FORM 10-K
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, 1996
GOLD RESERVE CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Montana 81-0266636
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State of Incorporation (IRS Employer
Identification No.
1-8372
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(Commission File Number)
601 W. Riverside Avenue, Suite 1940
Seafirst Financial Center
Spokane, Washington 99201
(509) 623-1500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Title of each class
NASDAQ Small-Cap System
The Toronto Stock Exchange
--------------------------
Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act: None
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]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or other information statements incorporated by reference in Part III
of this Form 10-K or any amendments to this Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates
(persons who are neither officers, directors nor subsidiaries) of the
registrant based on the closing NASDAQ price at February 28, 1997 was
$235,286,853. The total number of common shares outstanding and held
by non-affiliates at such date was 21,149,380, excluding 693,362
shares held by subsidiaries of the Company.
Portions of the Proxy Statement for the Registrant's Annual Meeting to
be held June 5, 1997, are incorporated by reference to Part III of
this Annual Report on Form 10-K.
TABLE OF CONTENTS
Glossary of Significant Terms
PART I
Item 1: Business
Item 2: Properties
Item 3: Legal Proceedings
Item 4: Submission of Matters to a Vote of Security Holders
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8: Financial Statements and Supplementary Data
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10: Directors and Executive Officers of the Registrant
Item 11: Executive Compensation
Item 12: Security Ownership of Certain Beneficial Owners and
Management
Item 13: Certain Relationships and Related Transactions
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
SIGNATURES
<PAGE>
GLOSSARY OF SIGNIFICANT TERMS
Certain terms used throughout this report are defined below:
<TABLE>
<S> <C>
acid mine drainage Acidic run-off water from mine waste dumps and mill
tailings ponds containing sulfide minerals. Can also
occur naturally in groundwater.
alluvial 1) Adjectively used to identify minerals deposited over
time by moving water. 2) Used to describe a strata of
material that constitutes a concession. ie: relating to
the Brisas alluvial concession. This material is a
unconsolidated or claylike material that overlays the
hardrock concession
andesite A volcanic or igneous rock of intermediate composition.
It is fine grained and contains 55 to 60 percent silica.
Archean An era in geologic time 3.4 billion years ago.
assay The test performed on a rock sample to determine its
mineral content
auger hole Drilling with a bit that breaks rock into chips rather
than core. This method is faster and cheaper than core
drilling. The rock chips are forced to the surface for
examination using water or compressed air
bolivar The basic monetary unit of Venezuela. As of February 28,
1997, 483 bolivares were approximately equal to one U.S.
Dollar.
Brisas concession The mining title or right granted to the Company by the
Venezuelan Ministry of Energy and Mines, through its
Brisas subsidiary, to explore and commercially develop
the gold contained in the alluvial material on a property
located in the Kilometer 88 mining area of Bolivar State
of southeastern Venezuela.
Brisas Compania Aurifera Brisas del Cuyuni, C.A., a Venezuelan
corporation and an indirect foreign subsidiary of the
Company. Brisas is the holder of the Brisas concession.
commercially mineable ore body A mineral deposit that contains ore reserves (see
reserve) that can be profitably mined at current metal
prices.
concentrate A fine powdery product of the milling process, containing
a high percentage of valuable metal. A concentrate is
sent to a smelter for further processing.
concession A privilege, license or mining title granted, in the case
of the Company, by MEM, to explore and, if warranted,
produce minerals from a specified property.
core hole Drilling with a hollow bit which has a diamond-cutting
rim to produce a cylindrical core that is used for
geologic study and assays. Such drilling is used in
exploration and development to determine the location,
orientation and magnitude of a mineral deposit. Also
referred to as Diamond Drilling
</TABLE>
<PAGE>
<TABLE>
<S> <C>
cut-off grade The lowest grade used to determine the size and content
of a mineralized deposit. Also means the lowest grade of
mineralized material deemed economic to mine in a
commercial ore body.
CVG Corporacion Venezolana de Guayana, a Venezuelan
government-owned entity formed to explore and develop
mineral resources in the Guayana region of Venezuela
including Bolivar State. CVG owns 30% and Placer Dome,
Inc. owns 70% of MINCA, a Venezuelan company which holds
the Las Cristinas properties.
cyanidation A method of extracting gold or silver from a crushed or
ground ore by dissolving it in a weak cyanide solution.
deposit A mineral deposit or mineralized material is an area
which has been intersected by sufficient closely-spaced
drill holes or underground sampling to support sufficient
tonnage and average grade(s) of metal(s) to warrant
further exploration or development activities. A deposit
does not qualify as a commercially mineable ore body
(reserves) under standards promulgated by the U.S.
Securities and Exchange Commission until a final,
comprehensive economic, technical and legal feasibility
study based upon test results has been concluded.
development drilling Drilling done to more accurately measure the quantity of
minerals contained in a deposit after exploration
drilling.
development stage Activities related to the preparation of a deposit for
extraction, prior to construction.
environmental impact statement A report, compiled prior to a production decision that
examines the effects that proposed mining activities will
have on the natural surroundings
exploration stage Activities such as drilling, bulk sampling, assaying and
surveying related to the search for mineable deposits.
feasibility study A report prepared to support a production decision on a
proposed mining and milling operation. The study is an
analysis and compilation of technical and economic data
with the objective of proving the economic and technical
feasibility of the project.
flotation A process for concentrating minerals based on the
selective adhesion of certain minerals to air bubbles in
a mixture of water and ground up ore. When the right
chemicals are added to a frothy water bath of ore that
has been ground to the consistency of talcum powder, the
minerals will float to the surface. The metal rich
flotation concentrate is then skimmed off the surface.
geophysical survey Methods of investigating the subsurface at or near the
surface of the earth or airborne, using, the applications
of physics including, electric, gravimetric, magnetic,
electromagnetic, seismic, and radiometric.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
GLDRV Gold Reserve de Venezuela, C.A., a Venezuela corporation
and an indirect foreign subsidiary of the Company. GLDRV
was organized in September 1992 to operate the Brisas
concession.
gold equivalent Gross value of copper at $1.00 per pound divided by the
gross price of gold at $380 per ounce.
grade A term used to assign a value to mineralization, such as
grams or ounces 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 geologic formation in central and eastern Venezuela
comprised of Archean volcanics and intrusive rocks and,
in the area of the Brisas concession, schists and deeply
weathered and kaolinized rocks.
hardrock tuffs Rocks that are classified as a volcanic sediment
hardrock Solid rock underlying an alluvial deposit. Also referred
to as bedrock.
hectare A metric measurement of area equivalent to 10,000 square
meters.
igneous Rocks formed by the cooling and solidifying of magna or
lava.
in-fill drilling Similar to development drilling but closer spaced to
increase the accuracy of the estimate of contained
minerals and geologic parameters of the deposit.
intrusive Rock which while molten penetrated into or between other
rocks, but solidified before reaching the surface.
KM 88 mining district An area in Bolivar State in southeastern Venezuela
containing significant alluvial and hardrock mineralized
deposits. The Company's Brisas concession is located in
this district.
magnetic surveying A mineral exploration technique which employs a
magnetometer to measure the magnetic intensity of an area
to determine possible mineralization.
MEM The Venezuelan Ministry of Energy and Mines, which
granted the Brisas concession and exercises supervisory
jurisdiction over the concession, the pending application
to the Brisas veta concession, and the Company's
exploration and exploitation efforts on the Brisas
property.
metamorphism A classification of rock 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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
mineralization The presence of minerals in a specific area or geological
formation.
molybdenum An element, usually in the form of molybdenite, primarily
used in alloys and lubricants.
overburden Waste rock and other materials which must be removed from
the surface in order to mine underlying mineralization.
pit slope The angle of the walls of an open pit mine generally
measured in degrees.
Precambrian A period in geologic time dating more than 570 million
years ago.
production stage Activities related to the actual exploitation or
extraction of a mineral deposit.
prospect pit Small areas mined by local miners using primitive open
pit mining methods usually only 5 to 15 meters in depth
proterozoic volcanic flows Volcanic rocks from the Precambrian period that
demonstrate flow or permanent deformation
recovery rate The percentage of metals recovered in the mineral
separation process. Recovery rates vary considerably
depending on physical, metallurgical, and economic
circumstances.
reserves That part of a mineral deposit which could be
economically and legally extracted or produced at the
time of determination. Reserves are subcategorized as
either proven (measured) reserves, for which (a) quantity
is computed from dimensions revealed in outcrops,
trenches, workings or drill holes, and grade and/or
quality are computed from the results of detailed
sampling, and (b) the sites for inspection, sampling and
measurement are spaced so closely and geologic character
is so well defined that size, shape, depth and mineral
content are well-established; or probable (indicated)
reserves, for which quantity and grade and/or quality are
computed from information similar to that used for proven
(measured) reserves, yet the sites for inspection,
sampling and measurement are farther apart.
saprolite Clay-rich intensely weathered bedrock of various colors
formed under tropical to subtropical conditions.
schists A strongly foliated crystalline rock which readily splits
into sheets or slabs as a result of the planar alignment
of the constituent crystals.
shear zone A tabular zone of rock which has been crushed and
fragmented by parallel fractures due to "shearing" along
a fault or zone of weakness. Shear zones can be
mineralized with ore-forming solutions.
strip ratio The tonnage of non-mineralized waste material removed to
allow the mining of one tonne of ore in an open pit.
sulfides or sulfide bodies Compounds of sulphur with other metallic elements.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
syenite Intrusive igneous rock of intermediate composition. It is
a light colored coarse-grained rock and generally
contains 55-65% silica.
tailings The material removed from the milling circuit after
separation of the valuable metals.
trend The directional line of a hardrock or bedrock formation.
veta Adjectively used to describe veins of mineralization
and/or the deeper, hardrock deposit believed to underlie
the Brisas concession. The Company has applied for a
concession to explore and, if warranted, develop the veta
deposit.
volcaniclastic or volcanogenic Rock composed of clasts or pieces that are of volcanic
rock composition.
