 1.69 million ounces of
gold and 232 million pounds of copper (based on 0.5 grams per tonne
gold equivalent cut-off).
Formation of Canadian Parent
----------------------------
In February 1999, the shareholders of Gold Reserve Corporation
approved a plan of reorganization whereby Gold Reserve Corporation
became a subsidiary of Gold Reserve Inc. The primary purpose of the
formation of a Canadian parent was to expand the group's profile among
Canadian investors who generally are significant investors in resource
companies. Subsequent to the reorganization, the Company had two
classes of common shares outstanding, Class A common shares and Class
B common shares.
RISK FACTORS
Potential investors should carefully evaluate all of the information
contained and incorporated by reference in this report and, in
particular, the following:
Reserve and Mineral Resource Estimates
--------------------------------------
The reserve and resource estimates set forth in this document have
been prepared in accordance with the disclosure requirements of
applicable Canadian Securities Commissions. Such mineralization may
not qualify as a commercially mineable ore body under standards
promulgated by the U.S. Securities and Exchange Commission until the
economic viability of the project is established by the completion of
a final feasibility study.
Reserve estimation is an interpretive process based on drilling
results and experience as well as estimates of mineralization
characteristics and mining dilution, metal prices, costs of mining and
processing, capital expenditures and many other factors. Grades of
mineralization processed at any time also may vary from reserve
estimates due to geologic variations within areas mined. Production
may vary from estimates because of changes in reserves, variations in
mineralization mined from estimated grade and metallurgical
characteristics, unexpected ground conditions, mining dilution, labor
actions, and government restrictions. Cash costs may differ due to
variations in reserves and production estimates, unexpected mining
conditions, and changes in estimated costs of equipment, supplies,
utilities and labor and exchange rates. Noncash estimates, based on
total capital costs and reserve estimates, could change based on
actual amounts of capital incurred. Actual quality and
characteristics of deposits cannot be fully assessed until
mineralization is actually mined and as a result, reserves change over
time to reflect actual experience.
<PAGE>
Risks Inherent in the Mining Industry
-------------------------------------
Development of the Brisas property is subject to all of the risks
inherent in the mining industry, including environmental hazards,
industrial accidents, labor disputes, unusual or unexpected geologic
formations, cave-ins, flooding and periodic interruptions due to
inclement weather. Such risks could result in damage to, or
destruction of, mineral properties and production facilities, personal
injury, environmental damage, delays, monetary losses and legal
liability. Insurance covering environmental or other catastrophic
liabilities is not currently maintained, and is not expected to be
maintained in the future unless it is economically feasible.
Insurance against environmental risks (including pollution or other
hazards resulting from the disposal of waste products generated from
exploration and production activities) is not generally available, on
an economic basis, to companies in the mining industry at present.
Were the Company subjected to environmental or other liabilities, the
payment of such liabilities would reduce available funds and in the
event the Company was unable to fund the cost of remedying an
environmental problem, it might be required to suspend operations or
enter interim compliance measures pending completion of remedial
activities.
Foreign Operations
------------------
At December 31, 1998, approximately 64 percent of the Company's
identifiable assets (98 percent of its noncash and investment assets)
were located in Venezuela. In the past, inflation and other economic
conditions in Venezuela have, on occasion, resulted in political and
social turmoil, but to date, such conditions have not adversely
affected the Company's operations. Nonetheless, the Company's future
operations and investments could be adversely affected by exchange
controls, currency fluctuations, taxation, judicial decisions and laws
or policies of Venezuela and the United States affecting trade,
investment, taxation and other factors. Development time schedules
and future reclamation and remediation cost estimates are based on
existing and expected legal requirements, past experience, cost
estimates by management and others, expectations regarding government
action and time for government agencies to act, all of which change
over time and require periodic re-evaluation. Whether and to what
extent current or future economic, regulatory or political conditions
may affect future development cannot be predicted.
Environmental Matters
---------------------
Venezuela maintains environmental laws and regulations for the mining
industry which impose significant obligations on companies doing
business in the country. The Company has been issued the necessary
permits to complete its current activities related to the feasibility
study on the Brisas property. Management expects to obtain additional
permits for future development of the Brisas property and expects to
submit an environmental impact statement to the Ministry of Ambiente
and Renewable Natural Resources ("MARNR") and Ministry of Energy and
Mines ("MEM") addressing development and reclamation of the entire
Brisas property.
<PAGE>
The Brisas property is located within the Imataca Forest Reserve (the
"Imataca"), which is comprised of 3.6 million hectares in the State of
Bolivar. In 1986, an area (in which the Brisas property is located)
in the southwestern part of the Imataca was authorized, by
presidential decree, for mining exploration and exploitation
activities. Subsequent legislation in 1997 identified additional uses
and activities, including mining, within the Imataca. The 1997
legislation and previously issued regulations allowing mining
activities within the Imataca were later challenged by several parties
as unconstitutional. In response to this challenge, the Venezuelan
Supreme Court (the "Court") issued an order prohibiting the MEM from
granting new concessions pursuant to the 1997 legislation, but
excluded challenges to previous legislation authorizing mining in
certain regions of the Imataca. Management has been advised by its
Venezuelan attorneys that it is unlikely that future rulings by the
Court related to this issue will impact the Company's concessions, but
there can be no assurance that an adverse ruling that affects the
Company will not occur.
Gold and Copper
---------------
The price of gold and copper has a significant influence on the market
price of the Company's shares and the Company's business activities.
The price of gold is affected by numerous factors beyond the Company's
control, such as the level of inflation, fluctuation of the United
States dollar and foreign currencies, global and regional demand, and
the political and economic conditions of major gold producing
countries throughout the world. Recently the price of gold has been
at a nineteen-year low. Copper prices also fluctuate and are
generally affected by global and regional demand and existing
inventories. As of March 31, 1999, the closing prices for gold and
copper were: Gold: $279.60 per ounce, Copper: $0.622 per pound. The
following table sets forth the average of the daily closing price for
gold and copper for the periods indicated as reported by the London
Metal Exchange:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
5 Yr. Avg. 1998 1997 1996 1995 1994
---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gold ($ per ounce) 358.00 294.00 340.00 388.00 384.00 384.00
Copper ($ per pound) 1.04 0.75 1.03 1.04 1.33 1.05
</TABLE>
Project Development
-------------------
Capital expenditures estimates for the Brisas property are based on
currently available information as outlined in the pre-feasibility
report and, as it is not unusual in new mining operations to
experience unexpected problems during development, costs could
increase depending upon a number of factors within and beyond the
Company's control. The capital cost estimates contained in the pre-
<PAGE>
feasibility report are based on operating experience, expected
production, estimates by and contract terms with third-party
suppliers, expected legal requirements, feasibility reports by Company
personnel and independent contractors, and other factors. Factors
involved in estimated time for completion of projects include
management's experience in completing capital projects, estimates by
and contract terms with contractors, engineers, suppliers and others
involved in design and construction of projects, and estimated time
for government entities to process applications, issue permits and
take other actions. Changes in any of these factors may cause costs
and time for completion to vary significantly from estimates.
Dependence on Financing Activities
----------------------------------
The Company has no revenue from operations and has financed its
activities primarily from the sale of its common shares. Management
anticipates that the Company's present cash position of approximately
$22.5 million will be sufficient to cover estimated operating and
capital expenditures, primarily those associated with the completion
of the feasibility study of the Brisas property, into 2000.
Significant additional financing will be needed if and when
construction on the property commences. Management, however,
currently has no plans to raise funds through the sale of equity or
debt given the continued depressed metals market.
Recurring Losses
----------------
The Company has no revenue from mining operations and has experienced
losses from operations for each of the last five years. Management
expects to continue to incur losses from operations for the next
several years as the result of, among other factors, increased
expenditures associated with the management of activities on the
Brisas property as well as other exploration expenses not associated
with the Brisas property. This trend is expected to reverse if and
when the Brisas property is developed and gold and copper are produced
in commercial quantities.
Key Personnel
-------------
The Company is dependent upon the abilities and continued
participation of key management personnel and if it were to lose the
services of such employees, it could have a material adverse effect on
future operations.
<PAGE>
ITEM 2. Description of Property
THE BRISAS PROPERTY
Location
--------
The Brisas property is located in the KM 88 mining district in the
State of Bolivar, southeastern Venezuela approximately 373 kilometers
(229 miles), by paved highway, southeast of Puerto Ordaz. The
property, 3.5 kilometers (1.5 miles) west of the KM 88 marker on
Highway 10, occupies a rectangular area of 2,500 meters (1.5 miles)
north-south by 2,000 meters (1.25 miles) east-west or approximately
500 hectares (1,235 acres) and is accessible by an all-weather road.
Ownership
---------
The Brisas property consists of the Brisas alluvial concession, the
Brisas hardrock concession beneath the alluvial concession, other
applications for mineralization (primarily nominal values of copper
and silver) in the material contained in the alluvial concession and
other mineralization (primarily gold, copper and molybdenum) on small
land parcels contiguous to the existing alluvial and hardrock
concessions.
The Brisas alluvial concession was acquired in 1992 through the
acquisition of Compania Aurifera Brisas del Cuyuni, C.A. Management
submitted an application for the Brisas hardrock concession in
February 1993. The Brisas hardrock concession was granted to the
Company in March 1998. The alluvial concession was previously granted
to Brisas in 1988.
The Brisas alluvial concession is a exploitation concession, with an
original term of twenty (20) years, with two renewal periods of 10
years each, at the discretion of MEM, and a three percent (3%)
assessment (1% mining tax and 2% royalty) on gold sales outside of
Venezuela. The Brisas hardrock concession is a exploitation
concession with a term of twenty (20) years with two subsequent
renewal periods of 10 years each, at the discretion of the MEM. The
hardrock concession provides for a four percent (4%) assessment (1%
mining tax and 3% royalty) on gold sales outside of Venezuela and a
seven percent (7%) mine mouth assessment (1% mining tax and 6%
royalty) on copper production. Gold sold directly to the Central Bank
of Venezuela is assessed a one percent (1%) tax and no royalty.
Regional Infrastructure
-----------------------
The project site is located in the Guayana region, which makes up
approximately one-third of Venezuela's national territory. The
nearest main city is Puerto Ordaz, with 600,000 inhabitants, situated
on the bank of the Orinoco River near its confluence with the Caroni
River. Puerto Ordaz has major port facilities, accessible to ocean-
going vessels from the Atlantic Ocean, via the Orinoco, a distance of
about 200 km. Puerto Ordaz is the center of major industrial
<PAGE>
developments in the area, including iron and steel mills, aluminum
smelters, iron and bauxite mining and forestry. These industries are
supported by major dams and hydroelectric generating plants on the
Caroni River, which provide 12,900 MW of electricity. The CVG power
authority, Electrificacion del Caroni C.A. ("EDELCA"), is constructing
a 400 kV power line south from Puerto Ordaz into Brazil. The route
runs through the community of Las Claritas, nearby the project, and is
expected to supply sufficient power for both Placer Dome Inc.'s Las
Cristinas and the Company's Brisas property.
Puerto Ordaz is a modern urban center with good road and air
connections to the rest of Venezuela. There are regularly scheduled
flights to Caracas and other major cities several times daily. There
are also port facilities 428 km northwest of Puerto Ordaz on the
Caribbean coast. Guanta, near Barcelona, would likely be the port of
entry for most construction, mining and milling equipment. The port
facilities at Puerto Ordaz are generally dedicated to serving the bulk
handling requirements of the area's basic industries. However, Puerto
Ordaz has potential for the development of facilities for the export
of copper concentrates in bulk. The highway system within Venezuela
is generally good, with paved roads in good condition providing access
to within 3.5 km of the Brisas property. Four-lane highways run from
Puerto Ordaz both northwest to Barcelona and Guanta, and for 55 km
south to Upata where it becomes two lane on into Brazil.
Geology
-------
The Brisas property is within the Proterozoic granite-greenstone
terrain of the Guyana shield. The shield covers eastern Columbia,
southeastern Venezuela, Guyana, Suriname, French Guiana and
northeastern Brazil. The terrain is a thick section of andesite to
dacite volcanics intruded by numerous granite stocks and batholiths.
Several periods of deformation, metamorphism, and mineralization can
be documented within this terrain. The rock units on the Brisas
property are divided into weathered and unweathered. Weathered rock
or saprolite is further defined by the degree of oxidation into oxide
saprolite and sulfide saprolite. Both contain clays and quartz with
the oxide saprolite having iron oxides such as hematite and goethite
while in the sulfide saprolite the iron is present as pyrite. The
unweathered rocks consist of andesite or dacite tuffs that are further
subdivided based on the presence or absence of mineral crystals and
lithic or lapilli fragments. Unweathered intrusive rocks include a
tonolite stock and basalt dikes and sills. The tuffs strike northerly
and dip 30 to 35 degrees to the west. No faulting can be recognized
within the deposit. The mineralization is stratabound and strataform
within a 200-meter thick series of tuffs marked by rapid horizontal
and vertical facies changes. Three styles of mineralization are seen:
(1) massive sulfide-quartz-tourmaline breccia with pyrite,
chalcopyrite, and gold in an outcrop referred to as the Blue Whale,
(2) stratabound, disseminated pyrite-gold-copper mineralization, and
(3) quartz-calcite high angle veins marked by erratic but high gold
values. The disseminated mineralization is characterized by a
<PAGE>
calcite-quartz-epidote-sulfide alteration and constitutes the bulk of
the economic mineralization. There appears to be no relationship
between the disseminated mineralization and the high angle veins. The
mineralization north of 2500N is pyrite-chalcopyrite-gold with the
copper content decreasing to the south until in the southern portion
of the deposit the copper is a minor constituent of the
mineralization. Mineralization is open down dip to the west and to
the north.
Exploration
-----------
Historical surface and alluvial mining by local miners helped identify
the property as a target for gold exploration. Exploration and
development activities, commenced in 1992, on the Brisas property have
included surface mapping and geochemical sampling, drilling, assaying,
petrology and mineral studies, and metallurgical sampling as well as
approximately 160,000 meters of drilling comprised of 750 holes.
These activities confirmed the presence of a large deposit of
stratabound gold-copper mineralization which is presently over 1,900
meters long and 500 to 900 meters wide. Scattered drill holes to the
west of the main body of the deposit demonstrate that mineralization
continues for an unknown distance down dip to the west and to the
north. Mineralized areas have also been intersected below the current
deposit. Future exploration on the Brisas property is expected to
include additional surface mapping and sampling, and drilling as
conditions warrant.
<PAGE>
Mineral Resource
----------------
Based on extensive exploration data, the Brisas property is estimated
to contain a total mineral resource of 8.71 million ounces of gold and
approximately 1.06 billion pounds of copper (based on 0.5 gram per
tonne gold equivalent cut-off). The mineral resource based on 0.5
gold equivalent cut-off grade is summarized in the following tables:
<TABLE>
<CAPTION>
Measured Indicated Inferred Total
Au Eq ------------------------- ------------------------- ------------------------- -------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade kt (g/t) (%) kt (g/t) (%) kt (g/t) (%) kt (g/t) (%)
------ ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.50 33,386 0.833 0.136 258,286 0.738 0.128 72,623 0.723 0.145 364,296 0.744 0.132
<CAPTION>
Measured Indicated Inferred Total
Au Eq ------------------------- ------------------------- ------------------------- -------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade oz. lb. oz. lb. oz. lb. oz. lb.
