FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2005
Commission file number...001-31819
GOLD RESERVE INC.
Address of Principal Executive Offices:
926 West Sprague Avenue
Suite 200
Spokane, Washington 99201
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7): ___
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934: Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
Forward Looking Statements
The information presented or incorporated by reference in this Form 6-K
contains both historical information and forward-looking statements (within
the meaning of Section 27A of the United States Securities Act of 1933, as
amended (the Securities Act), and Section 21E of the United States Securities
Exchange Act of 1934, as amended (the Exchange Act)). These forward-looking
statements involve risks and uncertainties, as well as assumptions that, if
they never materialize, prove incorrect or materialize other than as
currently contemplated, could cause the results of the Company and its
consolidated subsidiaries to differ materially from those expressed or
implied by such forward-looking statements.
Numerous factors could cause actual results to differ materially from those
in the forwardlooking statements, including without limitation, our ability
to obtain additional funding for the development of the Brisas project, in
the event any key findings or assumptions previously determined by our
experts in the final feasibility study significantly differ or change as a
result of actual results in our expected construction and production at the
Brisas project including changes in proposed development plans (including
technology used), the risk that actual mineral reserves may vary considerably
from estimates presently made, the impact of currency, metal prices and metal
production volatility, concentration of operations and assets in Venezuela
including the regulatory, political and economic risks associated with
Venezuelan operations, our dependence upon the abilities and continued
participation of certain key employees, and the risks normally incident to
the operation and development of mining properties.
The words "expect," "intend," "estimate," "will" and other similar
expressions that are predictions of or indicate future events and future
trends which do not relate to historical matters, identify forward-looking
statements. Any such forward-looking statements are not intended to give any
assurances as to future results.
Investors are cautioned not to put undue reliance on forward-looking
statements, and should not infer that there has been no change in the affairs
of the Company since the date of this report that would warrant any
modification of any forward-looking statement made in this document, other
documents filed periodically with securities regulators or documents
presented on our Company website. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by this notice. The
Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
Investors are urged to read the Company's filings with U.S. and Canadian
securities regulatory agencies, which can be viewed on-line at www.sec.gov,
www.sedar.com or at the Company's website, www.goldreserveinc.com.
Additionally, you can request a copy directly from the Company.
Exhibits
The following are filed as exhibits to this Form 6-K:
Exhibit
Number Description
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9.1 September 30, 2005 Interim Financial Report To Shareholders
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GOLD RESERVE INC.
By: s/ Robert A. McGuinness
Vice President - Finance & CFO
November 10, 2005
Exhibit Index
Exhibit
Number Description
----------------------------------------------------------------------
99.1 September 30, 2005 Interim Financial Report To Shareholders
EXHIBIT 99.1
GOLD RESERVE INC.
September 30, 2005
Interim Financial Report to Shareholders
U.S. Dollars
Operations Overview
Brisas Project
The Company's primary asset, the Brisas project, is a gold/copper deposit
located in the Km 88 mining district of the State of Bolivar in southeastern
Venezuela. The Brisas project consists of the Brisas alluvial concession, the
Brisas hardrock concession beneath the alluvial concession, applications for
other mineralization contained in these concessions, and contracts, land use
permits and concessions for mineralization (primarily gold and copper) on
land parcels contiguous to the existing concessions.
2005 Bankable Feasibility Study
In early 2005, a bankable feasibility study with respect to the construction
and operation of the Brisas project was completed. Based on the positive
conclusions contained in the bankable feasibility study, the Board of
Directors approved proceeding with the financing and construction of the mine
to produce gold dore on-site and ship gold/copper concentrate to an off-site
smelter. We are currently evaluating financing options for the Brisas project
with the assistance of Endeavour Financial.
The 2005 bankable feasibility study described herein has not yet been updated
for the increase in proven and probable gold and copper reserves of
approximately 1 million ounces of gold and approximately 100 million pounds
of copper announced by the Company in the second quarter of 2005.
The 2005 bankable feasibility study, which was prepared by Aker Kvaerner
Metals, Inc. (Aker Kvaerner), a subsidiary of the international engineering
and construction services group, Aker Kvaerner, includes work performed by
other independent consultants under the coordination of Aker Kvaerner. The
geology, mineral resources, proven and probable reserves, mining sections and
the financial analysis for the study were performed by Pincock Allen & Holt
(PAH). SGS Lakefield Research conducted metallurgical pilot plant test work
with guidance from Aker Kvaerner.
Aker Kvaerner designed the metallurgical process flowsheet and Vector
Colorado LLC (Vector) performed the tailings facility design, hydrology
study, geotechnical analysis and geochemical analysis. AATA International,
Inc. (AATA) of Fort Collins, Colorado, and Ingenieria Caura, SA of Venezuela,
conducted the environmental fieldwork in Venezuela and prepared the Venezuelan
Environmental and Social Impact Assessment (V-ESIA) for the Venezuelan
Ministry of Environment and Natural Resources (MARN), which was filed in
August 2005 and the International Environmental and Social Impact Assessment
(I-ESIA) for the financial institutions, which is expected to be completed in
the fourth quarter of 2005.
Based on the results set forth in the 2005 bankable feasibility study, the
operating plan assumes a large open pit mine containing proven and probable
reserves of approximately 9.2 million ounces of gold and 1.2 billion pounds
of copper in 414 million tonnes of ore grading 0.69 grams of gold per tonne
and 0.13% copper, at a revenue cutoff grade of $2.76 per tonne. The final pit
was developed with industry standard pit optimization software using a gold
price of $350 per ounce and a copper price of $0.90 per pound. The study
anticipates utilizing conventional truck and shovel mining methods with the
processing of ore at full production of 70,000 tonnes per day yielding an
average annual production of 486,000 ounces of gold and 63 million pounds of
copper over an estimated mine life of approximately 16 years.