</TABLE>
CONVERSION FACTORS:
1 Troy Ounce = 31.1034 Grams
1 Tonne = 1.1023 Tons = 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
<PAGE>
PART I
Item 1. Business.
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Gold Reserve Corporation is an exploration-stage mining company whose
principal asset, the Brisas property, is located in the KM 88 mining
region of Bolivar State in southeastern Venezuela. The Company
acquired its interest in the Brisas property in 1992 and based on its
exploration work, the Company believes the Brisas property contains a
gold and copper mineralized deposit estimated at 6.4 million ounces of
gold and approximately 800 million pounds of copper. The Company has
not yet completed a feasibility study of the Brisas property and has
not determined whether the deposit is commercially mineable. This
feasibility study is expected to be completed in 1998.
The Company was incorporated in Montana in 1956 for the purpose of
acquiring, exploring and developing mining properties, and placing
them into production. Its operations in Venezuela are conducted
through subsidiary corporations. Unless the context indicates
otherwise, the terms "Gold Reserve" or the "Company" used throughout
this report refer to Gold Reserve Corporation and the following
subsidiaries: Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas");
Gold Reserve de Venezuela, C.A. ("GLDRV"); Compania Minera
Unicornio, C.A. ("Unicorn"); Great Basin Energies, Inc. ("Great
Basin"); MegaGold Corporation ("MegaGold"); Gold Reserve de Aruba
A.V.V. ("Gold Reserve Aruba"); G.L.D.R.V. Aruba A.V.V. ("GLDRV
Aruba"); Glandon Company A.V.V. ("Glandon"); Stanco Investments A.V.V.
("Stanco"); GoldenLake A.V.V. ("GoldenLake"); Mont Ventoux A.V.V.
("Mont Ventoux") and Gold Reserve Holdings A.V.V. ("Gold Reserve
Holdings"). The Company wholly owns all of these subsidiaries except
Great Basin and MegaGold which are owned 58% and 63%, respectively.
Unless the context indicates otherwise, the terms "Brisas property" or
"Brisas mineralization" used throughout this report include: the
Brisas alluvial gold concession, the application for the mining title
to the gold, copper and molybdenum contained in the hardrock beneath
the alluvial gold concession, other mineralization applied for in the
alluvial and other mineralized areas applied for contiguous to the
alluvial concession. Approximately 10% of the known mineralized
deposit on the Brisas property is contained in the alluvial gold
concession, the mining title or rights to which have been granted, and
approximately 90% is contained in the hardrock beneath the alluvial
concession, the rights to which are expected to be formally granted in
1997.
During the year ended December 31, 1996, the Company expended
approximately $7 million on the Brisas property. These expenditures
consisted of approximately $6.8 million in capitalized development and
exploration costs and $0.2 million for equipment. On a cumulative
basis, the Company has expended approximately $51.5 million on the
Brisas property. These costs include property acquisition costs of $2
million, capitalized development and exploration costs and equipment
expenditures of $27 million (including Company stock valued at $9.8
million issued to purchase the minority interest in subsidiaries which
<PAGE>
owned the Venezuelan corporation holding the Brisas property) and
litigation settlement costs of $22.5 million ($17.5 million of which
was stock and warrants) which was 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 and related exploration costs,
capitalized interest expense, legal costs associated with the Brisas
ownership dispute settled in 1994 and general support costs related to
the Brisas property.
The Company has financed its general business and exploration and
development activities on the Brisas property principally from the
sale of common stock. The Company has raised approximately $68 million
since 1992 from the sale of common stock, warrants to purchase common
stock, and the exercise of previously issued warrants and options to
purchase common stock. As of February 28, 1997, the Company held
approximately $37.5 million in cash and cash equivalents along with
$6.5 million in common shares of the Company which are held by several
subsidiaries.
The Company's exploration and development drilling to date indicates
the Brisas mineralization is comprised of a northern area
characterized as a gold copper deposit and a southern area
characterized as primarily a gold deposit. In addition to these
north/south areas, which are comprised of the main Pozo Azul zone and
the Southwest zone, a number of other areas of mineralization interest
have been identified, including the El Remo area and the southern part
of the property where visible gold has been observed in drill core.
The Brisas mineralization does not yet qualify as a commercially
mineable ore body under standards promulgated by the U.S. Securities
and Exchange Commission, and may so qualify only after a
comprehensive, economic, technical and legal feasibility study has
been completed. The Company has commenced the feasibility study, but
has not established either proven or probable reserves (commercially
mineable) on the Brisas property and no assurances can be given that
such reserves will be established. A number of significant events need
to occur before commercial production on the Brisas property could
begin. These events include the completion of the feasibility study,
financing of significant mine development costs, and the procurement
of the hardrock mining title for gold, copper and molybdenum and all
other necessary regulatory permits and approvals.
As of February 28, 1997, the Company employed nine people in its
Spokane office and approximately ninety-five people in Venezuela, of
which approximately seventy-three 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.
<PAGE>
The following table sets out, as of and for the years ended
December 31, 1996, 1995 and 1994, identifiable assets attributable to
the Company's operations in the United States and Venezuela, and net
losses from United States and Venezuelan operations.
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
(in thousands of dollars)
Identifiable assets:
United States $43,733 $29,721 $33,503
Venezuela 30,039 22,541 9,760
------- ------- -------
Totals $73,772 $52,262 $43,263
======= ======= =======
Net loss:
United States $ 656 $ 182 $23,434
Venezuela 174 155 306
------- ------- -------
Totals $ 830 $ 337 $23,740
======= ======= =======
The Company is solely engaged in mining and continually evaluates
other precious metal mining opportunities in Venezuela and throughout
the world for possible acquisition or joint venture, and from time-to-
time, engages in exploratory discussions regarding such opportunities.
The Company does not at this time have any discussions underway
regarding such transactions.
The Company's growth strategy is to develop proven and probable
reserves as well as mining and process operations by (i) the
successful development of proven and probable reserves at its Brisas
property, (ii) discovering new properties through its exploration
program, (iii) entering joint ventures with advanced exploration
properties and (iv) making selective property or corporate
acquisitions.
During 1996, Great Basin and MegaGold each completed common share
private placements of approximately $1 million to various individuals,
some of which are officers and directors of the Company, and to the
Company which maintained its proportionate ownership interest in the
two subsidiaries. The proceeds of the private placements were for
working capital purposes to identify and possibly acquire income
producing assets and or income producing businesses. To assist with
future financings both companies are investigating the various
requirements to list their shares on one or more stock exchanges;
however, no assurances can be given that the companies will be able to
qualify or meet the listing requirements.
The principal executive offices of Gold Reserve are located at West
601 Riverside Avenue, Suite 1940, Seafirst Financial Center, Spokane,
Washington 99201.
<PAGE>
Item 2. Properties.
-----------
The Brisas Property
-------------------
LOCATION. The Brisas property is in the KM 88 mining region of
southeastern Venezuela in Bolivar State, approximately 300 kilometers
(186 miles), by a paved highway southeast of Puerto Ordaz. The
property, 2.5 kilometers (1.5 miles) west of KM 88 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 dirt road.
OWNERSHIP. The Company, through a wholly owned Venezuelan subsidiary,
currently owns the mining title to the Brisas alluvial gold
concession. The Venezuelan subsidiary has submitted applications for
mining titles to the Ministry of Energy and Mines ("MEM") for other
mineralization and areas identified as the Brisas property. In
particular, the application for the mining title for gold, copper and
molybdenum contained in the hardrock or veta (vein) beneath the near-
surface alluvial gold concession was submitted to MEM in February 1993
and is currently in the final stages of granting by MEM. The Company
believes it has met all of the requirements to obtain the hardrock
mining title and is not aware of any fact or circumstance that would
prevent MEM from granting the mining title to the Company. The process
of obtaining a concession (mining title) in Venezuela is lengthy and
bureaucratically complex and no assurances can be given that the
Company will be granted the hardrock mining title in the near term.
GEOLOGY. The general geology of the area includes thick sequences of
Proterozoic volcanic flows, volcanoclastic sediments and various
intrusives of the Guayanan Shield. These rocks were folded, sheared,
faulted and metamorphosed during Proterozoic and later events. The
prospect pits and mineralization on the Brisas property show a
northeasterly regional trend. The mineralization found in the larger
existing pits on the property has many geological characteristics
similar to other large gold deposits in Precambrian rocks. The rocks
identified on the Brisas property consist of two major types of
materials--saprolite/clay-hosted surface material occurring in the
upper several meters of the property and hard rock tuffs, andesite and
volcanoclastics extending below the alluvial material at depth. Gold,
copper and molybdenum mineralization are found in both materials, and
the mineralization is open at depth.
EXPLORATION AND DEVELOPMENT. Extensive exploration work has been on
going on the property since 1992, including a regional geophysical
survey which outlined the most altered and potentially mineralized
areas in the KM 88 region. The most prospective area outlined from the
survey encompassed the Brisas property and the Placer Dome/Corporacion
Venezolana de Guayana (the "CVG") Las Cristinas property to the
north. Placer Dome/CVG has announced a mineable reserve on its Las
Cristinas property of more than 9 million ounces of gold. Exploration
and development activities on the Brisas property include surface
mapping, sampling and assaying, geochemical and metallurgical studies.
These activities have confirmed that the mineralization is
characterized by a large lower grade body with higher-grade
<PAGE>
mineralization in certain areas. The mineralization, approximately 1.7
kilometers (approximately one mile) in length and from 400 to 800
meters wide, is on strike and contiguous with the Placer Dome/CVG Las
Cristinas deposit to the north.
One of the most significant developments in 1996 was the extension of
the Pozo Azul mineralized trend into the Southwest zone, where the
Company drilled approximately 30 strongly mineralized holes. In total,
the 1996 exploration program included more than 250 exploration and
development drill holes totaling approximately 50,000 meters.
Generally, drill spacing of the mineralized deposit is 50 meters
throughout the significantly mineralized trend, with 25 meters in
selected areas. Drilling for condemnation of waste areas is nearing
completion on an approximate 300 meter spacing across the concession.