------ ------- ------- ------- ------- ------- ------- ------- -------
millions millions millions millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.50 0.894 100 6.128 729 1.688 232 8.710 1,061
</TABLE>
<PAGE>
Proven and Probable Reserves
----------------------------
The initial stage of a feasibility study, a pre-feasibility report,
was originally completed in February 1998 with the assistance of JE
MinCorp, a Division of Jacobs Engineering Group Inc. and a number of
other independent consultants.
In 1997, Behre Dolbear audited the data collection procedures used by
the Company. The purpose of that study was to review and confirm the
adequacy and acceptability of the data collection procedures used by
the Company to establish the database for completing future reserve
estimates at the Brisas property. Behre Dolbear concluded in their
1997 report that: technical data collection procedures meet or exceed
accepted industry standards; assay laboratories provide reliable and
acceptable results; and the database being compiled by the Company at
the Brisas property is of a quality appropriate for utilization in a
reserve study suitable for obtaining financing.
In January 1998, Behre Dolbear completed an additional audit of the
Company's modeling and reserve methodology utilized for the pre-
feasibility report. They concluded that estimating techniques used
were an accurate representation for the reserves; drill hole spacing
was sufficient to generate future estimates of proven and probable
reserves; and the database was correct and reliable.
In August 1998, the Company completed its first supplement to the
pre-feasibility report which was more limited in scope than the
original pre-feasibility report and included (1) a revised mine
operating plan, resulting in an estimated 7% reduction in previously
estimated cash operating cost and, (2) an on-site copper production
process coupled with the revised mine operating plan, resulting in an
estimated 24% reduction in previously estimated cash operating cost.
Using a price of $335 per ounce of gold and $0.90 per pound of copper
this supplemental report estimated the Brisas property contained
approximately 200 million tonnes of mineralization with an average
grade of 0.77 grams per tonne gold and 0.14% copper and a waste to
ore ratio of 1.97:1. Supplemental pre-feasibility report estimates
of pre-tax operating cash costs (mining, processing, concentrate
transportation, smelting and refining expenses using $1 copper
credit) for off-site and on-site copper production approximate $206
and $169 per ounce of gold net of copper revenues, respectively.
Total pre-tax costs per ounce of gold produced including life of mine
capital for off-site and on-site copper production are estimated at
$288 and $262 respectively, excluding previously incurred costs.
Exploitation taxes and royalties add approximately $9 per ounce of
gold to the total cost per ounce.
Based on additional drilling, further analysis of the data and
implementation of recommendations made by Behre Dolbear, the Company
in March 1999, announced that the Brisas property contains proven and
probable reserves of 5.6 million ounces of gold and 655 million
pounds of copper using US $300 per ounce gold and US $0.80 per pound
<PAGE>
copper. The Brisas property is presently estimated to contain
approximately 223.1 million tonnes with an average grade of 0.78
grams per tonne gold and 0.13 percent copper and a waste to ore ratio
of 1.44:1. Gold recoveries vary between 55 and 87 percent depending
on mineralization type and grade. At a plant feed grade of 0.78
grams gold per tonne, the total recovery of gold is anticipated to be
79 percent. Recovery of copper, at an average feed grade of 0.13
percent, is anticipated to be 82.5 percent.
The Brisas property economics noted above are a product of a number
of revisions to the pre-feasibility report which will continue to be
modified until the final feasibility study is completed. Revised
economics are being developed using revised pit designs and processes
and management expects to complete the final feasibility study in
2000.
The proven and probable reserve estimate was audited by Behre Dolbear
verifying the reserves as well as a significant decrease in the waste
to ore ratio. The results of the audit also concluded that the
reserve risk for the project is low and there is upside potential for
additional reserves at the Brisas property because the
mineralization can be extrapolated with quite high confidence beyond
the current drilling in the down dip direction and to the north.
The audited reserve estimates have been prepared in accordance with
reporting requirements of applicable Canadian Securities Commissions
and calculated using both $300 per ounce of gold and $0.80 per pound
of copper as well as $335 per ounce of gold and $0.90 per pound of
copper (and $3.30/t revenue cutoff). Both calculations are presented
in tabular form below.
<PAGE>
Pit design using $300/oz Au and $0.80/lb Cu
-------------------------------------------
<TABLE>
<CAPTION>
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (g/t) (%) (thousands) (thousands) (thousands) (thousands) Ratio
-------- ----------- -------- -------- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proven 30,504 0.857 0.140 841 94,166
Probable 192,566 0.764 0.132 4,728 560,484
Total 223,070 0.776 0.133 5,569 654,650 321,763 544,833 1.44
</TABLE>
Pit design using $335/oz Au and $0.90/lb Cu
-------------------------------------------
<TABLE>
<CAPTION>
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (g/t) (%) (thousands) (thousands) (thousands) (thousands) Ratio
-------- ----------- -------- -------- ----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proven 33,106 0.821 0.139 874 101,467
Probable 215,527 0.725 0.136 5,021 646,323
Total 248,633 0.737 0.136 5,895 747,790 321,850 570,483 1.29
</TABLE>
<PAGE>
A large-scale open pit mining operation consisting of drilling,
blasting, loading, and truck haulage to carry ore to the crusher and
waste to the waste repository is presently contemplated on the Brisas
property. Based on present estimates, the plant is expected to
process an estimated 55,000 tonnes per day, yielding an estimated
average annual production of as much as 355,000 ounces of gold and 43
million pounds of copper, over a mine life of 13 years. The
processing flowsheet contained in the pre-feasibility report and
developed from metallurgical testwork completed by three independent
laboratories includes conventional crushing with a primary gyratory
crusher and grinding with SAG mill and ball mills followed by gravity
separation to recover coarse gold, flotation and cyanidation of
cleaner flotation tailings. Present estimates of capital requirements
for initial construction, ongoing life of mine requirements and
working capital needs for off-site and on-site copper production would
be between $350 million and $400 million, respectively.
The ultimate design of the plant is subject to the results of the
final feasibility study. Construction of the planned facility is
expected to take approximately 18 to 24 months, with commissioning and
achievement of commercial production expected shortly thereafter.
Most operating supplies are expected to be imported, probably from
North America. Electrical power is expected to be available from a
major new transmission line which is under construction starting from
Puerto Ordaz into Brazil, passing within a few kilometers of the
Brisas property. Abundant water is available in the area, and the
Company expects project requirements to be met by water pumped from
the pit de watering system, and by rainfall stored in the tailings
water pond. On site accommodations will be provided for employees,
who will be identified from both the local area and from the
industrialized area around Puerto Ordaz.
Outlook
-------
During the second quarter of 1999, the Company expects the results of
metallurgical tests designed to evaluate the potential to produce
cathode copper on-site. These tests are being conducted by Cominco
Engineering Services Ltd. (CESL), and if successful could
substantially improve project economics. While there is no obvious
reason why the Brisas property concentrates should not be amenable to
treatment by the on-site copper production process, it is emphasized
that bench scale testing has only recently commenced, and an extended
pilot campaign is recommended for final process design and costing.
The Company is also evaluating a modest development drilling program
for 1999, which could add approximately 750,000 to 1 million ounces of
gold to the present reserve estimate. The potential to increase
reserves is high because the mineralization can be extrapolated with
high confidence to extend beyond the current drilling in the down dip
direction and to the north. This drilling program is envisaged to
commence during the second quarter of 1999 and include approximately
5,000 meters of core at a cost of approximately $500,000.
<PAGE>
The overall focus of management in the upcoming eighteen months will
be permitting, securing additional sites required for process
facility, infrastructure, waste disposition and the completion of the
final feasibility study. A period of eighteen months is anticipated
in the overall project schedule for permitting as well as completion
of the final feasibility study, but there can be no assurance that
these items will be completed as planned.
In addition, continuation or completion of metallurgical testing,
geotechnical and hydrological investigations, electrical power supply
and concentrate sales agreements, and development and condemnation
drilling will occur prior to completion of the final feasibility
study. It is estimated that an additional $3 to $4 million will be
spent for completion of the final feasibility study.
VENEZUELAN MINING, ENVIRONMENT AND OTHER MATTERS
Venezuelan mining operations are subject to laws of title that differ
substantially from those of Canada and the United States, as well as
to various mining and environmental rules and regulations that are
similar in purpose to those in Canada and the United States, but more
bureaucratically complex. The complexity of the Venezuelan mining
laws is due to the numerous changes in and interpretations of mining
statutes, some of which are generally considered outdated, and is
further complicated by the necessity to acquire a number of
concessions and/or contracts to secure all of the necessary rights to
explore and mine a particular parcel of land. The following is a
summary of the more significant Venezuelan mining and environmental
laws and other laws and regulations that may affect the Company's
operations on the Brisas property, but does not purport to be a
comprehensive review of all laws or a complete analysis of all
potential regulatory considerations related to the Brisas property.
Current Venezuelan Mining Law
-----------------------------
The principal legislation governing the exploitation of mineral
resources in Venezuela is the Mining Law of 1945, which has been
supplemented through the years by various presidential, governmental
and ministerial decrees, resolutions and interpretations (in its
current form, the "Mining Law"). The Mining Law defines mining
rights and concessions, and establishes standards for obtaining,
exploring, evaluating, producing and extinguishing a concession. The
Mining Law also requires that each concession be specific as to the
minerals covered (gold, copper, silver, molybdenum, etc.) and area
(near surface mineralization ("alluvial") or subsurface mineralization
("hardrock or veta")).
Originally, the Mining Law provided for staked concessions as well as
concessions issued at the discretion of the MEM. However, in 1977,
the claim-staking provisions of the law were effectively eliminated by
a presidential decree that reserved all minerals exclusively for
Venezuela. Also, from January 1991 until July 1996, certain
<PAGE>
legislation granted CVG and its various subsidiaries the exclusive
right in the State of Bolivar to explore, evaluate and mine diamonds
and gold not previously awarded as MEM concessions. Consistent with
this exclusive right, CVG attempted to exploit the potential resources
of the region through mining contracts granted to private investors or
joint venture arrangements with foreign and local companies. Most of
those contracts or joint venture arrangements have been recognized as
valid by the MEM and are still in force.
The Mining Law creates three types of concessions, but only two types
are common. The first, an exploration and production concession,
grants the holder a two year exploration period with a possible one
year extension. After the exploration period, an additional three
years are allowed to start production on an alluvial concession and
five additional years to start production on a hardrock concession.
The second, a production ("exploitation") concession, does not provide
for an exploration period, but it does have the same three and five
year production requirements as stated above. A technical and
economic feasibility study must be submitted to the MEM for approval
within 18 months for alluvial concessionaires and within 36 months for
hardrock concessionaires. Holders of concessions are required to
report their activities to the MEM and must submit to routine
inspections by MEM representatives to confirm compliance with the
Mining Law.
Although the Mining Law specifies a term of up to 40 years for
concessions and a one-percent mining tax on all minerals except
diamonds, the MEM has enhanced the benefit to Venezuela through
Resolution 115. As outlined in this resolution, certain "special
advantages" must be offered to Venezuela for an applicant to be
granted a concession. These special advantages require that the
concession applicant agree to certain additional terms, which might
include a reduction in the life of the concession, an increase in the
amount of royalties or mining taxes to be paid and the extent to which
bonds or sureties must be posted to guarantee performance of the
applicant's obligations. In addition, applicants may also be required
to make certain improvements for the benefit of the concession
property and the surrounding area, such as constructing and
maintaining access roads, airstrips, schools and medical dispensaries,
and must agree to train local employees in modern mining exploration
and production techniques.
Proposed Mining Law
-------------------
The Venezuelan Mining Committees in the Senate and House of
Representatives have, for a number of years, been debating separate
proposals that would either amend the existing Mining Law or create a
new mining law. Throughout most of 1998, as in prior years, there was
considerable debate, but little progress toward passing a law that is
acceptable to industry, the MEM and Congressional Mining Committees.
The Mining industry is lobbying for its own draft of a new mining law,
which would return the provisions for claim-staking as provided in the
original Mining Law. Other important changes could include all
<PAGE>
minerals in one concession, include both alluvial and veta
mineralization in one concession, provide longer exploration periods
and would require competitive mining tax rates and royalty rates, as
compared to other countries that have an active mining industry. The
recent presidential and congressional elections in 1998 will likely
delay the progress of any possible modifications to the current mining
law in 1999.
Environmental Laws and Regulations
----------------------------------
Venezuela's environmental laws and regulations are administered
through the MARNR. The MARNR proscribes certain mining recovery
methods deemed harmful to the environment and monitors
concessionaires' activities to ensure compliance. Before the Company
can begin construction and production at the Brisas property, it must
obtain three different permits from the MARNR: (1) Permit to Occupy
the Territory ("Occupation Permit"), (2) Permit to Affect for
Exploration ("Exploration Permit") and (3) Permit to Affect for
Construction and Exploitation ("Exploitation Permit"). Although not
consistently applied in the past, regulations state that the MEM will
apply for and obtain the Occupation Permit on behalf of those persons
or entities applying for concessions before granting the concession
title. Applicants submit an environmental questionnaire to MEM, which
they in turn submit to the MARNR. The exploration permit for which
Brisas applies for annually, is an authorization to perform only those
activities relating to exploration, such as drilling, building of
camps, cutting lines and trenching. The production permitting process
is initiated by filing the proposed terms of reference, which when
approved, will serve as the basis for an Environmental Impact
Statement (EIS). The format for the EIS is stipulated in a 1996 law
(decree #1257) and conforms to an international standard.
The Company holds the Occupation Permit for the Brisas alluvial and
hardrock concessions and plans to continue to apply for additional
permits as further development dictates. Management believes that the
alluvial and hardrock concessions should be exploited as one project.
Because the law treats each concession separately, the Company plans
to initiate discussions with the MEM and MARNR to seek alternatives to
the duplication of environmental studies and permitting. There can be
no assurance, however, that the Company's efforts to reduce such
duplication will be successful.
Taxes
-----
The Venezuelan tax law provides for a maximum corporate income tax
rate on mining companies of thirty-four percent (34%). This rate
applies to net income over approximately $32,000 depending on exchange
rates. Other Venezuelan taxes that apply or may eventually apply to
the Company's subsidiaries include a one percent (1%) tax on paid-in-
capital (equity), a sixteen and one-half percent (16.5%) luxury goods
and wholesale tax, which applies to goods and services, municipal
taxes, which vary from one tenth of one percent (.1%) to ten percent
<PAGE>
(10%), import duties on mining equipment, which range from five (5%)
to twenty (20%) percent, surface taxes, which are currently set at
less than $1 per hectare per concession, and exploitation taxes, which
range from one percent (1%) to seven percent (7%) depending on the
metal and whether it is sold domestically or exported. Brisas
currently pays luxury goods and wholesale taxes on certain purchases
within Venezuela and expects that taxes on revenue generated from the
future sale, if any, of gold to the Central Bank of Venezuela will
result in a refund of these taxes. To date, the Company has paid or
accrued approximately $1.3 million of luxury goods and wholesale
taxes. Venezuela offers certain exemptions from the luxury goods and
wholesale taxes and import duties to mining companies. Management
expects to apply for exoneration in the future.
