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 June 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, 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,
the regulatory, political and economic risks associated with Venezuelan
operations, changes in proposed development plans (including technology
used), our dependence upon the abilities and continued participation of
certain key employees, and the risks normally incident to the operation and
development of mining properties.
The words "believe," "anticipate," "expect," "intend," "estimate," "plan,"
"assume," "positioned," "may," "will," "could" and other similar expressions
that are predictions of or indicate future events and future trends which do
not relate to historical matters, identify forward-looking statements. Any
such forward-looking statements are not intended to give any assurances as to
future results. Investors are cautioned not to put undue reliance on
forward-looking statements, and should not infer that there has been no
change in the affairs of the Company since the date of this report that would
warrant any modification of any forward-looking statement made in this
document, other documents filed periodically with securities regulators or
documents presented on our Company website. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by this notice. The
Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
Investors are urged to read the Company's filings with U.S. and Canadian
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
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Number Description
99.1 June 30, 2005 Interim Financial Report
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 n Finance & CFO
August 12, 2005
Exhibit Index
Exhibit
Number Description
99.1 June 30, 2005 Interim Financial Report To Shareholders
EXHIBIT 99.1
GOLD RESERVE INC.
June 30, 2005
Interim Financial Report to Shareholders
U.S. Dollars
Operations Overview
Brisas Project
The Company's primary mining 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
and have retained Endeavour Financial to assist in our efforts.
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, 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 next several months.
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 based on a shape produced by an industry standard pit optimization
software using a gold price of $350 per ounce and a copper price of $0.90 per
pound. Utilizing conventional truck and shovel mining methods with the
processing of ore at full production of 70,000 tonnes per day, the study
anticipates the Brisas Project will yield 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, would be $263 per ounce of gold. Initial capital costs to
construct and place the Brisas Project into production are currently estimated
to be approximately $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 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:
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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:
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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
2005 bankable feasibility study, in February 2005 in accordance with National
Instrument 43-101, as required by Canadian Securities regulatory authorities.
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 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 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 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 February 2005 estimated proven and probable mineral reserve
utilizing traditional flotation and off-site smelter processes 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. Other
activities on the property 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 six months of 2005:
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EPCM Contractor. 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.
Management is in the process of completing the definitive EPCM contract,
although SLE&C has already begun working on the initial phase of the
agreement.
Proven and Probable Reserves Updated. The Company announced 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. Note:
the 2005 bankable feasibility study described earlier in this document has
not yet been updated with this new data.
PAH calculated the updated mineral resource and reserve estimates summarized
in the table below, in May 2005 in accordance with National Instrument
43-101, as required by Canadian Securities regulatory authorities. 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 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, using an off-site smelter process for
treating 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. The May 2005 estimated proven and
probable mineral reserve utilizing traditional flotation and off-site smelter
processes 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 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 resources 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 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.
Copper Concentrate Smelters. The Company obtained a letter of intent from
NordDeutcshe Refinery of Germany for smelting a portion of the copper
concentrates. A similar letter of intent has been signed with Boliden of
Sweden for additional concentrates. Neil Seldon & Associates assisted the
Company in this process.
Port Facilities. The Company signed a letter of intent with a Venezuelan port
facility company for the future storage and trans-shipments of copper/gold
concentrate.
Environmental Studies. Management filed its Venezuelan Environmental and
Social Impact Study with the Venezuelan Ministry of Environment and Natural
Resources, which is required for the Company to obtain the permit to
construct the Brisas gold/copper project.
Public Consultation. The Company held a public consultation meeting with the
local communities surrounding the Brisas project in the KM88 mining district
of Venezuela. The meeting, held in conjunction with the Company's completion
of the Venezuelan Environmental and Social Impact Study, 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 continued to make progress with its financial
advisor, Endeavour Financial, on securing project debt financing for the
Brisas Project. Management is continuing its participation in a number of
detailed discussions with project debt sources.