On a cumulative basis, the Company has drilled approximately 550 core
and auger drill-holes totaling over 100,000 meters.
Recent pit slope stability testwork indicated the potential for
allowable pit slopes up to 55 degrees. In addition, preliminary
surface and subsurface hydrological test work indicate adequate work
conditions with respect to groundwater flow. Environmental studies
have been ongoing since the Company acquired the property in late 1992
and, using Venezuelan and North American based environmental
consultants, the Company has been preparing studies and reports to
support the various Environmental Impact Statements required for the
property. The Company has an ongoing program to neutralize rainwater
runoff to minimize acid drainage that occurs naturally due to the high
sulfur content in the rock and has also been studying reforestation
alternatives necessary upon completion of mining activities. The
Company is committed to a sound environmental policy to protect the
environment
At the present time, conventional open pit mining is contemplated at
the Brisas property and preliminary mill design and operating cost
estimates are being developed from recent testwork. Initial scoping
studies for the mill design are well advanced and currently the mill
or recovery plant is estimated to be a simple gravity, flotation, and
cyanidation facility with recovery rates for both copper and gold of
85%. The mill will produce gold bullion and gold/copper/molybdenum
concentrate. The Company's preliminary estimate of capital costs
associated with the Brisas property is approximately $150 million. The
mill is expected to cost $120 million with an additional $30 million
for ancillary facilities, mining equipment and working capital.
Subsequent final metallurgical design criteria and final drill
results, together with geotechnical, hydrological and environmental
data, will be instrumental in the completion of the feasibility study.
The major focus of the drilling has shifted to development and in-fill
drilling related to a final feasibility study, although certain
exploration drilling will continue and management expects to drill at
least 100 more exploration, development and condemnation drill holes
of at least 25,000 meters during 1997. A number of deep drill holes,
up to 1000 meters, will also be completed in 1997. Approximately $8
million will be spent on the Brisas property which will include
exploration and development drilling, permitting, administration and
the necessary work required to complete the Brisas feasibility study.
<PAGE>
The feasibility study is expected to be finalized during the early
part of 1998. Various permitting required for the Brisas property is
ongoing and approval from MEM and the Ministry of Ambiente
(Environment) is expected to occur throughout 1998. Detailed
engineering work will commence after the receipt of the necessary
operating and environmental permits. Management is hopeful that mine
and plant construction can commence after the 1998 rainy season,
usually lasting from May to July. Construction is estimated to take
approximately 18 months, with commissioning and achievement of
commercial production by the end of the second quarter of 2000.
Final development of the Brisas property is contingent upon obtaining
the mining title to the hardrock or veta area beneath the alluvial
concession, results of future drilling, completion of a feasibility
study and obtaining the appropriate environmental and operating
permits.
MINERALIZED DEPOSIT. The Company has to date announced a gold and
copper deposit of 6.4 million ounces of gold and approximately 800
million pounds of copper. The Brisas mineralized deposit consists of
224 million tonnes grading 0.88 grams (0.028 ounces) per tonne gold
and 0.16% copper. The Brisas alluvial gold concession contains 10% of
the deposit and the hardrock area, for which a mining title has been
applied, contains 90% of the deposit. The deposit is defined by
approximately 480 holes (50x50 meter spacing with 25 meters in
selected areas) and is approximately 1700 meters long and 400 to 800
meters wide. Drilling results indicate the Brisas mineralization is
comprised of a northern area characterized as a gold/copper deposit
and a southern area characterized as primarily a gold deposit as shown
in the following table:
<TABLE>
<CAPTION>
Copper Gold and Gold Equivalent
Gold ---------------------------- ------------------------
Tonnes Ounces Pounds Gold Equiv. ozs Ounces Avg. Grade
Area (millions) (millions) (millions) (millions) (millions) (gms/t)
----- ---------- ---------- ---------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
North 126 2.75 685 1.8 4.55 1.12 (1)
South 98 3.65 115 .3 3.95 1.16 (2)
--- ---- --- --- ---- ----
Total 224 6.40 800 2.1 8.50 1.18 (1)
=== ==== === === ==== ====
</TABLE>
(1) Gold Equivalent (.5 grams/tonne gold equivalent cutoff using
$380/ ounce gold and $1/pound copper)
(2) Gold Only (.5 grams/tonne gold cutoff)
The Brisas mineralization does not yet qualify as a commercially
mineable ore body under standards promulgated by the U.S. Securities
and Exchange Commission and may so qualify only after a comprehensive
economic, technical and legal feasibility study has been completed. As
a result, the Company has not yet established either proven or
probable reserves on the Brisas property and no assurance can be given
that any such reserves will be established on the property.
<PAGE>
SIGNIFICANT ZONES or AREAS OF INTEREST. In addition to the north/south
areas which comprise the Pozo Azul zone and the Southwest zone, a
number of other areas of interest have been identified including the
El Remo area and the southern part of the property where visible gold
has been observed in drill core. Several other areas of exploration
are currently being tested and condemnation drilling is also in
progress in support of a future final feasibility study.
VENEZUELAN MINING, ENVIRONMENTAL AND OTHER MATTERS. The Company's
Venezuelan mining operations are subject to laws of title that differ
substantially from those of the United States, and to various mining
and environmental rules and regulations that are similar in purpose to
those in the United States. The more significant of these laws, rules
and regulations are summarized below.
Current Venezuelan Mining Law.
------------------------------
The principal legislation governing the exploration and development of
mineral resources in Venezuela is the Mining Law of 1945 and related
regulations, administrative decrees and resolutions. The law governs
every aspect of mineral exploration, evaluation and extraction
throughout the country, and is administered by the MEM, through its
Department of Mines.
A chief distinction between the mining laws of Venezuela and those of
the United States is the way in which mineral rights are owned and
held. In Venezuela, all minerals other than those used in construction
are initially owned by the government and can be explored and
developed only by state-owned corporations or private entities that
have applied for and obtained concessions or permits for such
activities. Concessions may be granted for near-surface development
(an alluvial concession), subsurface hardrock or vein development (a
veta concession) or both.
There are two types of concessions: The first, an exploration and
exploitation concession, gives the holder up to two years to explore a
property of a maximum of 5,000 hectares (12,355 acres), and the right
to choose for exploitation 50% of the area granted in parcels of
500 hectares (1,235.5 acres) each; for that purpose a certificate of
exploitation has to be granted by the MEM. The second, an exploitation
concession, does not have an exploration period and has an established
surface area of up to 500 hectares. Under an exploitation concession,
a mining title is granted directly to the holder. In both kinds of
concessions, the holders have, in the case of alluvial deposits, three
years to initiate exploitation and, in the case of vein deposits, five
years to initiate exploitation. During such period, concession holders
must submit a technical and economical feasibility study for approval
to the MEM within 18 months for alluvial deposits and within 36 months
for vein deposits, each case determined from the date of grant of the
mining title or of the certificate of exploitation.
<PAGE>
Concessions and certificates of exploitation are granted for
rectangular lots not larger than 500 hectares (1,235.5 acres), and a
single holder cannot be granted a total of more than 10,000 hectares
(24,710 acres) of concessions relating to vein deposits and
20,000 hectares (49,420 acres) of concessions relating to alluvial
deposits. Usually a concession granted relating to alluvial deposits
constitutes a separate concession from a concession relating to the
underlying vein deposits. Both concessions grant the holder 20 years
to actually complete development of the concession, provided all
specified requirements, including compliance with environmental laws,
are met. This period can be extended for up to an additional 20 years,
through two 10-year extensions, following which all rights to the
concession, including improvements, revert to the Venezuelan
government. Holders of concessions are required to report their
activities to the Department of Mines and must submit to routine
inspections by Department representatives to confirm compliance with
the law.
All exploration and development activities must be conducted in
compliance with applicable mining law, and may be undertaken only by
applicants who demonstrate technical and financial capability,
undertake to manufacture or refine mined ores in Venezuela, submit to
Venezuela's tax laws, agree to share their mining technology with the
local mining industry and recognize the reversionary interests of the
Venezuelan government in the concession. In addition, an applicant for
a concession must agree to certain terms, known as "special
advantages", including the amount of royalties or mining taxes to be
paid and the extent to which bonds or sureties may be posted to
guarantee performance of the applicant's obligations. An applicant
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.
Venezuela has historically relied on government-owned entities to
explore and develop mineral resources, although this practice is
diminishing as the government seeks to encourage private investment.
In the Guayana region of the country including Bolivar State, for
example, the regional Corporacion Venezolana de Guayana (the "CVG")
and its various subsidiary state-owned companies were granted the
exclusive right to explore, evaluate and mine diamond and gold
resources not previously awarded as concessions by the MEM. To
accomplish this, CVG granted mining contracts to private investors in
the region and has engaged in joint venture or other arrangements with
foreign and local companies. This right was revoked July 15, 1996.
Although the Company's Brisas concession is located in the Guayana
region, it was granted by the MEM and is not subject to exploration or
development claims by the CVG.
<PAGE>
Gold Sales
----------
The Central Bank of Venezuela allows gold mining companies to sell 85%
of their production on the international market, the remaining 15%
must be sold to the Central Bank at current market price and paid in
Venezuelan currency. Gold sold on the international market is levied a
minimum mining tax of 3% of the market price, unless the Company
agrees to a higher tax by special advantages established in the
concession agreement, and the mining tax for gold sold to the Central
Bank is 1% of the market price.
Taxes
-----
The Venezuelan tax law provides for a maximum corporate income tax
rate for mining companies of 34% and allows for certain tax credits,
wholesale tax exemption during the pre-operative period and exemptions
from certain custom duties.
Venezuela has experienced significant political and economic
instability, high inflation, and shortages of foreign currency:
POLITICAL AND ECONOMIC SITUATION. In May 1993, the Venezuelan Senate
voted to authorize the impeachment of President Carlos Andres Perez.