Political and Economic Situation
--------------------------------
In November and December of 1998, Venezuela held elections for state
Governors, Congress and Presidency. The results of these elections
demonstrate the high level of dissatisfaction Venezuela's voters have
with the country's established political parties. The new President,
Hugo Chavez Frias, has promised profound changes including a new
constitution and a war against corruption. Venezuela has frequently
suffered high inflation over the past decade, with 1998 and 1997
inflation being approximately 29.9% and 37.6%, respectively. Despite
the political uncertainty created by the elections, the currency has
not depreciated as much as expected. A 10.8% annual devaluation
compared to the 29.9% inflation rate has added to the concern of
overvaluation which is estimated to be between 40% and 50%.
Drastically lower oil prices caused a decline of GDP of 0.7% compared
to a 1997 increase of' 5.7%. With Venezuela's 1999 budget deficit
estimated at $7 to $9 billion, the new administration may be forced to
consider a currency devaluation.
Gold Sales
----------
The Central Bank of Venezuela (BCV) allows gold mining companies to
sell up to 85 percent of their production on the international market.
The remaining 15 percent must be sold to the BCV at the current market
price, which is paid in Venezuelan currency. Gold sold to parties
other than the BCV will be assessed a mining tax (currently 1 percent
of the value of' production) plus whatever additional royalty that was
agreed to by special advantage. In the Company's case, gold sold
internationally will be assessed a combined maximum rate of four
percent of gold produced. If gold is sold to the BCV, no royalty is
assessed and the maximum mining tax would be one percent of the value
of gold sold.
Labor
-----
Venezuela has extensive labor laws and regulations. During 1998,
Venezuela entered into major agreements with the public and private
sectors on new social security laws, which are expected to improve
<PAGE>
benefit plans for employees. Management plans to fill as many
positions as possible with Venezuelan nationals. It is anticipated
that, in the initial stages of the Brisas property project,
approximately 95 percent of the workforce will be Venezuelan. In
order to maintain or exceed this level, the Company will implement an
extensive training program over the life of the project on the Brisas
property. Management plans to draw on Venezuela's large industrial
base to staff many of its positions, but the experience base for
large-scale mining and milling operations in Venezuela is limited.
The Brisas property project will draw on the Puerto Ordaz area to fill
a significant portion of the required management, engineering and
administration staff with the remaining positions to be filled from
the local (Las Claritas) area.
ITEM 3. Legal Proceedings
Management is unaware of any legal proceedings, either threatened or
pending, to which the Company is or is likely to be a party, or of
which any of its properties or assets is or is likely to be the
subject, that are material to the business and affairs of the Company.
ITEM 4. Control of Registrant
To the best of the Company's knowledge, no person beneficially owns,
directly or indirectly or exercises control or direction over, shares
carrying more than 5% of the voting rights attached to the Company's
issued and outstanding common shares as of the date of this report
other than shown in the table below.
Amount of
Beneficial
Ownership Percent
------------- -------
Blue Grotto Trading Ltd. 1,198,400 5.2%
Directors and officers as a group (11 persons) 3,247,929 (1) 12.5%
(1) includes 2,089,492 shares subject to options exercisable within
60 days.
A special meeting of shareholders was scheduled for December 30, 1998,
in Spokane, Washington, to obtain approval of a plan of reorganization
whereby Gold Reserve Corporation would become a subsidiary of Gold
Reserve Inc., the successor issuer. Gold Reserve Corporation failed
to obtain a quorum at its original meeting and after a number of
postponements, subsequently obtained a quorum and the minimum
affirmative vote of 66 2/3% of shareholders entitled to vote on
February 4, 1999.
<PAGE>
ITEM 5. Nature of Trading Market
The Class A common shares of the Company are traded on The Toronto
Stock Exchange ("TSE"), under the symbol "GLR.A" and on the NASDAQ
SmallCap Market under the symbol "GLDR". Neither the equity units nor
the underlying Class B common shares of each of Gold Reserve Inc. and
Gold Reserve Corporation are listed for trading on any exchange. The
plan of reorganization, whereby Gold Reserve Inc. (the successor
issuer) became the parent company of Gold Reserve Corporation, was not
completed until February 1999. As a result, the following table sets
out the high and low quarterly prices per Gold Reserve Corporation
common share for 1998 and 1997, as reported by the TSE and NASDAQ.
<TABLE>
<CAPTION>
TSE NASDAQ
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
High Low High Low High Low High Low
------ ------ ------ ------ ------ ------ ------ ------
Canadian Dollars U.S. Dollars
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 5.35 $ 3.10 $15.60 $ 9.65 $ 3.75 $ 2.25 $11.50 $ 7.38
Second Quarter 5.40 2.50 14.00 9.80 3.75 1.75 9.63 7.00
Third Quarter 3.19 1.40 11.80 7.80 2.00 0.88 8.50 5.50
Fourth Quarter 3.00 1.38 11.15 2.35 1.88 0.88 8.00 1.75
</TABLE>
On March 31, 1999, the closing price for a Class A common share of the
Company was $1.88 per share (Canadian Dollars) on the TSE and $1.06
per share on NASDAQ.
The number of holders of common shares of record on March 31, 1999 was
approximately 1,200. Based on recent mailings to its shareholders,
the Company believes its common shares are owned beneficially by
approximately 10,000 shareholders. An estimated 76% of the Company's
shareholders are Canadian who own approximately 62% of the Company's
outstanding shares, with the remaining shareholders, primarily U.S.
holders, owning the remaining outstanding shares.
The Company has not declared cash or share dividends on its common
shares since 1984 and has no present plans to pay any cash or share
dividends on its common shares. The Company will only declare
dividends in the future if the earnings and capital of the Company are
sufficient to justify the payment of such dividends.
<PAGE>
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders
There are no Canadian laws that restrict the export or import of
capital, including foreign exchange controls, or that affect the
payment of dividends to non-resident holders, except as described in
Item 7 below.
Presently, the Company does not carry on any business in Canada. If,
however, in the future the Company carries on a Canadian business, as
defined in the Investment Canada Act, an acquisition of control of the
Company by non-Canadians will be subject to the Investment Canada Act.
The Investment Canada Act provides, among other things, that any non-
Canadian, as defined in the Investment Canada Act, proposing to
acquire control of a Canadian business through the acquisition of
voting shares or the acquisition of all or substantially all the
assets of the Canadian business must give notice in the prescribed
form to Investment Canada, an agency of the Canadian government, and
may be required to obtain approval from Investment Canada prior to
implementation of such acquisition. The term "non-Canadian" is
defined in the Investment Canada Act to include an individual who is
neither a citizen nor a permanent resident of Canada, a foreign
government or any corporation or other entity that is not Canadian-
controlled.
The Investment Canada Act deems that the acquisition of a majority of
the voting shares of a corporation by a non-Canadian constitutes
acquisition of control of such corporation. The acquisition of one-
third or more (but less than a majority) of the voting shares of a
corporation by a non-Canadian is presumed to be an acquisition of
control of the corporation unless it can be established that the
acquiror does not in fact control the corporation through the
ownership of voting shares. The acquisition of less than one-third of
the voting shares of a corporation is deemed not to be an acquisition
of control of the corporation. If an acquisition of control of a
corporation is made in contravention of the Investment Canada Act, a
court of competent jurisdiction may make any order it thinks fit,
including requiring the acquiror to divest its shares of the
corporation.
Except as described above, statutes in Canada and the Yukon Territory
and the charter documents of the Company do not restrict the right of
non-resident or foreign owners to hold or vote common shares of the
Company.
At the 1997 annual meeting of Gold Reserve Corporation shareholders, a
"Shareholder Rights Plan" was voted upon and approved. As part of the
1999 reorganization described in Note 1 of the consolidated financial
statements, the Shareholder Rights Plan was assumed by the successor
issuer Gold Reserve Inc. The Shareholder Rights Plan is intended to
give adequate time for shareholders of the Company to properly assess
the merits of a take-over bid without pressure and to allow competing
bids to emerge. The Shareholder Rights Plan is designed to give the
<PAGE>
board of directors time to consider alternatives to allow shareholders
to receive full and fair value for their common shares. One right is
issued in respect of each outstanding share. The rights become
exercisable only when a person, including any party related to it or
acting jointly with it, acquires or announces its intention to acquire
20 percent or more of the Company's outstanding shares without
complying with the "permitted bid" provisions of the Shareholder
Rights Plan. Each right would, on exercise, entitle the holder, other
than the acquiring person and related persons, to purchase common
shares of the Company at a 50% discount to the market price at the
time.
ITEM 7. Taxation
The following is a summary of certain Canadian federal income tax
considerations, pursuant to the Income Tax Act (Canada) (the "Tax
Act), generally applicable to holders of common shares who, for
purposes of the Tax Act are not resident and are not deemed to be
resident in Canada, do not carry on an insurance business in Canada,
hold the common shares as capital property and do not use or hold, and
are not deemed to use or hold, common shares in the course of carrying
on a business in Canada.
Holders of common shares who are non-residents of Canada will not be
subject to Canadian federal income tax for dispositions of common
shares unless such holder, together with non-arm's length persons,
owned 25% or more of the shares of any class of capital stock of the
Company at any time within the previous 5 years. Where the holder,
together with such non-arm's length persons, has held 25% or more of
the shares of any class of capital stock of the Company in the
previous 5 year period, such holder will be subject to Canadian income
tax for such dispositions unless the applicable tax treaty (if any)
between Canada and the country in which such holder resides provides
that Canadian income tax is not applicable. For instance, the Canada-
US. Income Tax Convention (1980) (the "Canada-US Treaty") provides
that Canadian income tax will not be applicable to a disposition of
common shares by a holder thereof who is resident in the United States
for the purposes of the Canada-U.S. Treaty.
Dividends paid or credited, or deemed to be paid, to shareholders that
are non-residents of Canada for purposes of the Tax Act will be
subject to Canadian withholding tax. The rate of Canadian withholding
tax on dividends, pursuant to the Tax Act is 25%, subject to any
reduction in the provisions of a tax treaty between Canada and the
country in which the recipient is resident. The Canada-U.S. Treaty
provides for a general reduction in the rate of Canadian withholding
tax to residents of the United States. The withholding tax rate on
dividends paid to United States residents, who are beneficial owners
of the dividends, is reduced to 15% by the provisions of the
Canada U.S. Treaty. The withholding rate is further reduced to 5% in
the case of a recipient that is a United States corporation which
beneficially owns at least 10% of the voting shares of a Canadian
company.
<PAGE>
The following is a summary of certain material U.S. federal income tax
consequences generally applicable to U.S. holders of the Company's
common shares. This summary does not address tax treatment under
applicable state, local, foreign or other tax laws and generally does
not take account of rules that may apply to U.S. holders that are
subject to special treatment, including, without limitation: (1)
insurance companies, dealers in securities, certain retirement plans,
financial institutions, tax exempt organizations or holders of
securities held as part of a "straddle," "hedge" or "conversion
transaction" with other investments and taxpayers whose functional
currency is not the United States dollar or (2) shareholders owning
directly, indirectly or by attribution, 10% or more of the Company's
common shares.
Shareholders are urged to consult their own tax advisors as to the
particular tax consequences to them. For purposes of this discussion,
a "U.S. Holder" is any shareholder that is a citizen or resident of
the United States, a corporation, partnership or other entity created
or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its
source. A "Non-U.S. Holder" is any shareholder other than a U.S.
Holder. The discussion below assumes that the Company's common shares
are held as a capital asset.
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS FOR U.S. HOLDERS.
For U.S. federal income tax purposes, the gross amount of dividends
paid by the Company to U.S. Holders will be treated as foreign source
dividend income to the extent paid out of current or accumulated
earnings and profits. These dividends will not be eligible for the
dividends received deduction generally allowed to U.S. corporate
shareholders on dividends from U.S. domestic corporations. To the
extent that an amount received by a U.S. Holder exceeds the allocable
share of current and accumulated earnings and profits, such excess
will be applied first to reduce such U.S. Holder's tax basis in its
shares and then, to the extent in excess of such U.S. Holder's tax
basis, such excess will constitute gain from a deemed sale or exchange
of such shares. For U.S. foreign tax credit purposes, dividends on
the shares will generally constitute "passive income," or, in the case
of certain U.S. Holders, "financial services income." U.S. Holders may
elect annually to either deduct Canadian withholding tax against their
income or to credit the withholding taxes against their U.S. tax
liability, subject to U.S. foreign tax credit limitation rules.
CLASSIFICATION OF THE COMPANY AS A CONTROLLED FOREIGN CORPORATION
Under Section 951 (a) of the Internal Revenue Code (the "Code"), each
"United States shareholder" of a "controlled foreign corporation"
("CFC") must include in its gross income for U.S. federal income tax
purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. In addition, gain on the
<PAGE>
sale of stock in a CFC realized by a United States shareholder is
treated as ordinary income to the extent of such shareholder's propor-
tionate share of the CFC's undistributed earnings and profits accumu-
lated during such shareholder's holding period for the stock.
Section 951 (b) of the Code defines a United States shareholder ("U.S.
Shareholder") as any U.S. corporation, citizen, resident or other U.S.
person who owns (directly or through certain deemed ownership rules)
10% or more of the total combined voting power of all classes of stock
of a foreign corporation. In general, a foreign corporation is
treated as a CFC only if such U.S. Shareholders collectively own more
than 50% of the total combined voting power or total value of the
corporation's stock. Under these rules the Company does not expect to
be a CFC. If the Company is treated as a CFC, the Company's status as
a CFC should have no adverse effect on any shareholder of the Company
that is not a U.S. Shareholder.
PASSIVE FOREIGN INVESTMENT COMPANY STATUS
Sections 1291 through 1298 of the Code contain special rules
applicable with respect to foreign corporations that are "passive
foreign investment companies" ("PFICs"). The Company will be a PFIC
if 75% or more of its gross income (including a pro rata share of the
gross income of any company (United States or foreign) in which the
Company is considered to own 25% or more of the shares by value) in a
taxable year is passive income. Alternatively, the Company will be
considered to be a PFIC if at least 50% of the assets (averaged over
the four quarter ends for the year) of the Company (including a pro
rata share of the assets of any company of which the Company is
considered to own 25% or more of the shares by value) in a taxable
year are held for the production of, or produce, passive income. If
the Company becomes a PFIC, each shareholder who is a U.S. person, in
the absence of an election by such shareholder to treat the Company as
a "qualified electing fund" (a "QEF" election), as discussed below,
would, upon certain distributions by the Company or upon disposition
of the Company shares at a gain, be liable to pay tax at the highest
tax rate on ordinary income in effect for each period to which the
income is allocated plus interest on the tax, as if the distribution
or gain had been recognized ratably over the taxpayer's holding period
for the Company's common shares while the Company was a PFIC.