The base-case economic model contained in the 2005 bankable feasibility study
utilizes $400 per ounce gold and $1.00 per pound copper. At such prices, cash
operating costs (net of copper credits) are estimated at $154 per ounce of
gold and total costs per ounce, including operating costs and initial and
sustaining capital is approximately $263 per ounce of gold. Initial capital
costs to construct and place the Brisas project into production are currently
estimated to be $552 million. Tax exonerations or tax payment holidays are
available for various taxes including value added tax and import duty tax on
the initial capital costs. Management is in the process of applying for all
available exonerations and expects to obtain such exonerations prior to the
construction of the project. As a result, the cost of such taxes and import
duties are not included in the initial costs of the project. However, there
can be no assurances that such exonerations will be obtained.
Following completion of the I-ESIA, receipt of necessary permits and
obtaining sufficient funding, construction of the planned facility is
expected to take 24-26 months, with commissioning and achievement of
commercial production shortly thereafter.
The following are the key assumptions contained
in the 2005 bankable feasibility study:
Proven and probable reserves using $350 per ounce of gold
and $0.90 per pound of copper:
Proven Reserves 193.2 million tonnes; 0.71 g/t gold and 0.12% copper
Probable Reserves 221.3 million tonnes; 0.68 g/t gold and 0.13% copper
Strip ratio
(waste:ore) 1.81:1
Mine Life (minimum) 16 years
Mill throughput 70,000 tonnes per day "Hardrock" ore
6,000 tonnes per day "Sulfide" saprolite
6,000 tonnes per day "Oxide" saprolite
Plant Metal recoveries gold 83.1%
copper 87.0%
Net payable Metals gold 82.4%
copper 83.0%
Life of Mine Production
(payable metals) gold 7.59 million ounces
copper 979 million pounds
Average annual gold production 486,000 ounces
Average annual copper production 63 million pounds
Average annual copper concentrate production 124,000 metric tonnes
Economic Model Results using $400 per ounce
of gold and $1.00 per pound of copper:
--------------------------------------------------------------------------
Total cash operating cost (on site and off site) $5.26 per tonne ore
Initial capital cost $552.4 million
Working capital $39.3 million
Ongoing capital $132.3 million
Cash Operating cost* $154 per ounce of gold
Production Taxes $13 per ounce of gold
Total Cash costs* $167 per ounce of gold
Capital Cost Amortization $96 per ounce of gold
Total Cost $263 per ounce of gold
Internal rate of return (After-Tax) 9.1%
Project net present value (After-Tax) @ 0% $711 million
@ 5% $207 million
Project payback 8 years
* Net of copper by product credit
Mineral Resource and Reserve Estimates Contained in
the 2005 Bankable Feasibility Study.
PAH reviewed the methods and procedures utilized by the Company at the Brisas
project to gather geological, geotechnical, and assaying information and found
them reasonable and meeting generally accepted industry standards for a
bankable feasibility study. PAH believes that the Brisas project has
conducted sampling and analysis programs using standard practices, providing
generally reasonable results and that the data can effectively be used in the
estimation of resources and reserves.
PAH calculated the mineral resource and reserve estimates contained in the
January 2005 bankable feasibility study and reported upon the mineral
resource and reserve estimates in accordance with CSA National Instrument
43-101, as required by Canadian securities rules, in February 2005. We
believe that the calculation of mineral reserves is substantially the same as
those under the U.S. Securities and Exchange Commission Industry Guide 7
however,we advise U.S. investors that definitions contained in CSA National
Instrument 43-101 differ in certain respects from those set forth in the U.S.
Securities and Exchange Commission Industry Guide 7.The qualified persons
involved in the property evaluation and resource and reserve estimate were
Raul Borrastero, C.P.G. and Susan Poos P.E. of PAH and Brad Yonaka,
Exploration Manager for Gold Reserve.
Mineral Resource Estimate Contained in the
2005 Bankable Feasibility Study.
Based on work completed by PAH for the 2005 Brisas bankable feasibility
study, using an off-site smelter process for treating gold/copper
concentrates, the Brisas project is estimated to contain a measured and
indicated mineral resource of 10.97 million ounces of gold and approximately
1.4 billion pounds of copper (based on 0.4 gram per tonne gold equivalent
cut-off).
We advise U.S. investors that while the terms "measured" and "indicated
resources" are recognized and required by Canadian regulations, the U.S.
Securities and Exchange Commission does not recognize them. U.S. investors
are cautioned not to assume that the mineralization not already categorized
as mineral reserves, will ever be converted into reserves.
The February 2005 estimated measured and indicated mineral resource utilizing
an off-site smelter process is summarized in the following table:
(kt=1,000 tonnes) Measured Indicated Measured and Indicated
Au Eq Au Cu Au Cu Au Cu
Cut-off Grade kt (gpt) (%) kt (gpt) (%) kt (gpt) (%)
---------------------------------------------------------------------------------------
0.40 217,883 0.700 0.118 284,941 0.662 0.132 502,824 0.678 0.126
---------------------------------------------------------------------------------------
CAPTION>
(In Millions) Measured Indicated Measured and Indicated
Au Eq Au Cu Au Cu Au Cu
Cut-off Grade oz. lb. oz. lb. oz. lb.
---------------------------------------------------------------------------------------
0.40 4.905 566 6.066 827 10.971 1,393
---------------------------------------------------------------------------------------
The inferred mineral resource, based on an off-site smelter process (0.4 gram
per tonne gold equivalent cut-off), is estimated at 126.5 million tonnes
containing 0.65 grams gold per tonne and 0.13 percent copper, or 2.64 million
ounces of gold and 370 million pounds of copper. The mineral resource estimate
has been calculated in accordance with CSA National Instrument 43-101. The
mineral resource and gold equivalent (AuEq) cut-off is based on $350 per gold
ounce and $0.90 per pound copper.