Subsequently, Rafael Caldera was elected president and took office in
February 1994. Upon assuming the presidency, President Caldera was
immediately faced with a solvency crisis in the banking system which
necessitated a government takeover of nine financial institutions,
including Banco Latino, one of the largest Venezuelan banks.
Consequently, the bolivar devalued sharply, inflation rose and gross
domestic product contracted, though Venezuela experienced positive
growth for 1995 and 1996.
On April 22, 1996, the Venezuelan government announced the lifting of
controls on foreign exchange transactions, having announced the
lifting of controls on interest rates one week earlier. The Venezuelan
government also announced a $1.4 billion preliminary loan accord with
the International Monetary Fund. Although these actions led to the
devaluation of the bolivar and a rise in interest rates and are likely
to lead to temporary increases in inflation, they are generally viewed
as likely to have a positive effect in the long term. There can be no
assurance, however, that such actions will be successful in resolving
Venezuela's economic difficulties.
INFLATION AND CURRENCY CONTROLS. Venezuela has experienced high levels
of inflation over the past decade. These high rates of inflation
led the Venezuelan government to devalue the bolivar by 41% on
December 11, 1995. In July 1994, the Venezuelan government imposed a
program of currency exchange controls that was lifted in April 1996.
Since the devaluation in April 1996, the Venezuelan bolivar has been
relatively stable within a trading range of 460 Bs. to 485 Bs. to the
U.S. dollar, in spite of high levels of monthly inflation. The
official inflation rate in Venezuela for the first nine months of 1996
was 83.7%, and the market consensus is that the inflation rate for the
full year will be somewhat above 100%. The Venezuelan Government
<PAGE>
expects the inflation rate to decrease to 25% in 1997. Although the
lifting of currency controls is expected to lead to increased economic
stability in the long term, it is likely to lead to a temporary rise
in inflation in Venezuela. Such conditions have not materially
adversely affected the Company's operations in Venezuela to date as
substantially all of the Company's sources of funding for its
Venezuelan operations are denominated in U.S. dollars and the Company
does not repatriate funds from Venezuela.
Proposed Mining Law
-------------------
For over eight years, the Venezuelan Congress has been evaluating
various amendments to Venezuela's existing 1945 mining law. These
amendments include, among other items: an easing of costly and time-
consuming bureaucratic steps necessary to obtain a concession, coupled
with the introduction of a new permitting system; expansion of the
area that may be covered by a single exploration concession, and
extension of the exploration period to up to seven years; extension of
the concession exploitation period from a maximum of 40 years to a
maximum of 50 years; a re-evaluation of the method and manner in which
mining activities are taxed; granting concessionaires rights to
substantially all mineralization contained in surface and deep
(hardrock) material; a royalty on gold production of 2%, (1% if sold
to the Venezuelan Central Bank) 2% value "at the mine pit" tax for
copper and a bidding process for new concessions. The Venezuelan
government, the MEM, industry representatives and congressional
committees are currently debating the proposed changes to the mining
law and there is no indication when or if any of the proposed changes
will be adopted. The proposed amendments to the mining law are not
expected to substantially affect existing concessions such as the
Company's Brisas alluvial concession and hardrock concession under
application, or the terms under which such concessions can be explored
or developed.
Environmental Laws and Regulations
----------------------------------
Venezuela's environmental laws and regulations are administered
through the Ministry of the Environment and Renewable Natural
Resources (Ambiente or Environment). Concession holders who seek to
develop a mineral property must first obtain a permit granting them
the right to occupy the territory for mining purposes and then submit
a report outlining the environmental impact of the development and the
rehabilitative or reconditioning work to be undertaken once
development activities are concluded. The Ministry also prescribes
certain mining recovery methods deemed harmful to the environment and
monitors the concessionaire's activities to ensure compliance. The
Company has presented an environmental audit of the alluvial
concession and the first and second phase of an environmental impact
study to the ministry (through its Brisas subsidiary), and will soon
submit the third phase of the study. The Company also expects to
submit an environmental impact statement to the Ministry addressing
development and reclamation of the deeper mineralization which is
beneath the Brisas concession when, and if, the Company's application
for the veta concession is granted. Alternatively, the Company may
amend the existing environmental study to include the effect of mining
the deeper mineralization.
<PAGE>
Item 3. Legal Proceedings.
------------------
The Company had no pending litigation as of the date of this report.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1996.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
-------------------------------------------------------------
MARKET INFORMATION. The common stock of the Company is traded on
NASDAQ SmallCap Market under the symbol "GLDR" and on the Toronto
Stock Exchange ("TSE"), under the symbol "GLR". The following table
sets out the high and low prices per share for the common stock for
1996 and 1995, as reported by the TSE and NASDAQ. The prices reported
reflect inter-dealer prices, without regard to retail mark-ups, mark-
downs or commissions, and do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
TSE NASDAQ
---------------------------------- ----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
High Low High Low High Low High Low
------- ------- ------- ------- ------- ------- ------- -------
Canadian Dollars U.S. Dollars
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $14.250 $ 7.375 $11.750 $ 7.000 $10.250 $ 5.750 $ 8.750 $ 5.000
Second Quarter 14.500 9.500 11.125 8.500 10.375 7.000 8.250 6.125
Third Quarter 21.700 10.000 11.750 7.375 15.750 7.375 8.844 5.250
Fourth Quarter 20.000 12.400 9.500 6.750 14.625 9.250 7.250 4.875
</TABLE>
HOLDERS. The number of holders of common stock of record on
February 28, 1997 was approximately 1,400. Based on recent mailings to
its shareholders, the Company believes its common stock is owned
beneficially by approximately 6,000 persons.
DIVIDENDS. The Company has declared no cash or stock dividends on its
common stock since 1984, and in the opinion of management of the
Company, will declare cash dividends in the future only if the
earnings and capital of the Company are sufficient to justify the
payment of such dividends.
<PAGE>
Item 6. Selected Financial Data
-----------------------
The consolidated financial data set forth below have been selected by
the Company and should be read in conjunction with the Company's
consolidated financial statements.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands of dollars, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Other income $ 1,489 $ 1,407 $ 1,396 $ 516 $ 215
Net loss (830) (337) (23,740) (2,844) (992)
Loss per share of
common stock (0.04) (0.02) (1.68) (0.28) (0.16)
Total assets 73,772 52,262 43,263 13,907 6,110
Long-term debt
(contract payable) -- -- -- 825 1,586
Shareholders' equity 67,193 47,073 37,900 11,792 3,774
Common stock:
Issued 22,703,811 20,476,688 18,929,668 11,723,451 8,875,862
Outstanding (1) 22,222,767 19,995,644 18,577,175 11,429,291 8,581,702
</TABLE>
(1) Great Basin, MegaGold and Stanco, each consolidated subsidiaries
of the Company, own shares of the Company's common stock,
representing an indirect investment in itself. The Company's
proportionate ownership interest in the common stock held by
these entities represents the difference between issued and
outstanding shares.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
-----------------------------------------------------------
SUMMARY. Over the last several years, the Company's main focus has
been the exploration and development of its Brisas property located in
Venezuela. All expenditures relating to exploration and development
activities on the Brisas property have been capitalized and recorded
on the Company's balance sheet as property, plant and equipment
(capitalized exploration and development costs). As a consequence, the
consolidated results of operations for the years presented consist of
expenses related to activities other than the exploration and
development of the Brisas property partially offset by interest income
from invested funds. The Company has incurred losses in each of the
last five years due to the lack of a revenue generating business
activity, and in 1994 because of litigation, settlement costs relating
to such litigation and the disposal of the Alfa concessions. Net
losses of the Company will continue over the next few years as the
result of increased expenditures associated with the corporate
management of exploration and development activities relating to the
Brisas property and other exploration expenses not associated with the
Brisas property. Management believes the trend of net losses will
reverse when gold and copper are produced from the Brisas property. A
number of significant events must occur before commercial production
of the Brisas property can begin: the completion of a bankable
<PAGE>
feasibility study, including the establishment of proven and probable
reserves, the formal granting by the MEM of the mining title to the
hardrock or veta area beneath the Company's Brisas alluvial gold
concession, the procurement of all necessary regulatory permits and
approvals from the Venezuelan government and the successful financing
of the capital costs estimated to be required to place the Brisas
property into production.
Results of Operations
---------------------
1996 COMPARED TO 1995. The consolidated net loss for the year ended
December 31, 1996 was $829,938 or $0.04 per share, an increase of
approximately $493,000 from the prior year. Other income for 1996
amounted to $1,488,857, which is an increase of approximately $82,000
over the previous year and principally due to gains on the sale of
investments partially offset by a decrease in interest income due to
lower returns on invested cash. Operating expenses for the year
amounted to $2,318,795, which is an increase from the prior year of
approximately $575,000. The major components of the increase in
operating expenses are increases in general and administrative of
approximately $209,000, legal and accounting of approximately $211,000
and directors' and officers' compensation of approximately $172,000.
The increase in general and administrative expense was primarily due
to increases in compensation and related expenses. Legal and
accounting expense increased due to the Company's ongoing securities
compliance and reporting in the United States and Canada and
compliance and permitting activities in Venezuela. Directors' and
officers' compensation increased as a result of salary increases for
officers and first time compensation paid to the directors.
1995 COMPARED TO 1994. Consolidated net loss for the year ended
December 31, 1995 was $337,303 or $0.02 per share, a decrease of
approximately $23,403,000 from the prior year. The year ended December
31, 1994 included one-time litigation settlement costs as well as
costs associated with the disposal of subsidiaries. Other income for
1995 was $1,406,984, which is an increase of approximately $11,000
over the previous year. The increase in other income during 1995 was
principally due to increases in interest income offset by lower
foreign currency gains. Interest income increased approximately
$518,000 during the year due to greater levels of and returns on
invested cash and foreign currency gain decreased approximately
$418,000 due to the increases in currency exchange rates in Venezuela.
The Venezuelan exchange rate was set at 170 bolivares per U.S. dollar
during most of 1995 and was increased to 290 in December 1995.