Additionally, were the Company to become a PFIC, U.S. Holders who
acquire the Company's common shares from decedents would be denied the
normally available step-up of the income tax basis for such shares to
fair market value at the date of death and, instead, would have a tax
basis equal to the decedent's basis, if lower.
If the Company is a PFIC and a U.S. Holder has made a QEF election for
all taxable years that such holder holds the shares of the Company,
distributions and gain will not be taxed as if recognized ratably over
the taxpayer's holding period or subject to an interest charge, gain
on the sales of the Company's shares will be characterized as capital
gain and the denial of basis step-up at death described above would
not apply. Instead, a shareholder of such a QEF is required for each
<PAGE>
taxable year the company qualifies as a PFIC to include in income a
pro rata share of the ordinary earnings of the QEF as ordinary income
and a pro rata share of the net capital gain of the QEF as long-term
capital gain, subject to a separate election to defer payment of
taxes, which deferral is subject to an interest charge.
The Company, at the request of a shareholder electing to have the
Company treated as a QEF, will comply with the applicable information
reporting requirements.
For taxable years beginning after 1997, a U.S. Holder of certain
publicly traded PFIC stock can elect to mark the stock to market
annually, recognizing as ordinary income or loss each year an amount
equal to the difference as of the close of the taxable year between
the holder's fair market value of the PFIC stock and the adjusted
basis in the PFIC stock. Losses would be allowed only to the extent
of net mark-to-market gain previously included by the U.S. Holder
under the election for prior taxable years. If the mark-to-market
election were made, then the rules set forth above would not apply for
periods covered by the election.
Following the reorganization, there is a substantial risk that the
Company will be a PFIC. U.S. Holders who hold the Company Class A
common shares during a period when the Company is a PFIC will be
subject to the foregoing rules, even if the Company ceases to be a
PFIC, subject to certain exceptions for U.S. Holders who made a QEF
election. The Company intends to monitor its status under the PFIC
rules and, in the event that the Company makes a determination that it
is a PFIC for any taxable year, it will promptly notify its U.S.
Holders of such determination and will provide its U.S. Holders with
the information needed to make a QEF election. If the Company becomes
a PFIC, a U.S. Holder who makes a QEF election for the year in which
the Company becomes a PFIC (and complies with certain U.S. federal
income tax reporting requirements) should not have any material
adverse U.S. federal income tax consequences provided that the
Company, on a single entity basis, has no ordinary earnings or net
capital gains in the years in which it is a PFIC. The Company
believes that it will not have any such ordinary earnings or net
capital gains in the years in which it may be a PFIC. However, no
assurance can be given as to this. U.S. Holders are urged to consult
their tax advisors concerning the application of the U.S. federal
income tax rules governing PFICs in their particular circumstances.
<PAGE>
ITEM 8. Selected Financial Data
The selected financial data set forth below for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 are derived from the
Company's audited financial statements and should be read in
conjunction with the Company's consolidated financial statements and
notes thereto appearing elsewhere herein and Management's Discussion
and Analysis of Financial Condition and Results of Operations. The
following selected financial data have been prepared on the basis of
accounting principles generally accepted in Canada.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(in thousands of dollars, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Other income $ 1,410 $ 1,806 $ 1,624 $ 1,537 $ 1,107
Net loss (2,450) (1,533) (830) (337) (23,740)
Loss per common share(1) (0.11) (0.07) (0.04) (0.02) (1.68)
Total assets(3) 66,919 73,282 73,769 52,176 43,184
Contract payable -- -- -- 187 124
Shareholders' equity(4) 64,713 66,538 67,191 46,987 37,821
Common shares:
Issued 23,191,767 22,918,143 22,703,811 20,476,688 18,929,668
Outstanding(2) 22,720,329 22,437,099 22,222,767 19,995,644 18,577,175
</TABLE>
(1) Basic and diluted
(2) Great Basin and MegaGold, each consolidated subsidiaries of the
Company, own common shares of the Company, representing an
indirect investment in itself. The Company's proportionate
ownership interest in the common shares held by these entities
represents the difference between issued and outstanding shares.
(3) Total assets prepared in accordance with U.S. generally accepted
accounting principles at December 31, 1998, 1997, 1996, 1995 and
1994 were $66,907, $73,293, $73,772, $52,262 and $ 43,263,
respectively.
(4) Total shareholders' equity prepared in accordance with U.S.
generally accepted accounting principles at December 31, 1998,
1997, 1996, 1995 and 1994 was $64,702, $66,549, $67,193, $47,073
and $37,900, respectively.
The Company has not declared cash or stock dividends on its common
shares since 1984 and has no present plans to pay any cash or share
dividends. The Company will declare cash or share dividends in the
future only if earnings and capital of the Company are sufficient to
justify the payment of such dividends.
<PAGE>
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORMATION OF CANADIAN PARENT
In February 1999, the shareholders of Gold Reserve Corporation, a
Montana corporation formed in 1956, approved a plan of reorganization
whereby Gold Reserve Corporation became a subsidiary of the Gold
Reserve Inc. Gold Reserve Inc. is the successor issuer to Gold
Reserve Corporation. The primary purpose of the formation of a
Canadian parent was to expand the group's profile among Canadian
investors who generally are significant investors in resource
companies.
Because the reorganization did not take place until February 1999, the
financial statements that are presented in this annual report on Form
20-F are those of Gold Reserve Corporation and subsidiaries as of and
for the years ended December 31, 1998, 1997 and 1996. The financial
position of the consolidated group subsequent to the reorganization
was substantially the same as prior to the reorganization except for
the exchange of approximately 2.3 million Gold Reserve Corporation
common shares for an equal number of equity units in lieu of Gold
Reserve Inc. Class A common shares. The proforma effect of the
reorganization is summarized in Note 1 to the consolidated financial
statements of Gold Reserve Corporation.
OVERVIEW
Since 1992, management's primary focus has been the exploration and
more recently the development of its Brisas property in Venezuela.
The Company has no revenue or cashflow from mining operations and has
experienced losses from operations for each of the last five years, a
trend management expects to continue for the next several years as the
result of, among other factors, increased expenditures associated with
the corporate management of activities on the Brisas property as well
as other exploration expenses not associated with the Brisas property.
Significant events must occur before commercial production on the
Brisas property can begin. These include the completion of the final
feasibility study, acquisition of additional infrastructure sites, the
procurement of all necessary regulatory permits and approvals and the
procurement of adequate funding. Given the successful completion of
the milestones necessary to begin construction of the mine facility,
initial production is not expected to commence any earlier than late
2001.
The consolidated results of operations for the years presented consist
of expenses related to activities other than those directly associated
with the Brisas property, which have been capitalized, partially
offset by interest income from invested funds.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Investing
---------
Total 1998 expenditures on the Brisas property approximated $2.5
million, primarily expenditures associated with the completion of a
pre-feasibility study. On a cumulative basis since inception, the
Company has expended approximately $63.4 million on the Brisas
property. These costs include property and mineral rights
expenditures of $11.1 million, capitalized exploration and development
costs and equipment expenditures of $29.8 million and prior litigation
settlement costs of $22.5 million (which were expensed in 1994).
Amounts recorded as property, plant and equipment (capitalized
exploration and development costs) include all costs associated with
the Brisas property, including personnel and related administrative
expenditures incurred in Venezuela, drilling, pre-feasibility and
related costs, capitalized interest expenses, and general support
costs related to the Brisas property.
The overall budgeted corporate expenditures for 1999, excluding
interest income estimated at approximately $1 million, is estimated at
$5.6 million. Approximately $2.4 million will be spent on the Brisas
property, primarily to complete the feasibility study. The remaining
budgeted expenditures relate to general corporate activities including
future exploration activities other than on the Brisas property.
The recovery plant, as presently proposed in the Brisas pre-
feasibility report, is expected to consist of a conventional 55,000
tonne per day, gravity/flotation/cyanidation process facility. This
facility is expected to cost an estimated $350 to $400 million,
including ongoing life of mine capital requirements and working
capital needs. The ultimate design and cost of the plant and
associated expenditures are subject to the results of the final
feasibility study.
Various permitting required for the Brisas property (primarily the
EIS) is ongoing and approvals from the MEM and the MARNR are expected
during 1999 and 2000. Final development of the Brisas property is
dependent upon the future price of gold and copper, completion of a
bankable feasibility study, obtaining adequate financing, and
obtaining the appropriate environmental and operating permits.
Construction is expected to commence after the receipt of the
necessary operating and environmental permits and as gold and copper
prices warrant. Under the timetable presently contemplated by the
Company, initial production would commence no earlier than late 2001.
Financing
---------
As of March 31, 1999, the Company held approximately $22.5 million in
cash and investments. Management anticipates that its current cash
and investment position are adequate to cover estimated operational
and capital expenditures associated with the activities on the Brisas
property as well as for general corporate activities into the year
2000.
<PAGE>
General corporate business and activities associated with the Brisas
property have historically been financed through the sale of equity.
Since 1992, approximately $68 million in equity financing has been
raised to support business activities of the Company.
Future costs of placing the Brisas property or additional future
properties into production, if warranted, will require additional
financing which is expected to be a combination of the sale of equity,
bank borrowings and/or other means. Management does not plan to raise
funds through the sale of equity or debt for the next 18 to 24 months.
Whether and to what extent additional or alternative financing options
are pursued by the Company depends on a number of important factors,
including if and when mine development activities are commenced on the
Brisas property, management's assessment of the financial markets, the
price of gold and copper, the acquisition of additional properties and
the overall capital requirements of the consolidated group.
Whether management would in the future pursue alternatives to
commercial development of the Brisas property including the sale of
the Brisas property or a joint development or similar arrangement with
another company to develop the Brisas property cannot presently be
determined. Management has not entered into discussions with any
other mining company in this regard, nor has it shared any of its
exploration data.
RESULTS OF OPERATIONS
1998 Compared to 1997
---------------------
The consolidated net loss for the year ended December 31, 1998 was
$2,450,020 or $0.11 per share, an increase of approximately $917,000
from the prior year. Other income for 1998 amounted to $1,410,179,
which is a decrease of approximately $396,000 from the previous year.
The decrease in other income is principally due to lower returns on
lower levels of invested cash. Operating expenses for the year
amounted to $3,860,199, which is an increase over the prior year of
approximately $521,000. The increase in operating expense is
primarily attributable to an increase in legal and accounting costs as
a result of the reorganization.
1997 Compared to 1996
---------------------
The consolidated net loss for the year ended December 31, 1997 was
$1,532,801 or $0.07 per share, an increase of approximately $703,000
over the prior year. Other income for 1997 amounted to $1,806,309,
which is an increase of approximately $182,000 from the previous year.
The increase in other income is principally due to higher returns on
invested cash. Operating expenses for the year amounted to
$3,339,110, which is an increase over the prior year of approximately
$885,000. The increase in operating expense was primarily related to
costs associated with the addition of new officers and employees.
<PAGE>
YEAR 2000 READINESS
Management has made an assessment of its requirements regarding Year
2000 issues, which generally refers to the inability of hardware,
software and control systems to correctly identify two-digit
references to specific years, beginning with the Year 2000. This
assessment focused on the impact of the lack of Year 2000 compliance
upon the Company in three major areas; (1) internal systems under the
control of the Company; (2) systems of third party suppliers or
contractors; and (3) systems maintained by governmental agencies and
major public and private service providers located in Venezuela.
Management's evaluation of Year 2000 readiness is expected to cost
less than $10,000.
Internally, the Company's present business operations are not
dependent upon sophisticated information systems. Management has
concluded that Year 2000 issues as they relate to internal systems
will not materially impact operations and no contingency plans have
been developed. The Company is not aware at this time of any material
relationships with third party suppliers, which if such suppliers had
significant Year 2000 problems, may have a material impact upon the
Company. To that end, the ongoing Brisas feasibility study is
expected to include an evaluation of Year 2000 readiness as it relates
to the proposed future development of the Brisas property. Although
management believes that the feasibility study will address such
issues and provide for contingency plans, the study is not yet
complete and subsequent analysis may lead to discovery of material
issues or costs.
The Brisas property is located in Venezuela and, as a result, Year
2000 readiness of governmental agencies and public and private service
providers within Venezuela may have a significant impact upon future
operations. The Company is not aware of any published reports
documenting the Year 2000 compliance efforts and progress of such
governmental agencies and major public and private service providers
located in Venezuela.
Compliance-related failures of future material third-party suppliers
and contractors providing services directly to the Company or failures
related to governmental agencies and public and private service
providers within Venezuela could be significant and could cause an
interruption of business that could be material to the Company.
Based on the current information available, the significance of Year
2000 difficulties which might be experienced by others outside the
Company's control, the magnitude of future business disruption, if
any, and the costs of such disruption cannot be determined at this
time.
<PAGE>
ITEM 9a. Quantitative and Qualitative Disclosures about Market Risk
The carrying amounts for cash and cash equivalents, accrued interest,
advances and accounts payable on the balance sheet approximate fair
value because of the immediate or short-term maturity of these
instruments. Fair value estimates are made at the balance sheet date
based on relevant market information but involve uncertainties and
therefore cannot be determined with precision. In order to limit its
market risk, the Company diversifies its cash and investment holdings
into U.S. treasury and agency obligations and major financial
institutions and corporations. The fair values of investments in
marketable securities are disclosed in Note 2 to the Consolidated
Financial Statements.
ITEM 10. Directors and Officers of the Company
The Board of Directors of Gold Reserve Inc. presently consists of
seven members. All directors presently serve until the next annual
meeting of the Company's shareholders or until their successors are
elected and have qualified. The Board of Directors appoints officers.
The following sets forth certain information regarding the Company's
Board of Directors and executive officers. The time periods referred
to below reflect the period of time the individual has been a director
or officer of the Company or Gold Reserve Corporation, the predecessor
issuer.
ROCKNE J. TIMM - 53 PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Mr. Timm became Treasurer and a director in March 1984, and became
President and Chief Executive Officer in August 1988. He was a
director of Neptune Resources Inc. and its successor, Northwest Gold
Corp., from 1987 to 1993 and Vice President of Finance, Treasurer and
Chief Financial Officer of Pegasus Gold Inc. from 1981 to 1987. Mr.
Timm is also President and a director of Great Basin and MegaGold, and
a director and an executive officer of each of the Company's foreign
subsidiaries. Mr. Timm resides in Spokane, Washington.
A. DOUGLAS BELANGER - 45 EXECUTIVE VICE PRESIDENT AND DIRECTOR
Mr. Belanger became Executive Vice President and a director in August
1988 and was Secretary from June 1993 through December 1996. He also
serves as Vice President and a director of Great Basin and MegaGold,
and a director and an executive officer of each of the Company's
foreign subsidiaries. Mr. Belanger served as Vice President for
corporate affairs of Pegasus Gold Inc. from April 1982 to June 1987.