We advise U.S. investors that while the term "inferred mineral resource" is
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission does not recognize such term. "Inferred mineral
resources" have a great amount of uncertainty as to their existence, and
great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. U.S. investors are cautioned not to assume
that part or all of an inferred resource exists, or is economically or
legally mineable.
Mineral Reserve Estimate Contained in the
2005 Bankable Feasibility Study.
Based on work completed by PAH for the Brisas 2005 bankable feasibility
study, using an off-site smelter process for treating gold/copper
concentrates, the Brisas project is estimated to contain a proven and
probable mineral reserve of approximately 9.2 million ounces of gold and 1.2
billion pounds of copper. The estimated proven and probable mineral reserve
as reported in accordance with CSA National Instrument 43-101 in February
2005 is summarized in the following table:
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (millions) (gpt) (%) (thousands) (millions) (millions) (millions) Ratio
Proven 193.2 0.71 0.123 4,399 525
Probable 221.3 0.68 0.133 4,808 654
------------------------------------------------------------------------------------------------
Total 414.5 0.69 0.129 9,207 1,179 748.3 1,162.8 1.81
------------------------------------------------------------------------------------------------
Note that the mineral resources estimate does not represent material that
exists in addition to the mineral reserve. The mineral reserve estimate
disclosed in the table above which are designated as commercially viable are
included in and a part of the mineral resources estimate shown in the
previous section.
The mineral reserve (within a pit design) has been estimated in accordance
with CSA National Instrument 43-101, which we believe is substantially the
same as SEC Industry Guide 7. The mineral reserve was estimated using average
recovery rates for gold and copper of approximately 83% and 87% respectively,
metal prices of U.S. $350 per ounce gold and U.S. $0.90 per pound copper with
an internal revenue cut-off of $2.76 per tonne.
Brisas Project Work To Date.
Considerable work has taken place to establish the Brisas project mineral
resource and reserve. Over $80 million has been expended on the Brisas
project including property and mineral rights, acquisition costs, equipment
expenditures, litigation settlement costs and exploration costs. These costs
include: extensive geology, geophysics and geochemistry, approximately 890
drill holes or approximately 200,000 meters of core drilling, independent
audits of our drilling, sampling, assaying procedures and ore reserves
methodology, environmental baseline work/socioeconomic studies, hydrology
studies, geotechnical studies, mine planning, advanced stage grinding and
metallurgical test work, tailings dam designs, milling process flow sheet
designs, bench scale testing of an on-site copper process and a final
bankable feasibility study.
With the completion of the 2005 bankable feasibility study, management
developed a critical-path plan for obtaining required permits (most notable
are the permits for construction and operation), obtaining funding and
commencing construction. This effort includes the development and
implementation of project related contracts such as engineering, procurement
and construction management, port facilities, concentrate sales contracts,
electricity and fuel supply contracts, final permit approvals and a number of
other agreements related to the construction and operation of the Brisas
project. Concurrent with these activities, management is also devoting
substantial time and effort on obtaining financing for the Brisas project.
Brisas 2005-2006 Work Plan
The Company accomplished the following in the first nine months of 2005:
Feasibility Study.
A Bankable Feasibility Study for the Brisas project was completed by Aker
Kvaerner in January 2005. The study was supported by a geo-techincal
evaluation, tailings dam design, water balance and management plan by Vector
Colorado. In addition, PAH completed the mineable reserve estimate, pit
design, mine planning, mine capital and operating cost estimates.
NI 43-101 Technical Report.
The mineable reserve estimate contained in the Bankable Feasibility Study was
completed by PAH and submitted to Canadian securities regulators pursuant to
CSA National Instrument 43-101 in February 2005.
EPCM Contractor.
Proposals were solicited from several major international engineering and
construction companies. The Company selected SNC-Lavalin Engineers &
Constructors, Inc. (SLE&C) of Toronto and its affiliate, SNC-Lavalin
International, Inc., to undertake the Engineering, Procurement, and
Construction Management (EPCM) for the Brisas gold/copper project in
southeastern Venezuela. SLE&C initiated work on the Brisas project in July
2005 under a limited Letter of Authorization. Management and SLE&C are
finalizing the definitive EPCM contract, which is expected to be signed in
fourth quarter 2005.
Proven and Probable Reserves Updated.
The Company announced in May 2005 an increase in the proven and probable
reserves at the Brisas project. Gold increased to 10.1 million ounces from
9.2 million ounces and copper increased to 1.29 billion pounds from 1.18
billion pounds as shown in the tables below. The 2005 bankable feasibility
study described earlier in this document has not yet been updated with this
new data.
In May 2005 PAH calculated the updated mineral resource and reserve estimates
summarized in the table below in accordance with CSA National Instrument
43-101. We believe that the calculation of the updated mineral reserves is
substantially the same as those under the U.S. Securities and Exchange
Commission Industry Guide 7, however,we advise U.S. investors that
definitions contained in CSA National Instrument 43-101 differ in certain
respects from those set forth in the U.S. Securities and Exchange Commission
Industry Guide 7.The qualified persons involved in the property evaluation
and resource and reserve estimate were Raul Borrastero, C.P.G. and Susan Poos
P.E. of PAH and Brad Yonaka, Exploration Manager for Gold Reserve.
The May 2005 estimated measured and indicated mineral resource utilizing an
off-site smelter process is summarized in the following table:
(kt=1,000 tonnes) Measured Indicated Measured and Indicated
Au Eq Au Cu Au Cu Au Cu
Cut-off Grade kt (gpt) (%) kt (gpt) (%) kt (gpt) (%)
-----------------------------------------------------------------------------------------
0.40 250,184 0.689 0.119 332,314 0.640 0.132 582,498 0.661 0.126
-----------------------------------------------------------------------------------------
(In Millions) Measured Indicated Measured and Indicated
Au Eq Au Cu Au Cu Au Cu
Cut-off Grade oz. lb. oz. lb. oz. lb.