Operating expenses for the year amounted to $1,744,287, which is a
decrease from the prior year of approximately $191,000, excluding
settlement costs and loss on disposal of consolidated subsidiary
incurred in 1994. Major components of the change in operating
expenses, exclusive of settlement costs and loss on disposal of
consolidated subsidiary, are decreases in general and administrative
of approximately $259,000 and legal and accounting of approximately
$403,000, offset by an increase in directors' and officers'
compensation of approximately $139,000 and a decrease in minority
interest in net loss of consolidated subsidiaries of approximately
$314,000.
<PAGE>
The decrease in general and administrative expenses was generally
caused by the elimination of costs associated with Unicorn and its
subsidiaries which operated the Alfa concessions. The Alfa concessions
were disposed of in 1994. The decrease in legal and accounting expense
is principally related to the settlement of the Brisas litigation.
Directors' and officers' compensation increased as a result of salary
adjustments in 1995 for officers. The principal change in minority
interest in net loss of consolidated subsidiaries is the minority
interest share of Unicorn's net loss from the Alfa concessions.
Liquidity and Capital Resources.
-------------------------------
INVESTING. During 1996, the Company was primarily engaged in
exploration and development activities at the Brisas property which
included development drilling in the Pozo Azul zone, and exploration
drilling in the Southern part of the concession. More than 250 holes
totaling over 50,000 meters were drilled in 1996. On a cumulative
basis, the Company has drilled approximately 550 holes totaling
100,000 meters. Drill hole spacing has been completed on 50 meter
spacing throughout the mineralized trend, with 25 meter spacing in
selected areas. Recently, the Company announced a mineralized deposit
consisting of 6.4 million ounces of gold and 800 million pounds of
copper. The mineralization related to the alluvial gold concession is
approximately 10% of the deposit and the remainder of the deposit is
contained in the hardrock or veta area for which the Company has
applied to MEM for the mining title, but has not been formally granted
as of the date of this report.
During the year ended December 31, 1996, the Company expended
approximately $7 million on the Brisas property. These expenditures
consisted of approximately $6.8 million in capitalized development and
exploration costs and $0.2 million for equipment. On a cumulative
basis since inception, the Company has expended approximately $51.5
million on the Brisas property. These costs include property
acquisition costs of $2 million, capitalized development and
exploration costs and equipment expenditures of $27 million (including
Company stock valued at $9.8 million issued to purchase the minority
interest in subsidiaries which owned the Venezuelan corporation
holding the Brisas property) and litigation settlement costs of $22.5
million ($17.5 million of which was stock and warrants) which was
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 and
related exploration costs, capitalized interest expenses, legal costs
associated with the Brisas ownership dispute settled in 1994 and
general support costs related to the Brisas property.
The overall corporate budget for 1997 amounts to $10 million.
Approximately $8 million will be spent on the Brisas property which
will include exploration and development drilling, permitting,
administration and the necessary work required to complete the Brisas
feasibility study. The feasibility study is expected to be finalized
during early 1998. Various permitting required for the Brisas property
<PAGE>
is ongoing and approvals from MEM and the Ministry of Ambiente
(Environment) are expected to occur throughout 1998. Detailed
engineering work will commence after the receipt of the necessary
operating and environmental permits. Management is hopeful that mine
and plant construction can commence after the 1998 rainy season,
usually lasting from May to July. Construction, if commenced, is
estimated to take approximately 18 months, with commissioning and
achievement of commercial production by the end of the second quarter
of 2000.
The Company's preliminary estimate of capital costs associated with
the Brisas project is approximately $150 million. The plant is
expected to cost approximately $120 million with an additional $30
million estimated for ancillary facilities, mining equipment and
working capital. The recovery plant is currently estimated to be a
conventional, gravity/flotation/cyanidation process with recovery
rates for both gold and copper of 85%. Mining is to be completed
utilizing open-pit mining methods. Final development of the Brisas
property is contingent upon obtaining the mining title to the hardrock
or veta area beneath the Brisas alluvial gold concession, results of
future drilling, completion of a bankable feasibility study including
the establishment of proven and probable reserves and obtaining the
appropriate environmental and operating permits.
FINANCING. The Company has financed its general business and
exploration and development activities in Venezuela principally from
the sale of common stock and has raised approximately $68 million in
equity financing, since 1992, to support its overall business
activities. These transactions consisted of the sale of additional
shares of common stock, or warrants to purchase common stock, and the
exercise of previously issued warrants and options to purchase common
stock. Management anticipates that the Company will require additional
financing in order to place the Brisas property into production which
is estimated to be as much as $150 million for the construction of the
recovery plant, ancillary facilities and equipment, related
development costs and working capital. Future acquisition costs and
exploration expenses, and the cost of placing the Brisas property or
additional future properties into production, if warranted, are
expected to be financed by a combination of the sale of additional
common stock, bank borrowings or other means. The Company routinely
evaluates the market for the Company's common stock and other
appropriate conditions for the possible sale of common stock to
finance its future activities and from time-to-time the Company
reviews potential financing activities with its investment bankers.
The Company has no current plans to issue additional common shares
other than in connection with the exercise of employee common stock
options but, may determine that market conditions for its common
shares are appropriate and as a result issue additional common shares
during the next twelve months.
As of February 28, 1997, the Company held approximately $37.5 million
in cash and cash equivalents. Whether and to what extent additional or
alternative financing options are pursued by the Company depends on a
number of important factors, including the results of further
exploration and development activities on the Brisas property, whether
the Company obtains the mining title or concession to the hardrock or
<PAGE>
veta mineralization located beneath the Brisas alluvial concession,
management's assessment of the financial markets, the acquisition of
additional properties or projects and the overall capital requirements
of the consolidated corporate group. At this time, management
anticipates that its current cash and investment position are
adequate to cover estimated operational and capital expenditures
associated with the 1997 exploration and development program related
to the Brisas property.
Forward Looking Statements
--------------------------
Except for the historical information contained herein, certain of the
matters discussed in this annual report are "forward-looking
statements." When used in this report, the words budget, budgeted,
anticipate, expect, believes, goals or projects and similar
expressions are intended to identify forward-looking statements. In
accordance with the provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions that important factors could
cause actual results to differ materially from those in the forward -
looking statements. Such factors include the Company's concentration
of operations and assets other than cash and investments in Venezuela,
regulatory risks (such as obtaining the veta or hardrock concession or
obtaining approval of environmental compliance plans), the political
and economic risks associated with international operations, the
anticipated future development costs for the Company's Brisas
property, the risk that actual reserve estimates may vary considerably
from mineralized deposit estimates presently made, the impact of
metals prices and metal production volatility, the 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.
All of the Company's mining operations are presently concentrated in
Venezuela. In addition, at December 31, 1996 approximately 40% of the
Company identifiable assets (90% of its noncash assets) were located
in Venezuela. Such operations and investments could be adversely
affected by exchange controls, currency fluctuations, taxation and
laws or policies of Venezuela and the United States affecting trade,
investment and taxation. In addition, Venezuela has adopted
environmental laws and regulations for the mining industry which
impose significant obligations on companies doing business in the
country.
An application for the hardrock (veta) concession covering the
mineralization beneath the near-surface alluvial mineralization was
submitted in February 1993 and initially approved by the Ministry of
Energy and Mines ("MEM") in March 1995. Since then management has
completed a number of procedural steps related to the final issuance
of the concession. Management is not aware of any fact or circumstance
that would prevent the MEM from granting the hardrock (veta)
concession to the Company. The process of obtaining a concession in
Venezuela is lengthy and bureaucratically complex, and no assurance
can be given that the Company will be successful in obtaining a
concession to this mineralized deposit in the near term.
<PAGE>
The Company has no revenue from mining operations and has experienced
losses from operations for each of the last five years. This trend is
expected to continue for at least the next two to three years as the
result of increased expenditures associated with the corporate
management of exploration and development activities related to the
Brisas property and other properties, and is expected to reverse only
when gold and copper production commences from the Brisas property.
Based upon currently available information, the Company estimates that
it will be required to expend approximately $150 million in order to
place the project into production, should it elect to do so. These
expenditures are expected to be funded from additional sales of common
stock of the Company, bank borrowings or other means, and no assurance
can be given that such funding can or will be obtained. Alternatively,
the Company may determine that it is in the best interest of its
shareholders to sell its rights to the Brisas property to another
mining company or to enter into a joint development or similar
arrangement with another mining company to develop the property. No
assurance can be given that any such sale or arrangement would yield
benefits to the Company commensurate with those that could be obtained
were the Company to develop and place the Brisas property into
production.
The Company is subject to all of the risks inherent in the mining
industry, including environmental hazards, industrial accidents, labor
disputes and periodic interruptions due to inclement weather. Although
the Company maintains or can be expected to maintain insurance within
ranges of coverage consistent with industry practice, no assurance can
be given that such insurance will be available at economically
feasible premiums. Insurance against environmental risks (including
pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not
generally available to the Company or other companies in the mining
industry. Were the Company to be subjected to environmental
liabilities, the payment of such liabilities would reduce the working
capital available to the Company and if it were unable to fund the
cost of remedying an environmental problem, it might be required to
suspend operations or enter into interim compliance measures pending
completion of remedial activities.
The Company's future operations may be significantly influenced by the
prices of gold and copper. Gold prices fluctuate widely and are
affected by numerous factors beyond the Company's control, such as
inflation, the strength 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.
Copper prices also fluctuate and are generally affected by global and
regional demand and existing inventories. The Company believes, based
on engineering and geological studies which have been completed, that
significant reserves may exist on the Brisas property, although no
independent reserve reports or evaluations have been prepared.
The Company has not yet established proven and/or probable reserves on
the Brisas property and no assurance can be given that any reserves
will be established on the Brisas property.