Mr. Belanger resides in Spokane, Washington.
JAMES P. GEYER - 47 SENIOR VICE PRESIDENT AND DIRECTOR
Mr. Geyer became Senior Vice President in January 1997 and a director
in June 1997. He has also been a director of Wheaton River Minerals
since 1995. During the previous 10 years, Mr. Geyer was employed by
Pegasus Gold Inc., most recently as Vice President of Operations.
<PAGE>
Mr. Geyer has 25 years experience in underground and open-pit mining
and has held various engineering and operations positions with AMAX
and ASARCO. Mr. Geyer has a Bachelor of Science degree in mining
engineering from the Colorado School of Mines. Mr. Geyer resides in
Spokane, Washington.
PATRICK D. MCCHESNEY - 49 DIRECTOR
Mr. McChesney became a director in August 1988 and was Vice President
of Finance until March 1993 and was Chief Financial Officer from
August 1988 until June 1993. Since March 1996, Mr. McChesney has
served as President of LMO Test Systems, Inc. He is also a director
of MegaGold. From 1983 through June 1987, Mr. McChesney was
Controller of Pegasus Gold Inc. Mr. McChesney is a certified public
accountant and resides in Spokane, Washington.
JEAN CHARLES POTVIN - 45 DIRECTOR
Mr. Potvin became a director in November 1993 and since 1993 has also
been a director and Chairman and Chief Executive Officer of Tiomin
Resources Inc., and President and Chief Executive Officer and a
director of Pangea Goldfields, Inc. Prior to becoming a director,
Mr. Potvin was Senior Gold Mining Analyst, Vice President and a
director of Nesbitt Burns Inc. (formerly Burns Fry Ltd.), a major
Canadian investment dealer. Mr. Potvin resides in Toronto, Ontario.
JAMES H. COLEMAN - 48 DIRECTOR
Mr. Coleman became a director in February 1994 and is a senior partner
and Chairman of the Executive Committee of the law firm of Macleod
Dixon of Calgary, Alberta, counsel to the Company. Mr. Coleman has
been with Macleod Dixon since 1974. He is also a director of Total
Resources (Canada) Limited, McCarthy Corporation plc, Energold Mining
Ltd., Parys Mountain Mines Ltd., ENVIROFX, Net Shepherd Inc., Pangea
Goldfields, Inc. and Anadime Corp. From 1989 to 1993 he was a
director of Northwest Gold Corp. and from 1988 to 1995 was a director
of Ranchmen's Resources Ltd. Mr. Coleman is also a director of Great
Basin and MegaGold. Mr. Coleman resides in Calgary, Alberta.
CHRIS D. MIKKELSEN - 47 DIRECTOR
Mr. Mikkelsen became a director in June 1997 and has been a principal
in the accounting firm of McDirmid, Mikkelsen & Secrest, P.S., since
1976. He is a certified public accountant with an extensive
background in providing operational and tax advice to a wide variety
of clients and businesses. Mr. Mikkelsen is also a director of Great
Basin and MegaGold. Mr. Mikkelsen resides in Spokane, Washington.
ROBERT A. MCGUINNESS - 43 VICE PRESIDENT OF FINANCE AND CHIEF
FINANCIAL OFFICER
Mr. McGuinness became Vice President of Finance in March 1993 and
Chief Financial Officer in June 1993. Mr. McGuinness is also Vice
President of Finance and Chief Financial Officer of Great Basin and
MegaGold. Prior to 1993, Mr. McGuinness served as the financial
officer for several domestic and internationally-based companies
specializing in electronics and biotechnology as well as an auditor
with PricewaterhouseCoopers LLP. Mr. McGuinness is a certified public
accountant and resides in Spokane, Washington.
<PAGE>
RICHARD J. KEHMEIER - 51 VICE PRESIDENT OF EXPLORATION
Mr. Kehmeier became Vice President of Exploration in November 1996.
During the previous three years, Mr. Kehmeier was a geological
consultant to the mining industry. Mr. Kehmeier was Vice President of
Exploration for Atlas Corporation from 1990 to 1993. Prior to that
time, Mr. Kehmeier worked for Atlas in various field and management
positions. Mr. Kehmeier has a Bachelor of Science and a Master of
Science in geological engineering and geology from the Colorado School
of Mines. He has over 28 years of experience in mining and
exploration. He resides in Spokane, Washington.
MARY E. SMITH - 46 VICE PRESIDENT OF ADMINISTRATION AND
SECRETARY
Ms. Smith became Vice President of Administration and Secretary in
January 1997. During the previous 16 years, she was employed by
Pegasus Gold Inc. in several administrative positions and most
recently as Manager of Compensation and Benefits for Pegasus Gold Inc.
Ms. Smith is also the Vice President of Administration and Secretary
for Great Basin and MegaGold. She resides in Colbert, Washington.
DOUGLAS E. STEWART - 47 VICE PRESIDENT PROJECT DEVELOPMENT
Mr. Stewart became Vice President of Project Development in April
1997. During the previous six years, Mr. Stewart was employed by
Pegasus Gold Inc., most recently as General Manager of the Florida
Canyon Mine. Mr. Stewart has over 24 years experience in the mining
industry that includes various management positions with FMC
Corporation, Getty Oil Minerals Division, Consolidated Coal Company
and AMAX Coal Company. Mr. Stewart has a Bachelor of Science degree
in mining engineering from South Dakota School of Mines and
Technology. Mr. Stewart resides in Lone Tree, Colorado.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires the directors and
executive officers, and persons who own more than 10% of a registered
class of the equity securities of Gold Reserve Corporation, to file
initial reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission (the "Commission"). Such
persons are required by Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its
review of copies of such reports made pursuant to Section 16(a) of the
Exchange Act and related regulations, the Company believes that during
the year ended December 31, 1998, all filing requirements applicable
to its directors, executive officers and 10% shareholders were
satisfied.
<PAGE>
ITEM 11. Compensation of Directors and Officers
For purposes of the following compensation disclosure, references to
the Company in respect of 1998 and prior periods are references to
Gold Reserve Corporation, the predecessor issuer. As a result of the
reorganization which was completed in February 1999, whereby Gold
Reserve Corporation became a subsidiary of Gold Reserve Inc., the
stock option plans noted below were amended and adopted by Gold
Reserve Inc. (the successor issuer). The KSOP Plan remains with and
continues to be administered by Gold Reserve Corporation although
future shares issued pursuant to the KSOP Plan will be Gold Reserve
Inc. Class A common shares.
<PAGE>
The following table sets forth the compensation paid by the Company to
the Chief Executive Officer and to each of the next four most highly
compensated executive officers who were serving at December 31, 1998
(the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
--------------------------------- ------------------
(#) Securities
Underlying Options ($) All Other
Name and Principal Position Year Salary $ Bonus $(5) Other ($) Granted(1) Compensation (2)
------------------------------------ ---- -------- ----------- --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Rockne J. Timm 1998 $195,000 (3)$ 60,000 $ -- (7) 656,700 $ 30,000
President and Chief Executive Officer 1997 195,000 60,000 -- 535,500 30,000
1996 165,000 56,700 -- 390,500 30,000
A Douglas Belanger 1998 175,000 (3) 50,000 -- (7) 543,955 30,000
Executive Vice President 1997 175,000 50,000 -- 473,955 30,000
1996 132,000 43,200 -- 353,500 30,000
James P. Geyer (4) 1998 175,000 29,023 -- (7) 254,209 22,500
Senior Vice President 1997 168,509 44,063 -- 190,000 --
1996 -- -- -- -- --
Richard J. Kehmeier (4) 1998 120,000 25,609 -- (7) 135,278 30,000
Vice President Exploration 1997 103,000 -- (6)$2,586 90,000 --
1996 15,000 -- -- -- --
Robert A. McGuinness 1998 120,000 30,000 -- (7) 276,622 30,000
Vice President Finance and CFO 1997 120,000 25,000 -- 208,205 30,000
1996 93,000 28,925 -- 120,985 25,160
All officers and directors 1998 946,000 284,241 -- (7) 2,599,439 173,428
as a group (11 individuals) 1997 898,470 276,313 4,041 2,134,767 90,000
1996 405,000 188,825 -- 1,195,470 85,160
</TABLE>
There were no awards of restricted shares or LTIP payouts. No
pension, retirement or similar plans are maintained by the Company
other than those discussed below.
<PAGE>
1) The number of common shares issuable to the Named Executive
Officers pursuant to options held at the end of each reported
period.
2) The dollar value of common shares purchased under the Company's
combined 401(k) salary reduction and employee stock purchase plan
and allocated to the account of each Named Executive Officer
during 1998, 1997 and 1996 respectively as follows: Mr. Timm,
10,000 shares, 5,960 shares, 5,581 shares; Mr. Belanger, 10,000
shares, 5,960 shares, 5,581 shares; Mr. McGuinness, 10,000 shares,
5,960 shares, 4,681 shares; Mr. Geyer, 7,500 shares and Mr.
Kehmeier, 10,000 shares. Mr. Geyer and Mr. Kehmeier were not
eligible for contributions for the periods ending 1997 and 1996.
3) Includes $20,000 compensation earned pursuant to Named Executive
Officers' duties as a director.
4) Messrs. Geyer and Kehmeier became executive officers of the
Company in January 1997 and November 1996, respectively.
5) Amounts were used by the individual to exercise options to
purchase common shares of the Company.
6) Relocation expenses.
7) Includes certain options repriced in March 1998.
STOCK OPTION PLANS
The Company presently has one active stock option plan, the 1997
Equity Incentive Plan (the "1997 Plan") and two predecessor plans that
have been terminated as they relate to future option grants. The 1997
Plan provides for the issuance of up to 2,000,000 Class A common
shares through the grant of both "incentive share options" and "non
statutory options" to purchase Class A common shares, share
appreciation rights ("SARs"), or up to 500,000 restricted common
shares. In addition, any options previously issued pursuant to
predecessor plans that as a result of forfeiture become subject to re-
issuance under the terms of such plans shall be re-issued and
administered pursuant to the 1997 Plan. As of March 31, 1999, the
total number of options available for future grant was 101,981 and the
total number of options outstanding (including options re-issued as a
result of forfeitures under predecessor plans) was 3,776,784. No SARs
or restricted shares have been granted to date.
Key employees of the Company and its subsidiaries are eligible to
receive grants under the 1997 Plan. An incentive option may be
exercised during the lifetime of the optionee only by the optionee.
At such optionee's death an option or any part thereof may only be
transferable by such optionee's will or by the laws of descent and
distribution. The Board of Directors or a committee of the Board is
responsible for the administration of the 1997 Plan.
Options, SARs and restricted shares granted under the 1997 Plan are
generally granted at prices equivalent to the closing sales price or
the United States Dollar equivalent of the closing sales price of the
Class A common shares on the day immediately preceding the grant date,
as reported on the exchange on which the majority of the common shares
were traded over the last 12 months. This includes the TSE, The
NASDAQ SmallCap Market or, in the event the Company lists its shares
in the future, a national U.S. securities exchange.
<PAGE>
Options Granted For Common Shares of the Company during the Year Ended
December 31, 1998
----------------------------------------------------------------------
The following table sets forth all options exercised during the year
ended December 31, 1998 and the year-end values for options granted to
the Named Executive Officers of the Corporation:
<TABLE>
<CAPTION>
($/Security)
% of Total Market Value of
Options Securities
(#) Securities Granted to ($/Security) Underlying
Underlying Employees in Exercise Or Options on the Expiration
Name Options Granted Financial Year Base Price Date of Grant(2) Date
-------------------------------------- --------------- -------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
Rockne J. Timm 50,000 1.45% $2.59 $2.59 March 16, 2008
President and Chief Executive Officer, 125,000 3.63% $3.25 $3.25 April 7, 2008
Director (1) 454,500 13.21% $3.75 $2.69 March 17, 2003
Douglas Belanger 65,000 1.89% $2.59 $2.59 March 16, 2008
Executive Vice President, Director 50,000 1.45% $3.25 $3.25 Apri l7, 2008
(1) 402,955 11.71% $3.75 $2.69 March 17, 2003
James P. Geyer 75,000 2.18% $2.59 $2.59 March 16, 2008
Senior Vice President, Director (1) 185,000 5.38% $3.75 $2.69 March 17, 2003
Richard J. Kehmeier 55,000 1.60% $2.59 $2.59 March 16, 2008
Vice President-Exploration (1) 90,000 2.62% $3.75 $2.69 March 17, 2003
Robert A. McGuinness 80,000 2.33% $2.59 $2.59 March 16, 2008
Vice President-Finance and CFO (1) 208,205 6.05% $3.75 $2.69 March 17, 2003
Non-employee directors as a group
(4 persons) 75,000 2.17% $2.59 $2.59 March 16, 2008
(1) 497,955 14.46% $3.75 $2.69 March 17, 2003
</TABLE>
1) Includes options repriced on March 18, 1998.
2) The closing sales price of the common shares on the date of grant.
<PAGE>
Aggregated Option Exercises during the Year Ended December 31, 1998
and Option Values as of December 31, 1998
-------------------------------------------------------------------
The following table sets forth all options exercised during the
financial year ended December 31, 1998 and the financial year-end
values for options granted to the named Executive Officers of the
Company. Compensation in the form of bonuses paid to executive
officers and directors (see Item 11, footnotes 3 and 5 to the
compensation table) were used by the named individuals to exercise
options to purchase common shares of the Company.
<TABLE>
<CAPTION>
(#) Securities ($) Value of
Underlying Unexercised
Unexercised in-the-Money
(#) Securities Aggregate Options at FY-End Options at FY-End(2)
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized(1) Unexercisable Unexercisable
------------------------------------------------ -------------- ----------- ----------------- --------------------
<S> <C> <C> <C> <C>
Rockne J. Timm
President and Chief Executive Officer, Director 53,800 -- 426,407/230,293 --/--
Douglas Belanger
Executive Vice President, Director 45,000 -- 366,548/177,407 --/--
James P. Geyer
Senior Vice President, Director 10,791 -- 129,834/124,375 --/--
Richard J. Kehmeier
Vice President-Exploration 9,722 -- 56,735/ 78,543 --/--
Robert A. McGuinness
Vice President-Finance and CFO 11,583 -- 163,424/113,198 --/--
Non-employee directors as a group (4 persons) 28,166 -- 402,449/142,615 --/--
</TABLE>
<PAGE>
1) The "Aggregate Value Realized", if applicable, would have been
calculated by determining the difference between the market value
of the securities acquired on the date of exercise (based on the
closing price on NASDAQ on the date of exercise) less the exercise
price of the options exercised.
2) The "Value of Unexercised In-The-Money Options at FY End" was
calculated by determining the difference between the market value
of the securities underlying the option at the end of the
financial year and the exercise price of such options. At the end
of the most recently completed fiscal year, the closing price of
the Company's common shares on NASDAQ was US $1.188.