----------------------------------------------------------------------------------------
0.40 5.541 656 6.837 966 12.378 1,622
----------------------------------------------------------------------------------------
The inferred mineral resource, based on an off-site smelter process (0.4 gram
per tonne gold equivalent cut-off), is estimated at 129.0 million tonnes
containing 0.594 grams gold per tonne and 0.122 percent copper, or 2.46
million ounces of gold and 346 million pounds of copper. The mineral resource
estimate has been calculated in accordance with CSA National Instrument
43-101. The mineral resource and gold equivalent (AuEq) cut-off is based on
$350 per gold ounce and $0.90 per pound copper.
Based on work completed by PAH utilizing traditional flotation and off-site
smelter processes for treating gold/copper concentrates, the Brisas project
is estimated to contain a proven and probable mineral reserve of
approximately 10.1 million ounces of gold and 1.29 billion pounds of copper
as summarized in the following table:
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (millions) (gpt) (%) (thousands) (millions) (millions) (millions) Ratio
Proven 206.9 0.726 0.125 4,829 570
Probable 239.3 0.683 0.136 5,255 720
-------------------------------------------------------------------------------------------------
Total 446.2 0.703 0.131 10,084 1,290 963.8 1,410.0 2.16
-------------------------------------------------------------------------------------------------
Note that the mineral resource estimate does not represent material that
exists in addition to the mineral reserve. The mineral reserve estimate
disclosed above which are designated as commercially viable are included in
and a part of the mineral resource estimate shown in the previous section.
The mineral reserve (within a pit design) has been estimated in accordance
with CSA National Instrument 43-101, which we believe is substantially the
same as SEC Industry Guide 7. The mineral reserve was estimated using average
recovery rates for gold and copper of approximately 83% and 87% respectively,
metal prices of U.S. $350 per ounce gold and U.S. $0.90 per pound copper with
an internal revenue cut-off of $2.76 per tonne.
Copper Concentrate Smelters.
The Company has entered letters of intent with NordDeutcshe Refinery of
Germany and Boliden of Sweden for smelting gold/copper concentrates.
Port Facilities.
The Company has signed a letter of intent with a Venezuelan port facility
company for the future storage and trans-shipments of gold/copper concentrate.
Environmental Studies.
Management has filed its V-ESIA with MARN in August 2005, which is required
for the Company to obtain the permit to construct the Brisas gold/copper
project. In addition, an I-ESIA is being prepared by AATA for financing
purposes, which is expected to be finalized in the fourth quarter of 2005.
Public Consultation.
The Company held a public consultation meeting in July 2005 with the local
communities surrounding the Brisas project in the KM 88 mining district of
Venezuela. The meeting held in conjunction with the Company's completion of
the V-ESIA and support of the I-ESIA built on the Company's years of
community dialogue and development initiatives and was attended by 187 people
representing the local communities and indigenous people. We believe the
meeting was well received by the community leaders and comments provided will
be considered and incorporated into the project as appropriate.
Project Financing.
The Company and Endeavour Financial continued working to secure project debt
financing for the Brisas project. In addition, a site visit and an
independent review of the feasibility study are being conducted by an
independent mining consultant in support of project financing.
New Personnel.
In August and October 2005 the Company added the positions of Vice
President-Chief Legal Officer and Vice President of Venezuelan Operations to
the management team, respectively. Earlier in January 2005, the Company added
five key managerial personnel to its operations and technical staff. These
staff additions are part of management's continuing effort to add additional
personnel that will be needed to construct and operate the Brisas project.
The Company expects to focus on the following issues during
the next six to twelve months:
SLE&C has commenced the first phase of the EPCM scope of work with the key
objective being to generate the information and criteria that will form the
basis of the project budget, schedule and all subsequent engineering,
procurement and construction activities to be performed on the Brisas
project. Thereafter, the work will include detailed design and engineering,
procurement and contract management and construction management and
execution. Procurement and construction is expected to commence following
receipt of final environmental permits and the Company obtaining appropriate
financing.
SLE&Cs scope of work includes providing services related to and management of
the construction of a 70,000 metric tonne per day hard rock ore copper
concentrator and related systems, a tailings dam, concentrate storage and
load-out facilities, the initial pit dewatering wells and support facilities
including mobile equipment shop, administration building, communications and
IT services, laboratory, maintenance facilities, warehouse and employee man
camp. SLE&C will also provide all services and supplies necessary for
commissioning and start-up of the project, manage the health, safety and
environmental plans and assure its services and those of the trade
contractors comply with commitments from the International ESIA and local
permit requirements.
In addition to the definitive EPCM contract, management is in the process of
finalizing contracts for the supply of electricity, gold/copper concentrate
smelting and port facilities.
With the filing of the V-ESIA with MARN earlier this year, management and its
advisors are providing MARN with additional information and responding to
questions as needed in order to insure that the permit to construct the
Brisas gold/copper project is issued as soon as possible.
Concurrent with other activities, management is working with Endeavour
Financial on the project debt-financing package with several debt sources
including commercial banks, export credit agencies, international development
banks and also equipment and off-take finance sources, many of which have
expressed an interest in the project.
Work on-site such as geo-tech drilling, road construction, condemnation
drilling and various planning activities will continue or commence, as the
case may be, along with the addition of various management and staff
positions as the Company receives the appropriate permits and advances toward
commencement of construction.