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Operations
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
-----------------------------------------------------------
There were no changes in or disagreements with accountants on
accounting or financial disclosures during the year ended December 31,
1996.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Gold Reserve Corporation
We have audited the accompanying consolidated balance sheets of Gold
Reserve Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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, 1996
and 1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 2, the Company changed its method of
accounting for the impairment of long-lived assets in 1996 and
investments in 1994.
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
February 26, 1997
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents $30,329,024 $10,095,616
Investments:
Held-to-maturity securities, at
amortized cost 8,442,492 10,630,963
Accrued interest on investments 143,580 101,793
Deposits, advances and other 528,458 520,599
Litigation settlement held in escrow 4,500,000 4,500,000
----------- -----------
Total current assets 43,943,554 25,848,971
Property, plant and equipment, net 29,097,305 22,065,868
Investments:
Available-for-sale securities 119,504 215,364
Held-to-maturity securities, at
amortized cost - 4,000,000
Other 611,204 131,504
----------- -----------
Total assets $73,771,567 $52,261,707
=========== ===========
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
December 31, 1996 and 1995
1996 1995
----------- -----------
LIABILITIES
Current Liabilities:
Litigation settlement payable $ 4,500,000 $ 4,500,000
Accounts payable and accrued
expenses 938,892 262,219
Note payable-KSOP, current portion 186,708 149,960
----------- -----------
Total current liabilities 5,625,600 4,912,179
Note payable-KSOP, non-current portion - 186,749
Minority interest in consolidated
subsidiaries 952,571 90,160
----------- -----------
Total liabilities 6,578,171 5,189,088
----------- -----------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Serial preferred stock, without
par value
Authorized: 10,000,000 shares
Issued: None
Common stock, without par value
Authorized: 40,000,000 shares
Issued: 1996... 22,703,811;
1995... 20,476,688
Outstanding: 1996... 22,222,767;
1995... 19,995,644 100,952,778 80,068,854
Less, common stock held by
affiliates (1,428,565) (1,428,565)
Unrealized gain on available-for-
sale securities 2,750 85,960
Accumulated deficit (32,146,859) (31,316,921)
KSOP debt guarantee (186,708) (336,709)
----------- -----------
Total shareholders' equity 67,193,396 47,072,619
----------- -----------
Total liabilities and share-
holders' equity $73,771,567 $52,261,707
=========== ===========
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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Other Income:
Interest income $ 1,477,955 $ 1,548,998 $ 1,031,206
Foreign currency (loss) gain (135,509) (130,244) 288,628
Net gain (loss) on investments 111,286 (11,770) 61,635
Miscellaneous 35,125 - 14,210
------------ ------------ ------------
1,488,857 1,406,984 1,395,679
Expenses:
General and administrative 1,170,329 961,829 1,220,740
Directors' and officers'
compensation 637,825 465,684 327,005
Legal and accounting 499,700 288,371 691,140
Depreciation 38,831 28,549 15,751
Interest, net of amount capitalized 11,841 8,214 3,318
Minority interest in net loss of
consolidated subsidiaries (39,731) (8,360) (322,348)
Loss on disposal of consolidated
subsidiary - - 688,051
Litigation settlement - - 22,512,500
------------ ------------ ------------
2,318,795 1,744,287 25,136,157
------------ ------------ ------------
Net loss $ (829,938) $ (337,303) $(23,740,478)
============ ============ ============
Net loss per share $ (0.04) $ (0.02) $ (1.68)
============ ============ ============
Weighted average common shares
outstanding 20,841,025 19,415,805 14,102,646
============ ============ ============
</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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Issued Common Stock Unrealized Gain
------------------------- Accumulated Issued to on Available-for-
Shares Amount Deficit Affiliates Sale Securities
---------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 11,723,451 $ 19,147,345 $ (7,239,140) $ (70,944)
Effect of change in accounting
for investments $ 108,425
Net loss (23,740,478)
Common stock issued:
Services 6,000 33,000
Litigation settlement 2,750,000 16,912,500
Cash 2,020,000 19,754,290
Options and warrants 2,430,217 13,650,244
Value attributed to issuance of
warrants 800,000
Decrease in unrealized gain
on available-for-sale securities (29,408)
Increase in common stock held by
consolidated subsidiaries (433,332)
Reduction of shareholders' equity
associated with change in
subsidiaries' minority interest (843,986)
---------- ------------ ------------ ------------ ------------
Balance, December 31, 1994 18,929,668 69,453,393 (30,979,618) (504,276) 79,017
Net loss (337,303)
Common stock issued:
Cash 50,000 280,195
Options 167,835 460,162
Exchange for minority
interest of subsidiaries 1,329,185 9,882,028
Increase in common stock held by
consolidated subsidiaries (924,289)
Increase in unrealized gain on
available-for-sale securities 6,943
Reduction of shareholders' equity
associated with change in
subsidiaries' minority interest (6,924)
---------- ------------ ------------ ------------ ------------
Balance, December 31, 1995 20,476,688 80,068,854 (31,316,921) (1,428,565) 85,960
</TABLE>
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, CONTINUED
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Issued Common Stock Unrealized Gain
------------------------- Accumulated Issued to on Available-for-
Shares Amount Deficit Affiliates Sale Securities
---------- ------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 20,476,688 80,068,854 (31,316,921) (1,428,565) 85,960
Net loss (829,938)
Common stock issued:
Cash 1,729,500 18,202,500
Options 497,623 2,673,988
Decrease in unrealized gain on
available-for-sale securities (83,210)
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) $ (1,148,565) $ 2,750
========== ============ ============ ============ ============
</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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net loss $ (829,938) $ (337,303) $(23,740,478)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 38,831 28,549 15,751
Accretion of discount on held-
to-maturity securities (339,581) (765,451) -
Foreign currency loss (gain) 135,509 130,244 (308,711)
Minority interest in net loss
of consolidated subsidiaries (39,731) (8,360) (322,348)
Net loss (gain) on disposition
and revaluation of equity
securities (111,286) 11,770 (61,635)
Loss on disposal of consolidated
subsidiary - - 688,051
Common stock issued for services/
expenses - - 33,000
Loss on disposal of equipment - - 25,909
Common stock and warrants issued
for litigation settlement - - 17,712,500
Changes in current assets and
liabilities:
Net increase in current
assets (49,646) (4,368,656) (412,308)
Net (decrease) increase in
current liabilities 676,673 (310,494) 4,656,881
------------ ------------ ------------
Net cash used by operating
activities (519,169) (5,619,701) (1,713,388)
------------ ------------ ------------
Cash Flow from Investing Activities:
Purchase of held-to-maturity
securities (17,396,948) (20,609,690) (32,022,160)
Purchase of property, plant and
equipment (7,205,777) (3,807,683) (5,034,437)
Proceeds from maturity of held-to-
maturity securities 23,925,000 32,824,000 5,942,338
Net cash acquired from increased
investment in majority owned,
consolidated subsidiaries 909,578 - -
Proceeds from sale of available-for-
sale securities 123,936 - 75,769
Other (479,700) (107,438) (1,512)
------------ ------------ ------------
Net cash provided (used) by
investing activities (123,911) 8,299,189 (31,040,002)
------------ ------------ ------------
<PAGE>
GOLD RESERVE CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
For the Years Ended December 31, 1996, 1995 and 1994
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flow from Financing Activities:
Proceeds from issuance of common
shares 20,876,488 740,357 33,404,534
Payments on contract payable - - (742,085)
------------ ------------ ------------
Net cash provided by
financing activities 20,876,488 740,357 32,662,449
------------ ------------ ------------
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash
and cash equivalents 20,233,408 3,419,845 (90,941)
Cash and cash equivalents -
beginning of year 10,095,616 6,675,771 6,766,712
------------ ------------ ------------
Cash and cash equivalents - end of
year $ 30,329,024 $ 10,095,616 $ 6,675,771
============ ============ ============
Supplemental cash flow information
Cash paid during the year for:
Interest, net of amount
capitalized $ 11,841 $ 10,202 $ 3,318
Other non-cash activities:
Issuance of common shares for
minority interest in
subsidiaries - $ 9,882,028 -
</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 and further
exploration of the Brisas property in Venezuela.
CONSOLIDATION. The consolidated financial statements include the
accounts of the Company, three Venezuelan subsidiaries, Gold
Reserve de Venezuela, C.A. (GLDRV), Compania Aurifera Brisas del
Cuyuni, C.A. (Brisas), Compania Minera Unicornio, C.A. (Unicorn),
two domestic majority-owned subsidiaries, Great Basin Energies,
Inc. (Great Basin) and MegaGold Corporation (MegaGold) and seven
Aruban subsidiaries which were formed to hold the Company's
interest in its foreign subsidiaries or for future transactions.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company's policy is to
consolidate those subsidiaries where majority control exists and
control is other than temporary.
CASH AND CASH EQUIVALENTS. The Company considers short-term,
highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents for purposes of
reporting cash equivalents and cash flows. At December 31, 1996,
the Company had certificates of deposits totaling $186,708
pledged as security for bank loans related to the Gold Reserve
KSOP Plan (see Note 4). At December 31, 1996, the Company had
$6.9 million in U.S. banks in excess of federally insured limits
and had $635,000 in Venezuelan and Aruban banks.
INVESTMENTS. Investments classified as available-for-sale are
carried at quoted market value. Unrealized gains and losses are
recorded as a component of shareholders' equity. Investments
classified as held-to-maturity are carried at amortized cost.
Realized gains and losses on the sale of investments are recorded
based upon specific identification.
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 ore reserves benefited. Deferred exploration and
development costs of unsuccessful projects are expensed.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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. During 1994, approximately
$218,000 of interest was capitalized.
In March 1995, Statement of Financial Accounting Standards No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" was issued.
The Statement prescribes the accounting treatment for the
recognition and measurement of impaired long-lived assets. The
Statement requires a review 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 should be recognized. There was no
financial statement impact as a result of adopting the provisions
of SFAS No. 121 as required on January 1, 1996.