KSOP PLAN
Gold Reserve Corporation maintains the KSOP Plan for the benefit of
eligible employees of the Company. The KSOP Plan consists of two
components a salary reduction component (401(k)) and stock ownership
component (ESOP) and is available to all eligible employees of the
Company who have been employed for a period in excess of one year and
who have worked at least 1000 hours during the year in which any
allocation is to be made. The KSOP Plan invests in Class A common
shares of the Company through Company-guaranteed loans. The salary
reduction component of the KSOP Plan has not been utilized to date.
The employee stock ownership component of the KSOP Plan is intended to
qualify under Sections 421 and 423 of the Code. Total employer and
employee annual contributions to an employee participating in both the
401(k) and ESOP components of the KSOP Plan are limited to the smaller
of 25% of salary or $30,000. Generally, contributions to the 401(k)
component of the KSOP Plan are limited in each year to (i) the total
amount of salary reduction the employee elected to defer during the
year (which is limited to 10% of such employee's compensation during
the year, or such amount as is established by law), (ii) a matching
contribution from the Company equal to 50% of any salary reduction the
employee elected to defer during the year, (iii) special contributions
by the Company equal to a percentage of the employee's compensation
during the year and (iv) discretionary contributions by the Company
determined in each year by the Company. Distributions from the KSOP
Plan are not permitted before the participating employee reaches the
age of 59, except in the case of death, disability or termination of
employment by the Company or financial hardship. (See Item 11.
Compensation of Directors and Officers, footnote 2).
EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS
The Company at this time does not have employment contracts in place.
The Company is in the process of implementing employment contracts
with certain executive officers. The Company is considering contracts
that would provide for an immediate benefit upon termination by the
Company without cause or for termination of employment for good
reason, which could include events occurring following a change-in-
control or sale of assets or upon the death or disability of the
<PAGE>
employee. The contracts will provide that the employee receive a lump
sum amount equal to between 20 to 36 months' salary upon termination
for other than cause, including termination for good reason. If the
employee dies or is disabled, compensation equal to at least three
months' salary would be paid. The agreement also provides that
following termination other than for cause, including termination for
good reason, other benefits, such as life and health insurance, would
be continued for a period of at least 12 months or until replaced by
benefits of a similar nature by a new employer.
COMPENSATION OF DIRECTORS
Messrs. McChesney, Potvin and Mikkelsen each received compensation in
the amount of $20,000 in 1998 for services rendered as a Director.
Macleod Dixon, a law firm in which Mr. Coleman, a Director of the
Company, was a senior partner during 1998, billed the Company an
aggregate of $23,386 ($35,196 Canadian.) for professional services and
out-of-pocket expenses during the fiscal year ended December 31, 1998.
Consistent with the Board of Directors intent to have both Directors
and management hold shares of the Company, the compensation paid to
the Directors pursuant to their duties as Directors was utilized by
each Director to exercise previously granted stock options to purchase
shares of Gold Reserve Corporation. Non-employee Directors, Mr.
McChesney, Mr. Potvin, Mr. Mikkelsen and Mr. Coleman, each were
granted options during 1998 to purchase 107,955, 163,334, 100,000 and
201,666 shares respectively, under the Company's Equity Incentive
Plan. These amounts include previously granted stock options
exchanged for new options on March 18, 1998, for 82,955, 138,334,
75,000 and 201,666, respectively.
Directors of the Company received no additional compensation for
serving on the Board committees or for attendance at Board of
Directors or Board committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Mikkelsen
and Potvin. During fiscal 1998, no member of the Compensation
Committee had any relationship requiring disclosure under the
applicable rules and regulations of the Commission.
<PAGE>
ITEM 12. Options to Purchase Securities From the Registrant or
Subsidiaries
The following table sets forth the number of common shares of Gold
Reserve Corporation subject to options for the year ended December 31,
1998. As a group, officers and directors of the Company (11 persons)
held 2,562,562 options to purchase Class A common shares of the
Company. No warrants to purchase common shares were outstanding.
No. of common shares
Subject to option Price Expiry date
-------------------- ------ -----------
15,000 $ 1.06 12/22/03
80,352 1.13 09/04/02
18,000 1.92 10/21/07
546,176 2.59 03/17/03
6,000 2.88 12/17/07
151,597 3.00 03/18/03
175,000 3.25 04/08/03
1,528 3.38 01/06/03
42,503 3.50 03/18/03
2,316,279 3.75 03/18/03
25,349 4.00 03/18/03
15,000 4.50 03/18/03
5,000 5.38 12/20/05
10,000 7.56 01/31/07
15,000 10.00 09/24/06
---------
3,422,784
<PAGE>
ITEM 13. Interest of Management in Certain Transactions
The directors, officers and principal shareholders of the Company and
associates and affiliates of the foregoing have had no material
interest, direct or indirect, in any transaction in which the Company
has participated during the last year.
The following table sets forth maximum indebtedness to the Company of
each director and executive officer during the last three fiscal years
and the amount outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Largest Amount
Outstanding
During
the Last Three Amount Outstanding
Name and Principle Position Years (1) at March 31, 1999
----------------------------------------------- -------------- ------------------
<S> <C> <C>
Rockne J. Timm
President and Chief Executive Officer, Director $23,500 $23,500
Douglas Belanger
Executive Vice President, Director 19,500 --
James P. Geyer
Senior Vice President, Director 18,200 18,200
Richard J. Kehmeier
Vice President-Exploration 7,200 7,200
Robert A. McGuinness
Vice President-Finance and CFO (2) 62,500 62,500
Mary E. Smith
Vice President Administration and Secretary 7,678 3,494
Douglas E Stewart
Vice President Operations 4,900 4,900
</TABLE>
1) Represents amounts loaned by the Company to the individual in
1998. Evidenced by promissory notes bearing interest at 4.57%. 2)
Includes loan of $50,000, bearing interest at 5.2% and secured by
second mortgage on personal residence.
PART II
ITEM 14. Description of Securities to be Registered
Not Applicable
<PAGE>
PART III
ITEM 15. Defaults Upon Senior Securities
Not Applicable
ITEM 16. Changes in Securities, Changes in Security for Registered
Securities and Use of Proceeds
Not Applicable
PART IV
ITEM 17. Financial Statements
On February 3, 1999, the shareholders of Gold Reserve Corporation
approved a plan of reorganization between Gold Reserve Corporation and
Gold Reserve Inc. (a newly formed Yukon, Canada corporation). As a
result of the reorganization, which was effective February 4, 1999,
Gold Reserve Corporation became a subsidiary of Gold Reserve Inc.
Because the reorganization was not consummated until February 1999,
the financial statements that are presented in this annual report on
Form 20-F are those of Gold Reserve Corporation as of and for the year
ended December 31, 1998. The financial position of the consolidated
group subsequent to the reorganization was substantially the same as
prior to the reorganization. The proforma effect of the
reorganization as of December 31, 1998 is summarized in Note 1 to the
consolidated financial statements.
MANAGEMENT'S REPORT
To the Shareholders of Gold Reserve Inc., successor issuer to Gold
Reserve Corporation:
The accompanying consolidated financial statements of the Company were
prepared by management in accordance with accounting principles
generally accepted in Canada, consistently applied and within the
framework of the summary of significant accounting policies in these
consolidated financial statements. Management is responsible for all
information in the annual report. All financial and operating data in
the annual report is consistent, where appropriate, with that
contained in the consolidated financial statements.
Management has established and maintains a system of internal
accounting control designed to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use, financial
information is reliable and accurate and transactions are properly
recorded and executed in accordance with management's authorization.
This system includes established policies and procedures, the
selection and training of qualified personnel and an organization
providing for appropriate delegation of authority and segregation of
responsibilities.
<PAGE>
The Board of Directors discharges its responsibilities for the
consolidated financial statements primarily through activities of its
Audit Committee composed of three directors, none of whom are members
of management. This Committee meets with management to assure that it
is performing its responsibility to maintain financial controls and
systems and to approve the annual consolidated financial statements of
the Company. The Audit Committee also meets with the independent
auditors to discuss the results of their audit, their review of
internal accounting controls and their audit report prior to
submitting the consolidated financial statements to the Board of
Directors for approval.
The consolidated financial statements have been audited on behalf of
the shareholders by the Company's independent auditors,
PricewaterhouseCoopers LLP, in accordance with Canadian generally
accepted auditing standards. The auditors' report outlines the scope
of their examination and their opinion on the consolidated financial
statements. The auditors have full and free access to the Audit
Committee.
s/ Rockne J. Timm s/ Robert A. McGuinness
President and CEO Vice President Finance and CFO
<PAGE>
AUDITORS' REPORT
To The Board of Directors and Shareholders
Gold Reserve Corporation and Gold Reserve Inc.
We have audited the accompanying consolidated balance sheets of Gold
Reserve Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three
year period ended December 31, 1998, which, as described in Note 1
have been prepared on the basis of accounting principles generally
accepted in Canada. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in Canada and the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Gold Reserve Corporation and subsidiaries as of
December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the years in the three
year period ended December 31, 1998 in conformity with accounting
principles generally accepted in Canada.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
February 26, 1999
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
------------ ------------
ASSETS
Cash and cash equivalents $ 2,848,189 $ 12,524,125
Marketable securities 15,531,922 4,054,494
Deposits, advances and other 461,684 411,725
Accrued interest 456,418 240,757
Litigation settlement held in escrow -- 4,500,000
------------ ------------
Total current assets 19,298,213 21,731,101
Property, plant and equipment, net 41,038,160 38,446,169
Marketable securities 5,194,359 11,638,727
Other 1,388,302 1,465,997
------------ ------------
Total assets $ 66,919,034 $ 73,281,994
============ ============
LIABILITIES
Accounts payable and accrued expenses $ 785,754 $ 646,203
Note payable KSOP, current portion 414,771 188,470
Litigation settlement payable -- 4,500,000
------------ ------------
Total current liabilities 1,200,525 5,334,673
Note payable KSOP, non-current portion -- 434,390
Minority interest in consolidated
subsidiaries 1,005,237 974,522
------------ ------------
Total liabilities 2,205,762 6,743,585
------------ ------------
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: 20,000,000 shares
Issued: None
Common shares, without par value
Authorized: 480,000,000 shares Issued: 1998... 23,191,767;
1997... 22,918,143
Outstanding: 1998... 22,720,329;
1997... 22,437,099 101,661,054 102,269,494
Less, common shares held by affiliates (403,331) (1,428,565)
Accumulated deficit (36,129,680) (33,679,660)
KSOP debt guarantee (414,771) (622,860)
------------ ------------
Total shareholders' equity 64,713,272 66,538,409
------------ ------------
Total liabilities and share-
holders' equity $ 66,919,034 $ 73,281,994
============ ============
Approved by the Board of Directors:
-----------------------------------
Chris D. Mikkelsen Patrick D. McChesney
The accompanying notes are an integral part of the consolidated
financial statements
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Other Income:
Interest income $ 1,410,179 $ 1,806,309 $ 1,477,955
Net gain on investments -- -- 111,286
Miscellaneous -- -- 35,125
----------- ----------- -----------
1,410,179 1,806,309 1,624,366
Expenses:
General and administrative 1,472,277 1,639,403 1,453,484
Technical services 660,487 567,263 --
Corporate communications 382,280 475,945 393,501
Legal and accounting 217,339 540,464 499,700
Reorganization 932,798 -- --
Foreign currency loss 130,763 68,393 135,509
Interest 33,540 25,691 11,841
Minority interest in net income (loss)
of consolidated subsidiaries 30,715 21,951 (39,731)
----------- ----------- -----------
3,860,199 3,339,110 2,454,304
----------- ----------- -----------
Net loss $(2,450,020) $(1,532,801) $ (829,938)
=========== =========== ===========
Net loss per share basic and diluted $ (0.11) $ (0.07) $ (0.04)
=========== =========== ===========
Weighted average common shares outstanding 22,586,136 22,347,163 20,841,025
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Shares Issued Shares
--------------------------- Accumulated Held by
Shares Amount Deficit Affiliates
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 20,476,688 $ 80,068,854 $(31,316,921) $ (1,428,565)
Net loss (829,938)
Common shares issued for cash 2,227,123 20,876,488
Addition to shareholders'
equity associated with
change in subsidiaries'
minority interest 7,436
------------ ------------ ------------ ------------
Balance, December 31, 1996 22,703,811 100,952,778 (32,146,859) (1,428,565)
Net loss (1,532,801)
Common shares issued for cash 214,332 1,316,716
------------ ------------ ------------ ------------
Balance, December 31, 1997 22,918,143 102,269,494 (33,679,660) (1,428,565)
Net loss (2,450,020)
Change in stock held by
affiliates (1,034,323) 1,025,234
Common shares issued for cash 273,624 425,883
------------ ------------ ------------ ------------
Balance, December 31, 1998 23,191,767 $101,661,054 $(36,129,680) $ (403,331)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net loss $(2,450,020) $(1,532,801) $ (829,938)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 38,365 47,042 38,831
Amortization of premium (discount)
on marketable securities 94,522 (170,199) (339,581)
Foreign currency loss 130,763 68,393 135,509
Minority interest in net income (loss)
of consolidated subsidiaries 30,715 21,951 (39,731)
Net gain on disposition and revaluation
of equity securities -- -- (111,286)
Changes in current assets and liabilities:
Decrease in litigation settlement held
in escrow 4,500,000 -- --
(Increase) decrease in other current
assets (265,620) 19,556 (49,646)
Decrease in settlement payable (4,500,000) -- --
Increase (decrease) in other current
liabilities 139,551 (292,689) 676,673
----------- ----------- -----------
Net cash used by operating activities (2,281,724) (1,838,747) (519,169)
----------- ----------- -----------
Cash Flow from Investing Activities:
Purchase of marketable securities (18,192,858) (23,603,702) (17,396,948)
Purchase of property, plant and equipment (2,761,119) (9,464,299) (7,205,777)
Proceeds from the sale and maturity of
marketable securities 13,056,187 16,639,926 24,048,936
Net cash acquired from increased investment in
majority owned, consolidated subsidiaries -- -- 909,578
Other 77,695 (854,793) (479,700)
----------- ----------- -----------
Net cash used by investing activities (7,820,095) (17,282,868) (123,911)
----------- ----------- -----------
Cash Flow from Financing Activities:
Proceeds from issuance of common shares 425,883 1,316,716 20,876,488
----------- ----------- -----------
Net cash provided by financing
activities 425,883 1,316,716 20,876,488
----------- ----------- -----------
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash
equivalents (9,675,936) (17,804,899) 20,233,408
Cash and cash equivalents - beginning of year 12,524,125 30,329,024 10,095,616
----------- ----------- -----------
Cash and cash equivalents - end of year $ 2,848,189 $12,524,125 $30,329,024
=========== =========== ===========
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 33,540 $ 25,691 $ 11,841
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY. The Company was incorporated in Montana in 1956 for
the purpose of acquiring, exploring and developing mining
properties and placing these properties into production. The
Company's principal activity is the development of the Brisas
property in Venezuela.
On February 3, 1999, the shareholders of Gold Reserve Corporation
approved a plan of reorganization between Gold Reserve
Corporation and Gold Reserve Inc. (a newly formed Yukon, Canada
corporation). As a result of the reorganization, which was
effective February 4, 1999, Gold Reserve Corporation became a
subsidiary of Gold Reserve Inc.