The Company is continuing its participation in various social, cultural,
health and environmental programs in the immediate and surrounding areas near
Brisas. These efforts have included the construction of a medical facility
within the framework of "Mision Barrio Adentro", a governmental program to
provide medical assistance to the poor, and refurbishment and expansion of a
local school. Also, the Company has completed construction of new
recreational facilities such as parks, refurbishment of multiple-use sport
courts and year-round cultural and sport programs, all of which have received
a very favorable response from the community.The Company continues its open
dialogue with the local and surrounding communities and to further its
proposal to the Ministry of Basic Industries and Mines (MIBAM) to implement a
support program within the framework of Mission Piar, one of President
Chavez's social initiatives which includes the local small miners and
encompasses technical assistance and training to explore and minimize the
impact to the environment as well as their integration into the formal
economy.
Choco 5 Property
The Choco 5 property, a grass roots gold exploration target, is a 5,000
hectare concession located in the El Callao mining district in the State of
Bolivar, southeastern Venezuela. Since acquiring the property in 2000, the
Company has invested approximately $200,000 on acquisition and exploration
costs.
In July 2005, the Company received the Permit to Affect Natural Resources
from MARN for the Choco 5 property and has already commenced an aggressive
exploration drilling program on the property with planned expenditures of
approximately $400,000 in 2005 and $750,000 in 2006. Exploration activities
will include further environmental permitting, additional geologic mapping
and reconnaissance, comprehensive grid of soil geochemical sampling,
geophysical testing of established gold anomalies in the eastern sector of
the property, trenching and selective diamond drilling of gold anomalies, and
construction of access roads to facilitate the above activities. The Company
will base its exploration effort out of its office in the community of El
Callao.
Financial Overview
Overview.
The following discussion of financial position as of September 30, 2005 and
results of operations for the nine months ended September 30, 2005 and 2004
are to be read in conjunction with the Company's unaudited consolidated
financial statements and related notes, included herein.
We prepare our consolidated financial statements in U.S. Dollars in
accordance with accounting principles generally accepted in Canada. These
financial statements together with the following management's discussion and
analysis, dated November 10, 2005, are intended to provide investors with a
reasonable basis for assessing the financial performance of the Company as
well as certain forward-looking statements relating to the Company's
potential future performance. Additional information on the Company can be
found in the Company's Annual Information Form filed with Canadian Securities
Regulators at www.sedar.com and its Form 20F filed with the US Securities and
Exchange Commission at www.sec.gov.
In response to comments the Company received from the Staff of the U.S.
Securities and Exchange Commission the Company amended its Annual Report on
Form 20-F for its fiscal year ended December 31, 2004, originally filed with
the Securities and Exchange Commission on April 1, 2005. The primary change
was to amend Note 11 to the Company's consolidated financial statements,
"Differences between Canadian and U.S. GAAP." This amendment reflects the
restatement of results of operations, financial position and cashflows under
U.S. GAAP based upon a revision in accounting treatment made by the Company
under U.S. GAAP with respect to the treatment of capitalized mine development
costs prior to the establishment of proven and probable reserves. The revision
in accounting treatment under U.S. GAAP has had no effect on the Company's
primary financial statements prepared in accordance with Canadian GAAP since
the Company's capitalization policy for mine development costs is in
accordance with Canadian GAAP.
The Company is engaged in the business of exploration and development of
mining projects and is presently focusing its financial resources on its most
significant asset, the Brisas project, and to a lesser extent the exploration
of its Choco 5 property, both located in Bolivar State, Venezuela. The
Company has no commercial production at this time. As a result, the Company
has not recorded revenue or cash flow from its mining operations and has
experienced losses from operations for each of the last five years, a trend
we expect to continue until the Brisas project is fully developed and put
into commercial production. The Company has historically financed its
operations through the sale of common stock and other equity securities.
Management expects the Brisas project, if constructed, to be similarly
financed along with project and corporate debt financing.
As noted elsewhere, the Company completed a 2005 bankable feasibility study
with respect to the construction and operation of the Brisas project. Based
on the results of the study, the feasibility study operating plan assumes a
large open pit mine utilizing conventional truck and shovel mining methods.
The construction of the Brisas project is expected to take approximately
24-26 months and cost an estimated $552 million, the start of which is
primarily dependant upon receiving the required permits and obtaining
sufficient financing. Obtaining the required permits and the necessary
funding for the Brisas project will continue to be the Company's primary
focus during the remainder of 2005 and into 2006.
During the last several years, Venezuela has experienced high levels of
inflation, political and civil unrest and changes in and proposed changes in
regulatory regimens. Despite these matters, the Company, up to now, has not
experienced any significant adverse impact on its operations in Venezuela nor
have we curtailed our investment activities in the country. However, our
operations and investments in Venezuela could be adversely affected by
unforeseen political events and changes in legal, tax and regulatory regimes
in the future.
In early 2005, the Venezuelan government announced new regulations concerning
exports from Venezuela, which will require, effective April 1, 2005, all goods
and services to be invoiced in the currency of the country of destination or
in U.S. Dollars. We are evaluating the impact of these new regulations, which
we believe could result in an increase in future operating costs. Past and
recent conditions have not adversely affected the Company's operations as the
Company primarily transfers funds into Venezuela for its operations. However,
this will change in the future to the extent that the Company begins
production and sales from Venezuela and we will assess currency issues at
that time. There can be no assurance that further developments or
interpretations of these regulations are limited to the impact we have
described herein.
Also in early 2005, Venezuelas Minister of MIBAM announced that Venezuela
will review all foreign investments in non-oil basic industries, including
gold projects. The Minister indicated Venezuela is seeking transfers of new
technology, technical training and assistance, job growth, greater national
content, and creation of local downstream industries and that the
transformation would require a fundamental change in economic relations with
major multinational companies. In September 2005, Venezuelan President Hugo
Chavez announced that the Venezuelan government planned to revoke gold and
diamond concessions and/or contracts and also that he planned to create a new
state mining company as part of an effort to increase government control over
the sector. President Chavez did not specify which concessions and/or
contracts would be revoked, but later MIBAM Minister Victor Alvarez said
inactive and out of compliance mines would be handed over to small mining
cooperatives supported by the government through a new government mining
corporation.