FOREIGN CURRENCY. The Company's Venezuelan subsidiaries operate
in a highly inflationary economy. As a result, non-monetary
assets and liabilities are translated at historical rates, while
monetary assets and liabilities are translated at current rates,
with the resulting foreign currency translation gains and losses
included in operations. Gains and losses from foreign currency
transactions are also included in the results of operations.
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 a
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
mineable ore reserve on the Brisas property which is based on
engineering and geological estimates including gold and copper
prices, estimated plant construction costs and operating costs
and the procurement of all necessary regulatory permits and
approvals, including the hardrock (veta) rights to the property.
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.
Inflation and other economic conditions Venezuela have resulted
in political and social turmoil on occasion, which can be
expected to continue. Such conditions have not materially
adversely affected the Company's operations in Venezuela to date.
Whether and to what extent current or future economic, regulatory
or political conditions may materially adversely affect the
Company's financial position in the future cannot be predicted.
NET LOSS PER SHARE. Net loss per share is based on 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, MegaGold and Stanco
Investments, A.V.V. (Stanco). Common stock equivalents are anti-
dilutive and therefore have been excluded from the computation.
RECLASSIFICATIONS. Certain reclassifications of the 1995 and 1994
consolidated financial statement balances have been made to
conform with the 1996 presentation. These reclassifications had
no effect on the net loss or accumulated deficit as previously
reported.
2. INVESTMENTS:
The Company accounts for its investments in equity securities as
available-for-sale securities, and its investments in government-
backed bonds as held-to-maturity securities according to the
provisions of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" which was adopted by the Company January 1, 1994. The
effect of applying this new standard was to increase
shareholders' equity by $108,425. There was no income tax effect
on the unrealized gain. Held-to-maturity securities consist
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS, CONTINUED:
primarily of U.S. Treasury bonds which are recorded at amortized
cost. The bonds outstanding at December 31, 1996 mature in 1997.
<TABLE>
<CAPTION>
Held-to-Maturity Securities
-----------------------------------------------------------
Amortized Cost/ Unrealized Unrealized Quoted
Carrying Value Gain Loss Market Value
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1996:
Government backed
bonds $ 8,442,492 $ 2,629 $ (5,686) $ 8,439,435
=========== =========== =========== ===========
December 31, 1995:
Government backed
bonds $14,630,963 $ 39,401 $ (1,879) $14,668,485
=========== =========== =========== ===========
<CAPTION>
Available-for-Sale Securities
-----------------------------------------------------------
Carrying/
Unrealized Unrealized Quoted
Cost Gain Loss Market Value
--------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1996:
Gold Reserve
Corporation $ 220,318 $ 6,409,956 $ - $ 6,630,274
Less, ownership by
the Company (1) (128,564) (6,409,956) - (6,538,520)
----------- ----------- ----------- -----------
91,754 - - 91,754
Other equity
securities 25,000 2,750 - 27,750
----------- ----------- ----------- -----------
$ 116,754 $ 2,750 $ - $ 119,504
=========== =========== =========== ===========
December 31, 1995:
Gold Reserve
Corporation $ 220,318 $ 3,683,310 $ - $ 3,903,628
Less, ownership by
the Company (1) (128,564) (3,683,310) - (3,811,874)
----------- ----------- ----------- -----------
91,754 - - 91,754
Other equity
securities 37,650 85,960 - 123,610
----------- ----------- ----------- -----------
$ 129,404 $ 85,960 $ - $ 215,364
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS, CONTINUED:
(1) The Gold Reserve Corporation shares above are owned by the
Company's subsidiaries, Great Basin, MegaGold and Stanco.
The Company's effective ownership of its own stock through
its subsidiaries is deducted from the above number of
shares held and recorded as a reduction of common stock
outstanding on the balance sheets. These shares are carried
at cost.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of December 31, 1996 and 1995
consisted of the following:
1996 1995
----------- -----------
Domestic
Furniture and office equipment $ 217,860 $ 184,271
Transportation equipment 162,000 162,000
Leasehold improvements 11,174 -
----------- -----------
391,034 346,271
Less accumulated depreciation (137,719) (98,888)
----------- -----------
253,315 247,383
----------- -----------
Foreign
Property and mineral rights 11,002,335 11,002,335
Capitalized exploration and
development costs 17,326,751 10,247,988
Buildings 86,989 86,989
Furniture and fixtures 346,996 295,323
Transportation equipment 255,119 225,832
Machinery and equipment 289,874 286,463
----------- -----------
29,308,064 22,144,930
Less accumulated depreciation (464,074) (326,445)
----------- -----------
28,843,990 21,818,485
----------- -----------
Total $29,097,305 $22,065,868
=========== ===========
In June 1995, the Company issued 1,329,185 common shares valued at
$9.8 million in exchange for shares, other than shares held by the
Company, of Gold Reserve Aruba and Glandon Company which hold the
Company's interest in its Venezuelan subsidiaries. The fair value
of the common shares issued to acquire the minority interests was
recorded as additional property and mineral rights costs associated
with the Brisas property.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. EMPLOYEE BENEFIT KSOP PLAN:
The Company's KSOP Plan, adopted in 1990 for the benefit of its
employees, is comprised of two parts, (1) a salary reduction
component, or 401(k), and (2) an employee stock ownership
component, or ESOP. The salary reduction component has not, to
date, been utilized by any participant. On a cumulative basis,
the KSOP Plan has purchased 323,571 common shares of the Company
since inception of which 34,736 remain unallocated to plan
participants as of December 31, 1996. Common stock purchases by
the KSOP Plan are financed by a bank loan at 7.24 percent
interest and due in March 1997. 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. The Company
contributed $150,000, $92,247, and $20,000 to the KSOP plan in
1996, 1995 and 1994, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. STOCK OPTION PLANS:
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) on January 1, 1996. Pursuant to the
provisions of SFAS No. 123, the Company continues to measure
compensation cost for stock-based employee compensation plans
using the intrinsic value method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and
provides pro forma disclosure of compensation expense related to
stock-based plans using the fair value based method of accounting
as shown below.
The Company's only active plan (the 1994 Option Plan) allows for
the granting of up to 2,000,000 common share purchase options,
which may be granted to officers, directors, and key individuals
for terms of up to ten years. The vesting period of options
ranges from immediately to up to three years. Stock option
transactions for the last three years are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstand-
ing, begin-
ning of year 1,636,793 $ 5.31 964,628 $ 3.91 979,963 $ 3.57
Options exercised (496,623) 5.44 (167,835) 2.78 (295,967) 2.32
Options canceled (136,178) 7.51 (118,334) 7.07 (237,968) 11.25
Options granted 958,100 8.41 958,334 6.50 518,600 7.01
--------- ------ --------- ------ --------- ------
Options oustand-
ing, end of year 1,962,092 $ 6.64 1,636,793 $ 5.31 964,628 $ 3.91
--------- ====== --------- ====== --------- ======
Options exercisable
at end of year 1,460,406 1,044,053 721,323
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Price Range Price Range Price Range
------------ ------------ ------------
<S> <C> <C> <C>
Option price at end of year $1.09-$14.69 $1.09-$8.19 $1.00-$6.00
Option price for exercisable shares $1.09-$13.51 $1.09-$7.06 $1.06-$6.00
Weighted-average fair value of
options granted during the year $3.45 $2.61
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. STOCK OPTION PLANS, CONTINUED:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Price at Exercisable at Exercise Price at
Exercise Prices December 31, 1996 Life December 31, 1996 December 31, 1996 December 31, 1996
---------------------- ----------------- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$1.0900 to 1.2400 222,852 5.66 years $ 1.1425 222,852 $ 1.1425
3.3750 to 5.0800 12,680 6.44 years 4.8745 12,680 4.8745
5.3750 to 5.3750 258,835 8.97 years 5.3750 117,584 5.3750
5.5000 to 5.5000 34,662 8.12 years 5.5000 20,328 5.5000
5.6250 to 5.6250 435,000 9.01 years 5.6250 435,000 5.6250
6.0000 to 7.0600 194,061 7.29 years 6.1459 194,061 6.1459
7.0630 to 7.0630 392,500 8.05 years 7.0630 342,500 7.0630
7.2810 to 11.6000 222,902 9.56 years 9.3388 53,401 8.7467
13.5100 to 13.5100 114,500 9.75 years 13.5100 62,000 13.5100
14.6900 to 14.6900 74,100 9.73 years 14.6900 0 0.0000
---------- ---------- -------- --------- --------
$1.0900 to 14.6900 1,962,092 8.36 years $ 6.6394 1,460,406 $ 5.7679
========== ========== ======== ========= ========
</TABLE>
Had compensation cost for the Company's option plan been
determined based on the fair value at the grant date for awards
in 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
1996 1995
----------- -----------
Net loss - as reported $ (829,938) $ (337,303)
Net loss - pro forma $(3,421,234) $(1,766,405)
Net loss per share - as reported $ (0.04) $ (0.02)
Net loss per share - pro forma $ (0.16) $ (0.09)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. STOCK OPTION PLANS, CONTINUED:
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996
and 1995: expected volatility of 40%; risk-free interest rates of
5.92% to 6.16%; no dividends, and expected lives of 4 to 7 years.
6. RELATED PARTY TRANSACTIONS:
COMMON STOCK ISSUED. During 1994, the Company issued 6,000
shares, valued at $33,000 for services provided to the Company by
certain employees.
MEGAGOLD. The President, Executive Vice President and Vice
President-Finance of the Company are also officers and directors
of MegaGold. At December 31, 1996 and 1995, the Company owned
23,304,174 and 7,592,226 common shares, respectively, of MegaGold
and MegaGold owned 125,083 common shares of the Company. In
addition, MegaGold owned 280,000 common shares of Great Basin at
December 31, 1996 and 1995. During 1996, MegaGold sold additional
common shares to various individuals as well to the Company,
which maintained its proportionate interest in the two
subsidiaries. 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 and Vice
President-Finance of the Company are also officers and directors
of Great Basin. At December 31, 1996 and 1995, the Company owned
24,210,636 and 15,177,400 common shares, respectively, of Great
Basin and Great Basin owned 391,161 common shares of the Company.