Except for certain U.S. shareholders, each shareholder of Gold
Reserve Corporation received one Gold Reserve Inc. Class A common
share for each share owned of Gold Reserve Corporation. After
the reorganization, a shareholder of Gold Reserve Inc. continued
to own an interest in the business, through subsidiary companies,
that in aggregate was the same as before the reorganization.
As part of the reorganization, U.S. holders of Gold Reserve
Corporation could elect to receive equity units in lieu of Gold
Reserve Inc. Class A common shares. An equity unit is comprised
of one Gold Reserve Inc. Class B common share and one Gold
Reserve Corporation Class B common share. Equity units were
provided to U.S. holders who would have a substantial taxable
gain upon receipt of Gold Reserve Inc. Class A common shares in
order to defer a significant portion of such gain. The equity
units are designed so they will have voting and dividend rights
similar to the Gold Reserve Inc. Class A common shares and are
substantially equivalent to a Gold Reserve Inc. Class A common
share. Equity units are immediately convertible into Gold
Reserve Inc. Class A common shares upon compliance with certain
procedures. Equity units are not listed for trading on any share
exchange, but, subject to compliance with applicable federal,
provincial and state securities laws, may be transferred.
Because the reorganization was not consummated until February
1999, the financial statements that are presented in this annual
report on Form 20-F are those of Gold Reserve Corporation as of
December 31, 1998 and 1997 and for the three years ended
December 31, 1998. The financial position of the consolidated
group subsequent to the reorganization was substantially the same
as prior to the reorganization except for the exchange of
approximately 2.3 million Gold Reserve Corporation common shares
for an equal number of equity units in lieu of Gold Reserve Inc.
Class A common shares. The proforma effect of the reorganization
as of December 31, 1998, is summarized below:
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
<TABLE>
<CAPTION>
Gold Reserve Pro-Forma Gold
Corporation Adjustment Reserve Inc.
------------- ------------- -------------
<S> <C> <C> <C>
Shareholders' equity:
Serial preferred shares, without
par value authorized 20,000,000
shares; issued: none -- -- --
Common shares, without par value
authorized 480,000,000 shares;
issued 23,191,767 shares $ 101,661,054 $(101,661,054) --
Class A common shares, without
par value authorized: unlimited;
issued 20,842,451 shares 91,362,833 $ 91,362,833
Equity units, issued 2,349,316
units 10,298,221 10,298,221
Less, common shares held by
affiliates (403,331) (403,331)
Accumulated deficit (36,129,680) (36,129,680)
KSOP debt guarantee (414,771) (414,771)
------------- ------------- -------------
Total shareholders' equity $ 64,713,272 -- $ 64,713,272
============= ============= =============
</TABLE>
As a result of the reorganization, whereby Gold Reserve
Corporation became a subsidiary of Gold Reserve Inc., the share
option plan was amended and adopted by Gold Reserve Inc. (the
successor issuer). The KSOP Plan remains with and continues to
be administered by Gold Reserve Corporation although future
shares issued pursuant to the KSOP Plan will be Gold Reserve Inc.
Class A common shares.
PRESENTATION OF FINANCIAL STATEMENTS AND CONSOLIDATION. The
consolidated financial statements contained herein have been
prepared in accordance with Canadian generally accepted
accounting principles, which as described in Note 11, differ in
certain respects from U.S. generally accepted accounting
principles. Prior to December 31, 1998, the Company prepared its
financial statements in accordance with U.S. generally accepted
accounting principles.
These consolidated financial statements include the accounts of
the Company, Gold Reserve, Inc., two domestic majority-owned
subsidiaries, Great Basin Energies, Inc. (Great Basin) and
MegaGold Corporation (MegaGold), seven Venezuelan subsidiaries,
and seven Aruban subsidiaries which were formed to hold the
Company's interest in its foreign subsidiaries or for future
transactions. All significant intercompany accounts and
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
transactions have been eliminated in consolidation. The
Company's policy is to consolidate those subsidiaries where
majority control exists and control is other than temporary.
CASH AND CASH EQUIVALENTS. The Company considers short-term,
highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents for purposes of
reporting cash equivalents and cash flows. At December 31, 1998,
the Company had certificates of deposits totaling $414,771
pledged as security for bank loans related to the Gold Reserve
KSOP Plan, approximately $83,000 in U.S. banks in excess of
federally insured limits and had approximately $68,000 in
Venezuelan and Aruban banks.
MARKETABLE SECURITIES. Marketable securities are carried at
cost. If the market value of an investment is lower than the
cost and the decline is judged to be other than temporary, the
investment is written down to recognize the loss. Realized gains
and losses on the sale of investments are recorded based upon
specific identification.
FINANCIAL INSTRUMENTS. The carrying amounts for cash, advances
and accounts payable on the balance sheet approximate fair value
because of the immediate or short-term maturity of these
instruments. Fair value estimates are made at the balance sheet
date based on relevant market information but involve
uncertainties and therefore cannot be determined with precision.
In order to limit its exposure, the Company diversifies its cash
and investment holdings into U.S. treasury and agency obligations
and major financial institutions and corporations. The fair
values of investments in marketable securities are disclosed in
Note 2.
EXPLORATION AND DEVELOPMENT COSTS. Exploration costs incurred in
locating areas of potential mineralization are expensed as
incurred. Exploration costs of properties or working interests
with specific areas of potential mineralization are capitalized
pending the determination of a property's economic viability.
Development costs of proven mining properties not yet producing
are capitalized and classified as property, plant and equipment.
Upon commencement of production, capitalized exploration and
development costs will be amortized based on the estimated proven
and probable reserves benefited. Deferred exploration and
development costs of unsuccessful projects are expensed.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
recorded at the lower of cost or estimated net realizable value.
Replacements and major improvements are capitalized. Maintenance
and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets retired or sold are removed
from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is provided using straight-line and
accelerated methods over the lesser of the useful life or lease
term of the related asset. During the exploration and
development phase, depreciation of mining assets is capitalized.
Interest costs incurred during the construction and development
of qualifying assets are capitalized.
FOREIGN CURRENCY. The Company utilizes the U.S. Dollar as its
functional currency. Foreign currency amounts are translated
into U.S. dollars using the temporal method. Accordingly, non-
monetary assets and liabilities are translated at historical
rates, monetary assets and liabilities are translated at current
rates and revenue and expense items are translated at average
exchange rates for the month in which they occur. Translation
gains and losses are included in other income and expense.
ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Substantially all of the Company's investment in property, plant
and equipment represents amounts invested in the Brisas property.
Management's capitalization of exploration and development costs
and assumptions regarding the future recoverability of such costs
is subject to the risks and uncertainties of developing an
economic reserve on the Brisas property which is based on
engineering and geological estimates, future gold and copper
prices, estimated plant construction and operating costs and the
procurement of all necessary regulatory permits and approvals.
These estimates could change in the future and this could affect
the carrying value and the ultimate recoverability of the amounts
recorded as property, mineral rights and capitalized exploration
and development costs.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
UNCERTAINTY DUE TO THE YEAR 2000 ISSUE. The Year 2000 Issue
arises because many computerized systems use two digits rather
than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems that use
certain dates in 1999 to represent something other than a date.
The effects of the Year 2000 Issue may be experienced before, on,
or after January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant systems failure that could affect an entity's ability
to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
NET LOSS PER SHARE. Net loss per share (basic and diluted) is
computed by dividing net loss by the weighted average number of
common shares outstanding during each year, which has been
reduced by the Company's proportionate ownership of common shares
owned by Great Basin and MegaGold. As of December 31, 1998, 1997
and 1996, there were 3,422,784, 2,908,075 and 1,962,092 shares,
respectively, available for issuance pursuant to the exercise of
previously granted share options. These options were not
included in the computation of diluted loss per share as a loss
was incurred in each of these years and their inclusion would be
anti-dilutive.
RECLASSIFICATIONS. Certain reclassifications of the 1997 and
1996 consolidated financial statement balances have been made to
conform with the 1998 presentation. These reclassifications had
no effect on the net loss or accumulated deficit as previously
reported.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. MARKETABLE SECURITIES:
Investments in marketable securities are recorded at amortized
cost and yield between 5% and 7%. The bonds outstanding at
December 31, 1998 mature as follows: $15,531,922 in 1999,
$2,003,092 in 2000, $50,000 in 2001, $1,000,000 in 2005 and
$495,000 in 2007.
Amortized Cost/ Quoted
Carrying Value Market Value
--------------- ------------
December 31, 1998:
Temporary:
U.S. treasuries and agency
obligations $15,531,922 $15,550,612
Long-term:
U.S. treasuries and agency
obligations $ 3,548,092 $ 3,564,873
Equity securities (1) 1,646,267 1,634,642
----------- -----------
Total $ 5,194,359 $ 5,199,515
=========== ===========
Amortized Cost/ Quoted
Carrying Value Market Value
--------------- ------------
December 31, 1997:
Temporary:
U.S. treasuries and agency
obligations $ 4,054,494 $ 4,054,211
Long-term:
U.S. treasuries and agency
obligations $11,521,973 $11,515,048
Equity securities (1) 116,754 127,754
----------- -----------
Total $11,638,727 $11,642,802
=========== ===========
(1) includes shares of the Company owned by its subsidiaries.
See Note 6 to the consolidated financial statements.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are carried at cost less
accumulated depreciation. Depreciation of mining assets is
capitalized. Depreciation expense for the years ended
December 31, 1998, 1997 and 1996 was $38,365, $47,042 and
$38,831,respectively. Property, plant and equipment as of
December 31, 1998 and 1997 consisted of the following:
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT, CONTINUED:
<TABLE>
<CAPTION>
1998
---------------------------------------------
Accumulated
Cost Depreciaiton Net
------------- ------------- -------------
<S> <C> <C> <C>
Domestic:
Furniture and office equipment $ 297,095 $ (178,547) $ 118,548
Leasehold improvements 11,174 (11,174) --
------------- ------------- -------------
308,269 (189,721) 118,548
------------- ------------- -------------
Foreign:
Property and mineral rights 11,102,335 -- 11,102,335
Capitalized exploration and
development costs 29,409,699 -- 29,409,699
Buildings 262,208 (95,028) 167,180
Furniture and office equipment 396,804 (303,850) 92,954
Transportation equipment 288,231 (183,474) 104,757
Machinery and equipment 310,166 (267,479) 42,687
------------- ------------- -------------
41,769,443 (849,831) 40,919,612
------------- ------------- -------------
Total $ 42,077,712 $ (1,039,552) $ 41,038,160
============= ============= =============
<CAPTION>
1997
---------------------------------------------
Accumulated
Cost Depreciaiton Net
------------- ------------- -------------
<S> <C> <C> <C>
Domestic:
Furniture and office equipment $ 289,633 $ (146,100) $ 143,533
Leasehold improvements 11,174 (8,924) 2,250
------------- ------------- -------------
300,807 (155,024) 145,783
------------- ------------- -------------
Foreign:
Property and mineral rights 11,002,335 -- 11,002,335
Capitalized exploration and
development costs 26,712,061 -- 26,712,061
Buildings 262,208 (55,945) 206,263
Furniture and office equipment 384,409 (245,547) 138,862
Transportation equipment 288,231 (127,762) 160,469
Machinery and equipment 308,552 (228,156) 80,396
------------- ------------- -------------
38,957,796 (657,410) 38,300,386
------------- ------------- -------------
Total $ 39,258,603 $ (812,434) $ 38,446,169
============= ============= =============
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT, CONTINUED:
The Company reviews for impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. If the sum of the
expected future net cash flows to be generated from the use or
disposition of a long-lived asset (undiscounted and without
interest charges) is less than the carrying amount of the asset,
an impairment loss is recognized.
4. KSOP PLAN:
The KSOP Plan, adopted in 1990 for the benefit of employees, is
comprised of two parts, (1) a salary reduction component, or
401(k), and (2) an employee share ownership component, or ESOP.
The salary reduction component has not, to date, been utilized by
any participant. Common shares purchased by the KSOP Plan are
financed by bank loans at between 7 and 8 percent interest and
are presently due in 1999. The loans are guaranteed by the
Company and accordingly are recorded as a reduction to
shareholders' equity. Allocation of common shares to
participants' accounts is based on contributions by the Company,
up to a maximum of 25 percent of the participants' annual
compensation or $30,000, whichever is less, divided by the
original purchase price of the common shares. Expense related to
KSOP Plan contributions of $211,074, $167,473, and $150,000 was
recorded in 1998, 1997, and 1996, respectively. As of
December 31, 1998, 99,956 common shares remain unallocated to
plan participants.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. SHARE OPTION PLANS:
The Company's Equity Incentive Plan allows for the granting of up
to 2,000,000 common share purchase options, in addition to any
options issued pursuant to previous plans, to officers,
directors, and key individuals for terms of up to ten years. The
Company measures compensation cost for share-based employee
compensation plans using the intrinsic value method of
accounting. The vesting period of options ranges from
immediately to up to three years. Share option transactions for
the last three years are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 2,908,075 $6.60 1,962,092 $6.62 1,636,793 $5.31
Options exercised (223,624) 1.90 (124,649) 5.72 (496,623) 5.44
Options canceled (116,667) 3.17 (209,368) 7.92 (136,178) 7.51
Options granted 855,000 2.67 1,280,000 6.67 958,100 8.41
--------- ----- --------- ----- --------- -----
Options outstanding, end of year 3,422,784 $3.46 2,908,075 $6.60 1,962,092 $6.62
--------- ----- --------- ----- --------- -----
Options exercisable at end of
year 2,065,868 2,185,392 1,460,406
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Price Price Price
Range Range Range
------------------ ------------------ ------------------<S><C><C><C>
<S> <C> <C> <C>
Option exercise price at end
of year $ 1.06 - $ 10.00 $ 1.09 - $ 14.69 $ 1.09 - $ 14.69
Option exercise price for
exercisable shares $ 1.06 - $ 10.00 $ 1.09 - $ 14.69 $ 1.09 - $ 13.51
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SHARE OPTION PLANS, CONTINUED:
On March 23, 1998, the Board of Directors after five months of
evaluation and review, approved a share option exchange program.
Under the program, current directors, officers, employees and
advisors were permitted to exchange all of their "out-of-the-
money" options for new options with exercise prices of between
$3.00 and $4.50 on a one-for-one basis. Approximately eighty-
eight percent of the total outstanding options were exchanged for
new options priced at $3.75 per share. The exchange program
affected approximately 2.6 million options (with an average
original exercise price of $6.60 per share) out of a total of 3.5
million options outstanding. Approximately 2.3 million options
held by directors, officers and key employees with an average
original exercise price of $6.65 per share were cancelled and re-
issued at a 40% premium over the fair market value per share as
of the date the Board of Directors approved the share option
exchange program or $3.75 per share. In addition, the vesting
schedules of all exchanged share options held by directors,
officers and key employees/advisors were modified as follows: no
share options issued pursuant to the exchange program were vested
or exercisable prior to May 23, 1998; twenty five percent of all
exchanged options which were vested prior to the exchange were no
longer vested but re-vested over two years at fifty percent per
year; and the term of all exchanged options was reduced from ten
years to five years.