To the best of our knowledge, all of our properties are in compliance with
the regulations and requirements of the agreements and our various social,
cultural and environmental programs in the immediate and surrounding areas
near Brisas are consistent with the government's social agenda including the
framework of Mission Piar, one of President Chavez's social initiatives which
includes the local small miners and encompasses technical assistance and
training to explore and minimize the impact to the environment as well as
their integration into the formal economy. We enjoy an good working
relationship with the MIBAM, MARN and in general the Venezuelan Government
and look forward to the economic and social development of the Brisas project
in a mutually beneficial manner with the communities located near the project,
the people in Bolivar State, and the Bolivarian Republic of Venezuela.
References in this report to total cash costs per ounce (a non-GAAP measure
of performance) we believe enables certain investors to better understand the
Brisas project's potential profitability and ability to generate operating
cash flow. Non-GAAP measures do not have any standardized meaning prescribed
by Canadian and U.S. GAAP, and therefore they may not be comparable to
similar measures prescribed by other companies. The data is intended to
provide additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with GAAP,
such as the nearest comparable GAAP measurentotal cost per ounce. Such
measures are not necessarily indicative of operating profit or cash flow from
operations as determined under GAAP.
Critical Accounting Estimates.
Critical accounting estimates represent estimates that are highly uncertain
and changes in those estimates could materially impact our financial
statements. The significant accounting estimates contained in the financial
statements include: carrying value of the Brisas project; mineral reserve and
resource estimates and contingencies. Management has discussed the development
and selection of our critical accounting estimates with the Company's Audit
Committee.
Significant Accounting Policies.
The Companys accounting policies are described in Note 1 of the consolidated
financial statements. The more significant accounting policies are as follows:
Marketable Securities. Equity securities are carried at the lower of cost and
net realizable value. Corporate debt securities and U.S. treasuries and agency
obligations are carried at amortized cost.
Exploration and Development Costs. Exploration costs incurred in locating
areas of potential mineralization are expensed as incurred. Exploration costs
of properties or working interests with specific areas of potential
mineralization are capitalized at cost pending the determination of a
property's economic viability. Development costs of proven mining properties
not yet producing are capitalized at cost and classified as property, plant
and equipment. Property holding costs are charged to operations during the
period if no significant exploration or development activities are being
conducted on the related properties. Upon commencement of production,
capitalized exploration and development costs will be amortized based on the
estimated proven and probable reserves benefited. Properties determined to be
impaired or that are abandoned are written-down to the estimated recoverable
amount. Carrying values do not necessarily reflect present or future values.
Results of Operations.
The Company's results of operation are a product of
operating expenses, primarily related to the development of the Brisas
project, net of investment income. Consolidated net loss for the three and
nine months ended September 30, 2005 amounted to $1,755,640 and $5,682,434 or
$0.05 and $0.16 per share compared to consolidated net loss of $1,420,077 and
$3,512,192 or $0.05 and $0.12 per share for the same periods in 2004.
Other income for the three and nine month periods ended September 30, 2005
increased by $202,070 and $445,395 over the comparable periods in 2004. The
change was primarily due to an increase in the amount of invested cash and
gains on sales of securities.
Operating expenses for the three and nine months ended September 30, 2005
increased by $537,633 and $2,615,637 over the comparable periods in 2004. The
change was primarily due to the cost of implementing directorsi and officers
insurance, increases in consulting costs associated with the development of
the Brisas project, increased compensation expense primarily as a result of
new hires and overall increases in expenditures as a result of the increased
corporate management activity associated with the development of the Brisas
project and financing activities.
Selected Quarterly Financial Data.
The quarterly results of operations shown below are primarily a result of the
increase in operating costs associated with the development of the Brisas
project. The increase in operating cost during the three-month periods from
September 2004 to September 2005 is primarily due to overall increases in
expenditures as a result of the increased activity associated with the
development and financing of the Brisas project, coupled with compensation
adjustments for existing officers, directors and employees, costs associated
with new hires, increased costs associated with investor relations and the
impact of implementing new rules related to accounting for stock-based
compensation.
Quarter ended 9/30/05 6/30/05 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03
------------------------------------------------------------------------------------------------------------------
Other Income 395,410 392,064 217,982 372,064 193,340 205,652 128,825 291,218
Net loss before tax (1,755,640) (1,803,271) (2,123,523) (1,970,437) (1,420,077) (880,107) (1,212,008) (1,603,873)
Per share (0.05) (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07)
Fully diluted (0.05) (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07)
Net loss (1,755,640) (1,803,271) (2,123,523) (1,970,437) (1,420,077) (880,107) (1,212,008) (1,608,606)
Per share (0.05) (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07)
Fully diluted (0.05) (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07)
Measurement Uncertainty.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Substantially all of the Company's investment in property, plant and
equipment represents amounts invested in the Brisas project located in
Venezuela. See Management's Discussion and Analysis contained herein and the
Company's Annual Information Form for further discussion of risk factors.
Managements capitalization of exploration and development costs and
assumptions regarding the future recoverability of such costs is subject to
among other things, the Company's current mineral reserves which are based on
engineering and geological estimates, gold and copper prices, estimated plant
construction and operating costs and the procurement of all necessary
regulatory permits and approvals. These estimates could change in the future
and this could affect the carrying value and the ultimate recoverability of
the amounts recorded as property and mineral rights and capitalized
exploration and development costs.
The Company operates and files tax returns in a number of jurisdictions. The
preparation of such tax filings requires considerable judgment and the use of
assumptions. Accordingly, the amounts reported could vary in the future.
Liquidity and Capital Resources.
The Companys significant investing activities during the nine months ended
September 30, 2005 included the purchase and sale or maturity of marketable
securities, on a net basis, of approximately $3.6 million and the purchase of
property, plant and equipment of approximately $3.2 million. The total
financial resources of the Company, which includes cash plus marketable
securities, decreased $5.4 million from December 31, 2004 to approximately
$27 million as of September 30, 2005.