New Personnel. The Company added Vice PresidentnChief Legal Officer to the
management team. 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:
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In the near-term, management is finalizing a definitive EPCM contract with
SLE&C. In anticipation of signing the definitive contract, SLE&C has already
begun the first phase of the EPCM contract which consists of a ninety day
Project Definition Phase, the key objective being to generate the information
and criteria that will form the basis of all subsequent engineering,
procurement and construction activities to be performed related to the Brisas
Project. Thereafter, the Project Execution Phase will include detailed design
and engineering, IT and telecommunications, geotechnical engineering and
water management, environmental engineering, procurement and contract
management and construction management and execution. Procurement and
construction could begin following receipt of final environmental permits and
the Company obtaining appropriate financing.
In addition to the definitive EPCM contract, management continues its
discussions and contract negotiations with EDELCA for the supply of
electricity, NordDeutcshe Refinery of Germany and Boliden of Sweden for
concentrate smelting and negotiations related to port facilities.
With the recent filing of the Venezuelan Environmental and Social Impact
Study with the Venezuelan Ministry of Environment and Natural Resources,
management and its advisors will continue their dialogue with the Venezuelan
Ministry of Environment and Natural Resources providing additional
information and answering 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 continues to work closely with
Endeavour Financial on the project debt-financing package. The Company made a
number of presentations and conducted various discussions of its proposed
Brisas project debt package with a number of commercial banks, export credit
agencies, international development banks and also equipment and off-take
finance sources.
Preliminary works 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 moves toward commencement of construction.
The Company will continue 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 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.In addition, the Company will soon
complete the construction of an ambulatory medical facility within the
framework of "MisiUn Barrio Adentro", a governmental program to provide
medical assistance to the poor. 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 (MIBM) 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 the Venezuelan Ministry of Environment and Natural Resources (MARNR) for
the Choco 5 property. The Company has already commenced drilling which is part
of an aggressive exploration program on the property with planned expenditures
of approximately $400,000 in 2005 and $750,000 in 2006. Exploration activities
will include environmental permitting, additional geologic mapping and
reconnaissance, comprehensive grid of soil geochemical sampling, exploration
drilling, 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's geologists have already identified several drill
targets and expect to identify additional targets based on the work described
above. The Company will base its exploration effort out of its office in El
Callao.
Financial Overview
Overview. The following discussion of financial position as of June 30, 2005
and results of operations for the six months ended June 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 August 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 HYPERLINK "http://www.sedar.com", www.sedar.com and its Form
20F filed with the US Securities and Exchange Commission at www.sec.gov.
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.
Venezuela has experienced high levels of inflation during the last several
years as well as political and civil unrest. During this period Venezuela has
experienced a decline in industrial output and foreign investment. Despite
this political and economic turmoil, 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, the
Company's operations and investments in Venezuela could be adversely affected
in the future.
In early 2005, Venezuela's Basic Industries and Mines Minister announced that
Venezuela will review all foreign investments in non-oil basic industries,
including gold projects. The overall objective is to maximize technological
and developmental benefits and align investments with the current
administration's social agenda. 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. 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.
Also 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.
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 Audit Committee.
Significant Accounting Policies. The Company's 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
six months ended June 30, 2005 amounted to $1,803,271 and $3,926,794 or $0.05
and $0.11 per share compared to consolidated net loss of $880,107 and
$2,092,115 or $0.03 and $0.07 per share for the same periods in 2004.
Other income for the three and six month periods ended June 30, 2005
increased by $186,412 and $243,325 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 six months ended June 30, 2005 increased
by $1,109,576 and $2,078,004 over the comparable periods in 2004. The change
was primarily due to the cost of implementing directors' 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 June 2004 to June 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. The significant variation from the third quarter
2003 to the fourth quarter 2003 is attributable to the startup of activities
related to the bankable feasibility study, the commencement of additional
drilling on the Brisas Project and the extraction and transportation of a
bulk sample intended to be used for tests related to the possible deployment
of an on-site pressure oxidation and leaching process.
Quarter ended 6/30/05 3/31/05 12/31/04 9/30/04 6/30/04 3/31/04 12/31/03 9/30/03
Other Income 392,064 217,982 372,064 193,340 205,652 128,825 291,218 145,664
Net loss before tax (1,803,271) (2,123,523) (1,970,437) (1,420,077) (880,107) (1,212,008) (1,603,873) (809,276)
Per share (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07) (0.03)
Fully diluted (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07) (0.03)
Net loss (1,803,271) (2,123,523) (1,970,437) (1,420,077) (880,107) (1,212,008) (1,608,606) (809,276)
Per share (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07) (0.03)
Fully diluted (0.05) (0.06) (0.07) (0.05) (0.03) (0.04) (0.07) (0.03)
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. Venezuela has experienced high levels of inflation during the last
several years as well as political instability, civil unrest, currency and
exchange controls, and a decline in industrial output and foreign investment.