Great Basin also owned 170,800 common shares of MegaGold at
December 31, 1996 and 1995. During 1996, Great Basin sold
additional common shares to various individuals as well to the
Company, which maintained its proportionate interest in the two
subsidiaries. The Company performs various administrative
functions and sublets a portion of its office space to Great
Basin for $1,200 per year.
LEGAL FEES PAID TO DIRECTOR'S FIRM. One of the Company's
directors also serves as Canadian legal counsel for the Company.
During 1996, 1995 and 1994, the Company incurred expenses of
approximately $149,000, $60,000 and $440,000 respectively, for
legal services performed by the director's firm, in which he is
Chairman and a partner. At December 31, 1996, approximately
$45,000 of these fees are included in accounts payable and
accrued expenses.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAX:
The Company accounts for income taxes according to the provisions
of SFAS No. 109, "Accounting for Income Taxes." No income tax
benefit has been recorded for the three years ended December 31,
1996 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 1996, 1995 and
1994. 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 expiration of net operating losses
and other carryforwards. 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, 1996 and 1995 were as follows:
Deferred Tax
Asset (Liability)
---------------------------
1996 1995
------------ ------------
Accounts payable and accrued
expenses $ 34,736 $ 9,908
Investment income (105,037) (126,574)
Property, plant and equipment 8,497,728 8,502,255
------------ ------------
Total temporary differences 8,427,427 8,385,589
Net operating loss carryforward 1,797,395 1,522,290
Investment tax credit 5,967 5,967
Alternative minimum tax credit 19,871 19,871
Foreign tax credit - 825
Capital loss carryforward - 283,041
------------ ------------
Total temporary differences,
operating losses and tax
credit carryforwards 10,250,660 10,217,583
Valuation allowance (10,250,660) (10,217,583)
------------ ------------
Net deferred tax asset - -
============ ============
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAX, CONTINUED:
The changes in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 10,217,583 $ 10,348,600 $ 2,031,630
Change in valuation allow-
ance due to change in
in deferred tax asset
subject to uncertainty
of recovery 33,077 (131,017) 8,316,970
------------ ------------ ------------
Balance, end of year $ 10,250,660 $ 10,217,583 $ 10,348,600
============ ============ ============
</TABLE>
At December 31, 1996, 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
809,132 2011
----------
$5,286,456
==========
Alternative minimum tax net
operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
671,999 2009
572,555 2010
771,854 2011
----------
$5,148,408
==========
Investment tax credit $ 5,967 2001
Alternative minimum tax credit $ 19,871 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. GEOGRAPHIC SEGMENTS:
<TABLE>
<CAPTION>
United
States Venezuala Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
December 31, 1996:
------------------
Depreciation $ 38,831 - $ 38,831
Net loss $ 656,435 $ 173,503 $ 829,938
============ ============ ============
Identifiable assets: (1)
Property, plant and equip-
ment, net $ 253,315 $ 28,843,990 $ 29,097,305
General corporate assets 43,479,713 1,194,549 44,674,262
------------ ------------ ------------
Identifiable assets at
December 31, 1996 $ 43,733,028 $ 30,038,529 $ 73,771,567
============ ============ ============
December 31, 1995:
------------------
Depreciation $ 28,549 - $ 28,549
Net loss $ 182,216 $ 155,087 $ 337,303
============ ============ ============
Identifiable assets: (1)
Property, plant and equip-
ment, net $ 247,383 $ 21,818,485 $ 22,065,868
General corporate assets 29,473,430 722,409 30,195,839
------------ ------------ ------------
Identifiable assets at
December 31, 1995 $ 29,720,813 $ 22,540,894 $ 52,261,707
============ ============ ============
December 31, 1994:
------------------
Depreciation $ 15,751 - $ 15,751
Net loss $ 23,433,755 $ 306,723 $ 23,740,478
============ ============ ============
Identifiable assets: (1)
Property, plant and equip-
ment, net $ 230,304 $ 9,321,372 $ 9,551,676
General corporate assets 33,272,338 438,866 33,711,204
------------ ------------ ------------
Identifiable assets at
December 31, 1994 $ 33,502,642 $ 9,760,238 $ 43,262,880
============ ============ ============
</TABLE>
(1) Identifiable assets of each segment are those that are
directly identified with those operations. General
corporate assets consist primarily of cash, cash
equivalents and investment securities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 is granted the
hardrock (veta) 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.
10. DIFFERENCES BETWEEN U.S. AND CANADIAN GAAP:
The Company prepares its consolidated financial statements
in accordance with generally accepted accounting principles
("GAAP") in the United States. The differences between U.S.
GAAP and Canadian GAAP had no effect on total shareholders'
equity as of December 31, 1996 and 1995 nor net loss for the
years ended December 31, 1996, 1995 and 1994.
Under Canadian GAAP, the other non-cash activities noted in
the supplemental cash flow information would be included in
the Statement of Cash Flows. Accordingly, under Canadian
GAAP, net cash used by investing activities would have been
$1,582,839 and net cash provided by financing activities
would have been $10,622,385 in the 1995 Statement of Cash
Flows.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The information requested by this item is contained in the
registrant's 1997 proxy statement and is incorporated by
reference herein.
Item 11. Executive Compensation.
-----------------------
The information requested by this item is contained in the
registrant's 1997 proxy statement and is incorporated by
reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
---------------------------------------------------
The information requested by this item is contained in the
registrant's 1997 proxy statement and is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information requested by this item is contained in the
registrant's 1997 proxy statement and is incorporated by
reference herein.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
-------------------------------------------------------
EXHIBITS. The following exhibits are filed as part of this
report. Exhibits previously filed are incorporated by reference,
as noted. Exhibits filed herewith appear beginning at page 32.
Exhibit
Number Exhibits
------- ------------------------------------------------------
3.1 Copy of Articles of Incorporation of Registrant, as
amended. Filed as Exhibit C to the Registrant's
Registration Statement on Form 10 dated July 12, 1982
and incorporated by reference herein.
3.2 Bylaws of Registrant, as amended March 4, 1993. Filed
as Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
<PAGE>
Exhibit
Number Exhibits
------- ------------------------------------------------------
10.29 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 the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated by
reference herein.
10.30 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 the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated by reference herein.
10.31 License and Technical Assistance Agreement dated
September 1, 1992 between Registrant and Compania
Minera Unicornio, C.A. Filed as Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated by reference
herein.
10.32 Credit Agreement dated October 13, 1992 between
Registrant and Compania Aurifera Brisas del Cuyuni,
C.A. Filed as Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992 and incorporated by reference herein.
10.33 Services Agreement dated November 6, 1992 between
Registrant and A. Douglas Belanger. Filed as
Exhibit 10.33 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992 and
incorporated by reference herein.
10.34 Settlement Agreement dated December 21, 1994 among the
Registrant, Brisas, GLDR, Marwood International Ltd.,
TVX Gold, Inc., BlueGrotto Trading Limited and
Inversiones 871010, C.A. Filed as an exhibit to the
Registrant's current report on Form 8-K dated December
21, 1994 and incorporated by reference herein.
13*
16.1*
18*
19*
21.1 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
24*
25*
27.1 Financial Data Schedule
28*
29*
* Items denoted by an asterisk have either been omitted or are
not applicable.
<PAGE>
FINANCIAL STATEMENTS. An index to the financial statements
included in this report appears at page 13. The financial
statements themselves appear at pages 14 through 26 of this
report.
REPORTS ON FORM 8-K. No report on Form 8-K was issued during the
quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GOLD RESERVE CORPORATION
By: s/ Rockne J. Timm
---------------------------------
Rockne J. Timm, its Chairman,
President and Chief Executive
Officer
March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
By: s/ Robert A. McGuinness
---------------------------------
Robert A. McGuinness, its
Principal, Financial and
Accounting Officer
March 25, 1997
By: s/ A. Douglas Belanger
---------------------------------
A. Douglas Belanger, Director
March 25, 1997
By: s/ Jean Charles Potvin
---------------------------------
Jean Charles Potvin, Director
March 25, 1997
By: s/ James H. Coleman
---------------------------------
James H. Coleman, Director
March 25, 1997
By: s/ Patrick D. McChesney
---------------------------------
Patrick D. McChesney, Director
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 30329
<SECURITIES> 8706
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43944
<PP&E> 29699
<DEPRECIATION> 602
<TOTAL-ASSETS> 73772
<CURRENT-LIABILITIES> 5626
<BONDS> 0
0
0
<COMMON> 100953
<OTHER-SE> (33759)
<TOTAL-LIABILITY-AND-EQUITY> 73772
<SALES> 0
<TOTAL-REVENUES> 1489
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (830)
<EPS-PRIMARY> (0.4)
<EPS-DILUTED> (0.4)
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary %Ownership
---------------------------------------------------------- ----------
Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas") 100
Gold Reserve de Venezuela, C.A. ("GLDRV"); 100
Compania Minera Unicornio, C.A. ("Unicorn") 100
Great Basin Energies, Inc. ("Great Basin") 58
MegaGold Corporation ("MegaGold") 63
Gold Reserve de Aruba A.V.V. ("Gold Reserve Aruba") 100
G.L.D.R.V. Aruba A.V.V. ("GLDRV Aruba") 100
Glandon Company A.V.V. ("Glandon") 100
Stanco Investments A.V.V. ("Stanco") 100
GoldenLake A.V.V. ("GoldenLake") 100
Mont Ventoux A.V.V. ("Mont Ventoux") 100
Gold Reserve Holdings A.V.V. ("Gold Reserve Holdings") 100
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Gold Reserve Corporation on Form S-3 (File No. 33-62804)
and Form S-8 (File No. 33-61113) of our report, which includes an
explanatory paragraph concerning changes in accounting for long-lived
assets in 1996 and investments in 1994, dated February 26, 1997, on
our audits of the consolidated financial statements of Gold Reserve
Corporation and subsidiaries as of December 31, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994, which report is
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
March 25, 1997
<PAGE>