As of the date of this report, the Company had the following shares,
equity units, warrants and share options issued:
---------------------------------------------------------------
Class A common 35,125,437
Equity units1 1,110,020
Class A common share purchase warrants 2 2,680,500
Class A common share purchase options3 3,095,844
---------------------------------------------------------------
1) An equity unit consists of one class B common share of Gold Reserve Inc.
and one class B common share of Gold Reserve Corporation. Equity units are
convertible into Class A common shares of Gold Reserve Inc. on a one to one
basis.
2) Consist of 5,361,000 Class A common share purchase warrants exercisable
for one-half share or 2,680,500 Class A Common Shares, exercisable at Cdn
$5.40 per whole share and expiring in November 2006.
3) Exercisable at between $0.57 and $4.90 per share.
With the completion of the bankable feasibility in early 2005, our efforts
are focused primarily on identifying suitable funding sources, completion of
detailed project engineering, development and implementation of project
related contracts such as engineering, procurement and construction
management, port facilities, concentrate sales contracts, electricity and
fuel supply contracts, and a number of other agreements related to the
construction and operation of the Brisas project and obtaining the required
permits (primarily the permits to construct and operate). Initial capital
expenditures required to put the Brisas project into production as presently
proposed in the Brisas bankable feasibility study, is estimated to be
approximately $552 million over a 24-26 month construction period.
Commencement of the construction of the Brisas project is primarily dependant
upon obtaining the required permits and obtaining sufficient financing.
As of November 10, 2005, the Company held approximately $26 million in cash
and investments. In the near-term, management believes that cash and
investment balances are sufficient to enable the Company to fund its
pre-construction activities through 2007 (excluding substantial Brisas
project construction activities). The timing and extent of additional funding
or project financing, if any, depends on a number of important factors,
including, but not limited to the actual timetable of our future work plans,
our assessment of the financial markets, the political, regulatory and
economic conditions in Venezuela, our share price and the price of gold and
copper. Management provides no assurances that it will be able to obtain the
substantial additional financing that will be needed to construct the Brisas
project. Failure to raise the required funds will mean the Company will be
unable to construct and operate the Brisas project.
CONSOLIDATED BALANCE SHEETS
September 30, 2005 (unaudited) and December 31, 2004
September 30, December 31,
U.S. Dollars 2005 2004
----------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 24,867,511 $ 27,178,705
Marketable securities 2,397,216 5,528,776
Deposits, advances and other 336,727 336,128
Accrued interest 13,444
----------------------------------------------------------------------------
Total current assets 27,601,454 33,057,053
Property, plant and equipment, net 55,659,081 52,535,018
Other 1,073,309 1,013,460
----------------------------------------------------------------------------
Total assets $ 84,333,844 $ 86,605,531
============================================================================
LIABILITIES
Current Liabilities:
Accounts payable
and accrued expenses $ 818,322 $ 1,307,635
----------------------------------------------------------------------------
Total current liabilities 818,322 1,307,635
Minority interest in
consolidated subsidiaries 1,129,554 1,121,838
----------------------------------------------------------------------------
Total liabilities 1,947,876 2,429,473
============================================================================
SHAREHOLDERS' EQUITY
Serial preferred stock,
without par value
Common shares and equity
units, without par value 140,270,642 136,907,516
Less common shares
held by affiliates (674,598) (674,598)
Stock options 1,792,386 1,004,197
Accumulated deficit (58,638,168) (52,955,734)
KSOP debt (364,294) (105,323)
----------------------------------------------------------------------------
Total shareholders' equity 82,385,968 84,176,058
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 84,333,844 $ 86,605,531
============================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
Approved by the Board of Directors:
s/ Chris D. Mikkelsen s/ Patrick D. McChesney
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)
Three Months Ended Nine Months Ended
U.S. Dollars 2005 2004 2005 2004
---------------------------------------------------
OTHER INCOME
Interest $ 223,918 $ 111,805 $ 635,864 $ 347,958
Gain on sale of
marketable securities 171,492 81,535 337,348 179,859
----------------------------------------------------------------------------
395,410 193,340 973,212 527,817
----------------------------------------------------------------------------
EXPENSES
General and
administrative 1,019,136 674,437 3,240,124 1,771,674
Technical services 874,792 744,126 2,604,617 1,583,887
Corporate communications 126,636 179,231 476,115 563,098
Legal and accounting 148,343 10,984 243,973 82,002
Foreign currency
(gain) loss (22,839) 2,772 83,101 43,758
Minority interest in net
income (loss) of
consolidated
subsidiaries 4,982 1,867 7,716 (4,410)
2,151,050 1,613,417 6,655,646 4,040,009
----------------------------------------------------------------------------
Net loss $(1,755,640) $(1,420,077) $(5,682,434) $(3,512,192)
============================================================================
Net loss per share $ (0.05) $ (0.05) $ (0.16) $ (0.12)
============================================================================
Weighted average common
shares outstanding 35,304,253 28,386,147 34,904,722 28,291,545
============================================================================
CONSOLIDATED STATEMENTS OF DEFICIT
For the Nine Months Ended September 30, 2005 and 2004 (unaudited)
U.S. Dollars
Deficit, December 31, 2004 $ (52,955,734)
Net loss (5,682,434)
----------------------------------------------------------------------------
Deficit, September 30, 2005 $ (58,638,695)
============================================================================
Deficit, December 31, 2003 $ (47,054,004)
Adjustment for stock option compensation from 2002 and 2003 (419,101)
Net loss (3,512,192)
----------------------------------------------------------------------------
Deficit, September 30, 2004 $ (50,985,297)
============================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended September 30, 2005 and 2004 (unaudited)