In August 2004, Venezuela held a mid-term presidential recall referendum (as
provided in the Constitution), the result of which was President Chavez was
re-elected President of Venezuela. Since the referendum, the political
climate in Venezuela has improved. In view of past political and economic
turmoil, we have not experienced any significant adverse impact to date on
our 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.
Management's 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 Company had no significant investing activities during the six months
ended June 30, 2005, other than the purchase and sale or maturity of
marketable securities, which, on a net basis, totaled approximately $3.6
million in sales and maturities of marketable securities. The total financial
resources of the Company, which includes cash plus marketable securities,
decreased $2.5 million from December 31, 2004 to approximately $30 million as
of June 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 34,928,260
Equity units(1) 1,157,397
Class A common share purchase warrants(2) 2,680,500
Class A common share purchase options(3) 2,911,144
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 August 10, 2005, the Company held approximately $29 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 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
June 30, 2005 (unaudited) and December 31, 2004
June 30, December 31,
U.S. Dollars 2005 2004
ASSETS
Current Assets
Cash and cash equivalents $ 28,096,920 $ 27,178,705
Marketable securities 2,076,599 5,528,776
Deposits, advances and other 346,926 336,128
Accrued interest 13,444
------------ ------------
Total current assets 30,520,445 33,057,053
Property, plant and equipment, net 54,330,578 52,535,018
Other 1,013,710 1,013,460
------------ ------------
Total assets $ 85,864,733 $ 86,605,531
------------ ------------
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 908,778 $ 1,307,635
------------ ------------
Total current liabilities 908,778 1,307,635
------------ ------------
Minority interest in
consolidated subsidiaries 1,124,572 1,121,838
------------ ------------
Total liabilities 2,033,350 2,429,473
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Common shares and equity units, without par value
139,949,803 136,907,516
Less common shares held by affiliates (674,598) (674,598)
Stock options 1,544,029 1,004,197
Accumulated deficit (56,882,528) (52,955,734)
KSOP debt (105,323) (105,323)
------------ ------------
Total shareholders' equity 83,831,383 84,176,058
------------ ------------
Total liabilities and
shareholders' equity $ 85,864,733 $ 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 Six Months Ended June 30, 2005 and 2004 (unaudited)
Three Months Ended Six Months Ended
U.S. Dollars 2005 2004 2005 2004
OTHER INCOME
Interest $ 193,964 $ 107,328 $ 411,946 $ 236,153
Gain on sale of
marketable securities 198,100 98,324 165,85 98,324
--------- --------- --------- ---------
392,064 205,652 577,802 334,477
--------- --------- --------- ---------
EXPENSES
General and administrative 922,083 422,067 2,220,988 1,097,237
Technical services 966,563 456,037 1,729,825 839,761
Corporate communications 200,189 161,777 349,479 383,867
Legal and accounting 89,347 46,341 95,630 71,018
Foreign currency loss 17,664 747 105,940 40,986
Minority interest in
net income (loss) of
consolidated subsidiaries (511) (1,210) 2,734 (6,277)
--------- --------- --------- ---------
2,195,335 1,085,759 4,504,596 2,426,592
--------- --------- --------- ---------
Net loss $ (1,803,271) $ (880,107) $ (3,926,794) $ 2,092,115)
--------- --------- --------- ---------
Net loss per share $ (0.05) $ (0.03) $ (0.11) $ (0.07)
--------- --------- --------- ---------
Weighted average common
shares outstanding 35,060,891 28,260,776 34,689,688 28,243,724
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF DEFICIT
For the Six Months Ended June 30, 2005 and 2004 (unaudited)
U.S. Dollars
Deficit, December 31, 2004 $ (52,955,734)
Net loss (3,926,794)
------------
Deficit, June 30, 2005 $ (56,882,528)
------------
Deficit, December 31, 2003 $ (47,054,004)
Adjustment for stock option
compensation from 2002 and 2003 (419,101)
Net loss (2,092,115)
------------