6. RELATED PARTY TRANSACTIONS:
MEGAGOLD. The President, Executive Vice President, Vice
President Finance and Vice President Administration of the
Company are also officers, directors and/or shareholders of
MegaGold. At December 31, 1998 and 1997, the Company owned
23,304,174 common shares of MegaGold which represented 63% of the
outstanding shares. MegaGold owned 276,642 common shares of the
Company at December 31, 1998 and owned 125,083 shares at
December 31, 1997. In addition, MegaGold owned 280,000 common
shares of Great Basin at December 31, 1998 and 1997. The Company
performs various administrative functions and sublets a portion
of its office space to MegaGold for $1,200 per year.
GREAT BASIN. The President, Executive Vice President, Vice
President Finance and Vice President Administration of the
Company are also officers, directors and/or shareholders of Great
Basin. At December 31, 1998 and 1997, the Company owned
24,210,636 common shares of Great Basin which represented 58% of
the outstanding shares. Great Basin owned 516,720 common shares
of the Company at December 31, 1998 and owned 391,161 shares at
December 31, 1997. Great Basin also owned 170,800 common shares
of MegaGold at December 31, 1998 and 1997. The Company performs
various administrative functions and sublets a portion of its
office space to Great Basin for $1,200 per year.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS, CONTINUED:
Legal Fees Paid to Director. One of the Company's directors also
serves as Canadian legal counsel for the Company. During 1998,
1997 and 1996, the Company incurred expenses of approximately
$23,000, $292,000, and $149,000 respectively, for services
performed by the director and his firm, in which he is Chairman
and a partner.
NOTES RECEIVABLE FROM OFFICERS. As of December 31, 1998 and 1997,
the Company had $106,500 and $50,000 respectively, in notes
receivable due from officers. The notes bear interest at between
4.6% and 5.2% and are due in one year.
7. INCOME TAX:
No income tax benefit has been recorded for the three years ended
December 31, 1998 due to the uncertainty of recoverability of the
benefit associated with the net operating loss carryforwards.
The Company's Venezuelan subsidiaries are subject to Venezuelan
income tax. All costs related to the Company's Brisas property
have been recorded as capitalized exploration and development
costs for tax purposes, and therefore the Company has not
recorded any foreign tax attributes. No income tax has been paid
or accrued by the Company's subsidiaries during 1998, 1997 and
1996. The Company has recorded a valuation allowance to reflect
the estimated amount of the deferred tax asset which may not be
realized, principally due to the uncertainty of utilization of
net operating losses and other carryforwards prior to expiration.
The valuation allowance for deferred tax assets may be reduced in
the near term if the Company's estimate of future taxable income
changes. The components of the deferred tax assets and
liabilities as of December 31, 1998 and 1997 were as follows:
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAX, CONTINUED:
Deferred Tax Asset
(Liability)
--------------------------
1998 1997
------------ ------------
Accounts payable and accrued
expenses $ 147,665 $ 66,910
Investment income (150,589) (165,533)
Property, plant and equipment 8,494,920 8,497,773
------------ ------------
Total temporary differences 8,491,996 8,399,150
Net operating loss carryforward 3,154,171 2,383,006
Investment tax credit 5,967 5,967
Alternative minimum tax credit 19,871 19,871
------------ ------------
Total temporary differences,
operating losses and tax credit
carryforwards 11,672,005 10,807,994
Valuation allowance (11,672,005) (10,807,994)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
At December 31, 1998, the Company had the following U.S. federal
tax basis loss carryforwards and tax credits:
Amount Expires
------------ ------------
Regular tax net operating loss: $ 272,248 2006
1,650,395 2007
1,244,312 2008
700,536 2009
609,833 2010
808,573 2011
1,671,604 2012
2,319,472 2013
------------
$ 9,276,973
============
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAX, CONTINUED:
Alternative minimum tax net
operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
671,999 2009
572,555 2010
781,796 2011
1,646,989 2012
2,314,974 2013
------------
$ 9,120,313
============
Investment tax credit $ 5,967 2001
Alternative minimum tax credit $ 19,871 --
8. GEOGRAPHIC SEGMENTS:
<TABLE>
<CAPTION>
United
December 31, 1998 States Venezuela Consolidated
----------- ----------- ------------
<S> <C> <C> <C>
Revenues $ 1,410,179 -- $ 1,410,179
Depreciation 38,365 -- 38,365
Interest Expense 33,540 -- 33,540
Net loss 2,309,888 $ 140,132 2,450,020
=========== =========== ===========
Identifiable assets
Property, plant and equipment, net 118,548 40,919,612 41,038,160
General corporate assets 24,142,801 1,738,073 25,880,874
----------- ----------- -----------
Total identifiable assets $24,261,349 $42,657,685 $66,919,034
=========== =========== ===========
December 31, 1997
Revenues $ 1,806,309 -- $ 1,806,309
Depreciation 47,042 -- 47,042
Interest Expense 25,691 -- 25,691
Net loss 1,455,169 77,632 1,532,801
=========== =========== ===========
Identifiable assets
Property, plant and equipment, net 145,783 38,300,386 38,446,169
General corporate assets 32,985,934 1,849,891 34,835,825
----------- ----------- -----------
Total identifiable assets $33,131,717 $40,150,277 $73,281,994
=========== =========== ===========
December 31, 1996
Revenues $ 1,624,366 -- $ 1,624,366
Depreciation 38,831 -- 38,831
Interest Expense 11,841 -- 11,841
Net loss 656,435 $ 173,503 829,938
=========== =========== ===========
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. GEOGRAPHIC SEGMENTS, CONTINUED:
<TABLE>
<CAPTION>
United
December 31, 1996, Continued States Venezuela Consolidated
----------- ----------- ------------
<S> <C> <C> <C>
Identifiable assets
Property, plant and equipment, net $ 253,315 $28,843,990 $29,097,305
General corporate assets 43,476,963 1,194,549 44,671,512
----------- ----------- -----------
Total identifiable assets $43,730,278 $30,038,539 $73,768,817
=========== =========== ===========
</TABLE>
Revenues and identifiable assets of each segment are those that
are directly identified with those operations.
9. LITIGATION SETTLEMENT:
Pursuant to a December 1994 litigation settlement agreement
related to an ownership dispute of the Brisas property, the
Company placed $4.5 million in escrow to be released to one of
the defendants at such time as the Company receives the mining
title to the hardrock concession for the Brisas property on or
before January 1, 2000. The Company paid $22,512,500 in common
shares and cash, including funds held in escrow and recorded the
litigation settlement as an expense in 1994. The funds in escrow
were released to the defendant in the litigation in March, 1998.
10. SHAREHOLDER RIGHTS PLAN:
At the 1997 annual meeting of shareholders a "Shareholder Rights
Plan" was voted upon and approved by the shareholders of Gold
Reserve Corporation. As part of the reorganization described in
Note 1, the Shareholder Rights Plan was assumed by the successor
issuer Gold Reserve Inc. The Rights Plan is intended to give
adequate time for shareholders of the Company to properly assess
the merits of a take-over bid without pressure and to allow
competing bids to emerge. The Rights Plan is designed to give
the board of directors time to consider alternatives to allow
shareholders to receive full and fair value for their common
shares. One right is issued in respect of each outstanding
share. The rights become exercisable only when a person,
including any party related to it or acting jointly with it,
acquires or announces its intention to acquire 20 percent or more
of the Company's outstanding shares without complying with the
"permitted bid" provisions of the Rights Plan. Each right would,
on exercise, entitle the holder, other than the acquiring person
and related persons, to purchase common shares of the Company at
a 50% discount to the market price at the time.
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. DIFFERENCES BETWEEN U.S. AND CANADIAN GAAP:
The Company prepares its consolidated financial statements in
accordance with generally accepted accounting principles (GAAP)
in Canada. The effect of the differences between U.S. and
Canadian GAAP are summarized below. There are no differences
between U.S. and Canadian GAAP as they relate to cash flows.
Under U.S. GAAP, marketable securities would be divided between
held-to-maturity securities and available-for-sale securities.
Those securities classified as available-for-sale would be
recorded at market value and the unrealized gain or loss would be
recorded as a component of shareholders' equity resulting in the
following changes in the financial statements:
Canadian GAAP Change U.S. GAAP
------------- -------- -----------
December 31, 1998:
Total assets $ 66,919,034 $(11,625) $66,907,409
Total shareholders'
equity 64,713,272 (11,625) 64,701,647
Comprehensive loss (2,450,020) (22,625) (2,472,645)
December 31, 1997:
Total assets $ 73,281,994 $ 11,000 $73,292,994
Total shareholders'
equity 66,538,409 11,000 66,549,409
Comprehensive loss (1,532,801) 8,250 (1,524,551)
12. OPERATING LEASE:
The Company leases office space under a non-cancelable operating
lease that expires in February 2004. Minimum annual rentals
payable under the lease are as follows:
Year ending
December 31,
------------
1999 $ 88,335
2000 106,002
2001 106,002
2002 106,002
2003 106,002
Thereafter 17,667
--------
Total $530,010
========
<PAGE>
ITEM 18. Financial Statements
Not Applicable
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Management's Report
Auditors'Report
Consolidated Balance Sheets, December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
EXHIBIT TABLE AND INDEX TO EXHIBITS
The following exhibits are filed as part of this report. Exhibits
previously filed are incorporated by reference, as noted.
Exhibit
Number Exhibit
-------- -----------------------------------------------------------
2.0 Agreement and Plan of Merger, dated as of October 5, 1998,
by and among Gold Reserve Corporation (predecessor issuer),
Gold Reserve Inc. (successor issuer) and GR Merger Corp.
Filed as Annex I to the Proxy Statement/Joint Prospectus
included as a part of the Company's Registration Statement
on Form S-4 (Registration No. 333-68061) filed with the
Commission on November 27, 1998 and incorporated by
reference herein.
3.1 Restated Articles of Incorporation of the Company. Filed as
Exhibit 3.1 to the Proxy Statement/Joint Prospectus included
as a part of the Company's Registration Statement on Form
S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
3.2 Bylaws of the Company. Filed as Exhibit 3.2 to the Proxy
Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration
No. 333-68061) filed with the Commission on November 27,
1998 and incorporated by reference herein.
4.1 Exchange Agreement by and among Gold Reserve Corporation,
the Company, TranSecurities International, Inc. and Holders
of Unit Shares, dated November 17, 1998. Filed as
Exhibit 4.1 to the Proxy Statement/Joint Prospectus included
as a part of the Company's Registration Statement on Form
S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
<PAGE>
Exhibit
Number Exhibit
-------- -----------------------------------------------------------
4.2 Rights Agreement, dated as of October 5, 1998, between the
Company and Montreal Trust Company of Canada. Filed as
Exhibit 4.3 to the Proxy Statement/Joint Prospectus included
as a part of the Company's Registration Statement on Form
S-4 (Registration No. 333-68061) filed with the Commission
on November 27, 1998 and incorporated by reference herein.
4.3 Form of Certificate for the Company's Class A common shares.
Filed as Exhibit 4.4 to the Proxy Statement/Joint Prospectus
included as a part of the Company's Registration Statement
on Form S-4 (Registration No. 333-68061) filed with the
Commission on November 27, 1998 and incorporated by
reference herein.
4.4 Form of Certificate for the Unit Share. Filed as Exhibit
4.5 to the Proxy Statement/Joint Prospectus included as a
part of the Company's Registration Statement on Form S-4
(Registration No. 333-68061) filed with the Commission on
November 27, 1998 and incorporated by reference herein.
10.1 Mining Operations Agreement, dated July 1, 1992, between
Compania Minera Bajo Caroni - Caromin, C.A. and Compania
Minera Unicornio, C.A. Filed as Exhibit 10.29 to Gold
Reserve Corporation's (the predecessor issuer) Annual Report
on Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
10.2 Stock Purchase Agreement, dated August 1992, between Antonio
Sosa Aviles and Servicios Escriber S.R.L., and Stock
Purchase Agreement, dated November 26, 1992, between
Servicios Escriber S.R.L. and Gold Reserve de Venezuela.
Filed as Exhibit 10.30 to Gold Reserve Corporation's (the
predecessor issuer) Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated by reference
herein.
10.3 License and Technical Assistance Agreement, dated
September 1, 1992, between Gold Reserve Corporation and
Compania Minera Unicornio, C.A. Filed as Exhibit 10.31 to
Gold Reserve Corporation's (the predecessor issuer) Annual
Report on Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
10.4 Credit Agreement, dated October 13, 1992, between Gold
Reserve Corporation and Compania Aurifera Brisas del Cuyuni,
C.A. Filed as Exhibit 10.32 to Gold Reserve Corporation's
(the predecessor issuer) Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated by reference
herein.
<PAGE>
Exhibit
Number Exhibit
-------- -----------------------------------------------------------
10.5 Services Agreement, dated November 6, 1992, between Gold
Reserve Corporation and A. Douglas Belanger. Filed as
Exhibit 10.33 to Gold Reserve Corporation's (the predecessor
issuer) Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated by reference herein.
10.6 Settlement Agreement, dated December 21, 1994, among Gold
Reserve Corporation, Brisas, GLDRV, Marwood International
Ltd., TVX Gold, Inc., BlueGrotto Trading Limited and
Inversiones 871010, C.A. Filed as an exhibit to Gold
Reserve Corporation's (the predecessor issuer) Current
Report on Form 8-K (File No. 011-08372) dated December 21,
1994 and incorporated by reference herein.
10.7 Services Agreement, dated February 4, 1997, between Gold
Reserve Corporation and James P. Geyer. Filed as Exhibit
10.7 to Gold Reserve Corporation's (the predecessor issuer)
Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated by reference herein.
21.0 Subsidiaries of Registrant. Filed as Exhibit 21 to the
Proxy Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration
No. 333-68061) filed with the Commission on November 27,
1998 and incorporated by reference herein.
23.1 Consent of PricewaterhouseCoopers LLP**
** Filed herewith
Reports on Form 8-K. No report on Form 8-K was issued during the
quarter ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GOLD RESERVE INC.
By: s/ Rockne J. Timm
---------------------------------
Rockne J. Timm, its Chairman of
the Board, President and Chief
Executive Officer
May 14, 1999
By: s/ Robert A. McGuinness
---------------------------------
Robert A. McGuinness, Vice
President of Finance and Chief
Financial Officer, its Principal
Financial and Accounting Officer
May 14, 1999
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Gold Reserve Inc. on Forms S-8 (File No. 033-61113 and
No. 333-56495) of our report dated February 26, 1999, on our audits of
the consolidated financial statements of Gold Reserve Corporation as
of December 31, 1998 and 1997, and for the years ended December 31,
1998, 1997, and 1996, which report is included in this Report on Form
20-F.
/s/PricewaterhouseCoopers LLP
Spokane, Washington
May 14, 1999
<PAGE>