Three Months ended Nine Months Ended
U.S. Dollars 2005 2004 2005 2004
----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (1,755,640) $ (1,420,077) $ (5,682,434) $ (3,512,192)
Adjustments to reconcile
net loss to net
cash used by
operating activities:
Stock option
compensation 248,357 116,320 788,189 419,254
Depreciation 24,173 15,485 64,166 40,597
Amortization of premium
(discount) on marketable
securities (2,513) 26,945 713 93,802
Foreign currency
(gain) loss (22,839) 2,772 83,101 43,758
Minority interest
in net income (loss)
of consolidated
subsidiaries 4,982 1,867 7,716 (4,410)
Net gain on sale
of marketable
securities (171,492) (81,535) (337,348) (179,859)
Shares issued
for compensation 55,891 491,811 13,279
Changes in non-cash working capital:
Net decrease in deposits,
advances and
accrued interest 10,199 124,954 12,845 148,905
Net increase (decrease)
in accounts payable
and accrued expenses (90,456) 515,507 (489,313) 170,106
----------------------------------------------------------------------------
Net cash used by
operating
activities (1,699,338) (697,762) (5,060,554) (2,766,760)
============================================================================
Cash Flows from Investing Activities:
Proceeds from the sale
and maturity of
marketable
securities 1,171,492 2,881,535 5,786,299 4,729,859
Purchase of
marketable
securities (1,318,104) (764,275) (2,318,104) (3,046,779)
Purchase of
property, plant
and equipment (1,352,676) (1,274,913) (3,188,229) (3,476,929)
Other (37,287) (56,232) (142,950) (214,397)
----------------------------------------------------------------------------
Net cash provided
(used) by investing
activities (1,536,575) 786,115 137,016 (2,008,246)
============================================================================
Cash Flows from Financing Activities:
Proceeds from
the issuance of
common shares 6,504 194,400 2,612,344 247,800
----------------------------------------------------------------------------
Net cash provided
by financing
activities 6,504 194,400 2,612,344 247,800
============================================================================
Change in Cash and Cash Equivalents:
Net increase (decrease)
in cash and
cash equivalents (3,229,409) 282,753 (2,311,194) (4,527,206)
Cash and cash
equivalents -
beginning
of period 28,096,920 6,521,544 27,178,705 11,331,503
----------------------------------------------------------------------------
Cash and cash
equivalents -
end of period $ 24,867,511 $ 6,804,297 $ 24,867,511 $ 6,804,297
============================================================================
The accompanying notes are an integral part of the
consolidated financial statements.
Selected Notes To Consolidated Financial Statements
For the Nine Months Ended September 30, 2005 and 2004 (unaudited) Expressed
in U.S. Dollars
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
Canada for interim financial information. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in Canada for complete financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Gold Reserve Inc. and subsidiaries (the Company) as of
September 30, 2005, and the results of operations and the cash flows for the
nine months ended September 30, 2005 and 2004. The results of operations for
the nine months ended September 30, 2005 and 2004 are not necessarily
indicative of the results to be expected for the full year.
In September 2004, the Company reviewed costs incurred on the Brisas project
and in accordance with its accounting policy, capitalized $2,116,764
associated with its Brisas feasibility study which previously had been
expensed in the first half of 2004.
These financial statements follow the same accounting policies and methods of
their application as the most recent annual financial statements and should be
read in conjunction with the consolidated financial statements including notes
thereto included in the Companys 2004 annual report.
2. Geographic Segments
Net Loss for the Three and Nine Months Ended September 30, 2005 and 2004
Three Months Ended Nine Months Ended
2005 2004 2005 2004
----------------------------------------------------------------------------
North America $ 1,086,020 $ 676,229 $ 3,647,839 $ 2,321,032
South America 669,620 743,848 2,034,595 1,191,160
----------------------------------------------------------------------------
Consolidated $ 1,755,640 $ 1,420,077 $ 5,682,434 $ 3,512,192
============================================================================
3. Share Option Plan:
The Companys Equity Incentive Plan (the Plan) allows for the granting of
common share purchase options 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. There were 650,937 options remaining for
future grants at September 30, 2005. Share option transactions for the nine
months ended September 30, 2005 and 2004 are as follows:
2005 2004
----------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------------------------------------------------------------------------
Options outstanding
at beginning
of period 3,316,374 $ 1.39 3,204,124 $ 0.95
Options exercised (573,030) $ 1.00 (284,954) $ 1.00
Options canceled (115,000) $ 4.16 (19,296) $ 1.13
Options granted 374,500 $ 3.65 395,500 $ 3.67
----------------------------------------------------------------------------
Options outstanding
at end of period 3,002,844 $ 1.64 3,295,374 $ 1.27
----------------------------------------------------------------------------
Options exercisable
at end of period 2,678,270 $ 1.44 3,033,190 $ 1.12
============================================================================
Price Price
Range Range
----------------------------------------------------------------------------
Exercise price at
end of period $ 0.57 - $ 4.90 $ 0.55 - $ 4.14
Exercise price for
exercisable shares $ 0.57 - $ 4.90 $ 0.55 - $ 4.14
Effective January 1, 2004, the Company adopted the new requirements of the
Canadian Institute of Chartered Accountants standard 3870 under which the
fair value method of accounting for stock options granted to employees and
directors is followed. Accordingly, compensation expense was recorded on a
retroactive basis to retained earnings to show the effect of compensation
expense associated with stock option grants to employees and directors from
January 1, 2002 to December 31, 2003, which amounted to $419,101.
The Company recorded additional compensation expense of $788,189, and
$419,254 for stock options granted during the nine months ended September 30,
2005 and 2004. The fair value of the options granted in 2005 was calculated
using the Black-Scholes model assuming a weighted average risk free interest
rate of 3.8%, expected life of three years, expected volatility of 103% and a
dividend yield of nil.