Deficit, June 30, 2004 $ (49,565,220)
------------
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months Ended June 30, 2005 and 2004 (unaudited)
Three Months Ended Six Months Ended
U.S. Dollars 2005 2004 2005 2004
--------- --------- --------- ---------
Cash Flows from Operating Activities:
Net loss $ (1,803,271) $ (880,107) $ (3,926,794) $ (2,092,115)
Adjustments to
reconcile net loss
to net cash used by
operating activities:
Stock option compensation 342,651 539,832 302,934
Depreciation 20,569 13,121 39,993 25,112
Amortization of premium on
marketable securities 29,699 3,226 66,857
Foreign currency loss 17,664 747 105,940 40,986
Minority interest
in net income (loss) of
consolidated subsidiaries (511) (1,210) 2,734 (6,277)
Net gain on sale of
marketable securities (198,101) (98,324) (165,856) (98,324)
Shares issued
for compensation 435,920 13,279
Changes in non-cash
working capital:
Net (increase) decrease
in deposits,advances and
accrued interest (7,081) 6,730 2,646 23,951
Net increase (decrease)
in accounts payable
and accrued expenses 225,703 (206,141) (398,857) (345,401)
--------- --------- --------- ---------
Net cash used by
operating activities (1,402,377) (1,135,485) (3,361,216) (2,068,998)
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from the
sale and maturity of
marketable securities 2,935,801 848,324 4,614,807 1,848,324
Purchase of
marketable securities (500,000 (500,000) (1,000,000) (2,282,504)
Purchase of property,
plant and equipment (976,784) (1,027,304) (1,835,553) (2,202,016)
Other (74,493) (118,121) (106,190) (158,165)
--------- --------- --------- ---------
Net cash provided (used)
by investing activities 1,384,524 (797,101) 1,673,064 (2,794,361)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from the
issuance of
common shares 278,441 2,606,367 53,400
--------- --------- --------- ---------
Net cash provided by
financing activities 278,441 2,606,367 53,400
--------- --------- --------- ---------
Change in Cash and Cash Equivalents:
Net increase (decrease)
in cash and
cash equivalents 260,588 (1,932,586) 918,215 (4,809,959)
Cash and cash
equivalents - beginning
of period 27,836,332 8,454,130 27,178,705 11,331,503
---------- ----------- ----------- ----------
Cash and cash
equivalents -
end of period $28,096,920 $ 6,521,544 $28,096,920 $ 6,521,544
---------- ----------- ----------- ----------
The accompanying notes are an integral part of the consolidated
financial statements.
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 June 30,
2005, and the results of operations and the cash flows for the six months
ended June 30, 2005 and 2004. The results of operations for the six months
ended June 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 Company's 2004 annual report.
2. Geographic Segments
Net Loss for the Three and Six Months Ended June 30, 2005 and 2004
Three Months Ended Six Months Ended
2005 2004 2005 2004
--------- --------- --------- ---------
North America $ 1,115,003 $ 170,627 $ 2,561,819 $ 601,952
South America 688,268 709,480 1,364,975 1,490,163
--------- --------- --------- ---------
Consolidated $ 1,803,271 $ 880,107 $ 3,926,794 $ 2,092,115
--------- --------- --------- ---------
Selected Notes To Consolidated Financial Statements
3. Share Option Plan:
The Company's 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 786,937 options remaining for
future grants at June 30, 2005. Share option transactions for the six months
ended June 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 (564,730) $ 1.00 (62,500) $ 0.83
Options canceled (110,000) $ 4.18
Options granted 250,000 $ 3.80 135,000 $ 3.94
----------------------------------------------------
Options outstanding
at end of period 2,891,644 $ 1.57 3,276,624 $ 1.08
----------------------------------------------------
Options exercisable
at end of period 2,557,820 $ 1.32 3,078,773 $ 0.97
----------------------------------------------------
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 - $ 4.74 $ 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 $539,832, and
$302,934 for stock options granted during the six months ended June 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 3.6%, expected life of three years, expected volatility of 104% and a
dividend yield of nil.