-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QG1zlFQGGqTQ2fcO+bn3To1Zu0YkwukX8W/oM/Y1vZFOhKICvCdF541Y03Ss+S0H uvETCd/1JkrFwQdVULUO0Q== 0000929859-97-000031.txt : 19970401 0000929859-97-000031.hdr.sgml : 19970401 ACCESSION NUMBER: 0000929859-97-000031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLD RESERVE CORP CENTRAL INDEX KEY: 0000042119 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 810266636 STATE OF INCORPORATION: MT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08372 FILM NUMBER: 97569665 BUSINESS ADDRESS: STREET 1: 1940 SEAFIRST FINANCIAL CENTER CITY: SPOKANE STATE: WA ZIP: 99201 BUSINESS PHONE: 5096231500 MAIL ADDRESS: STREET 1: 1940 SEAFIRST FINANCIAL CENTER CITY: SPOKANE STATE: WA ZIP: 99201 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 GOLD RESERVE CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Montana 81-0266636 ------------------------ ------------------- State of Incorporation (IRS Employer Identification No. 1-8372 ------------------------ (Commission File Number) 601 W. Riverside Avenue, Suite 1940 Seafirst Financial Center Spokane, Washington 99201 (509) 623-1500 Securities registered pursuant to Section 12(b) of the Act: Common Stock Title of each class NASDAQ Small-Cap System The Toronto Stock Exchange -------------------------- Name of each exchange on which registered Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates (persons who are neither officers, directors nor subsidiaries) of the registrant based on the closing NASDAQ price at February 28, 1997 was $235,286,853. The total number of common shares outstanding and held by non-affiliates at such date was 21,149,380, excluding 693,362 shares held by subsidiaries of the Company. Portions of the Proxy Statement for the Registrant's Annual Meeting to be held June 5, 1997, are incorporated by reference to Part III of this Annual Report on Form 10-K. TABLE OF CONTENTS Glossary of Significant Terms PART I Item 1: Business Item 2: Properties Item 3: Legal Proceedings Item 4: Submission of Matters to a Vote of Security Holders PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters Item 6: Selected Financial Data Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8: Financial Statements and Supplementary Data Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10: Directors and Executive Officers of the Registrant Item 11: Executive Compensation Item 12: Security Ownership of Certain Beneficial Owners and Management Item 13: Certain Relationships and Related Transactions PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K SIGNATURES GLOSSARY OF SIGNIFICANT TERMS Certain terms used throughout this report are defined below: acid mine drainage Acidic run-off water from mine waste dumps and mill tailings ponds containing sulfide minerals. Can also occur naturally in groundwater. alluvial 1) Adjectively used to identify minerals deposited over time by moving water. 2) Used to describe a strata of material that constitutes a concession. ie: relating to the Brisas alluvial concession. This material is a unconsolidated or claylike material that overlays the hardrock concession andesite A volcanic or igneous rock of intermediate composition. It is fine grained and contains 55 to 60 percent silica. Archean An era in geologic time 3.4 billion years ago. assay The test performed on a rock sample to determine its mineral content auger hole Drilling with a bit that breaks rock into chips rather than core. This method is faster and cheaper than core drilling. The rock chips are forced to the surface for examination using water or compressed air bolivar The basic monetary unit of Venezuela. As of February 28, 1997, 483 bolivares were approximately equal to one U.S. Dollar. Brisas concession The mining title or right granted to the Company by the Venezuelan Ministry of Energy and Mines, through its Brisas subsidiary, to explore and commercially develop the gold contained in the alluvial material on a property located in the Kilometer 88 mining area of Bolivar State of southeastern Venezuela. Brisas Compania Aurifera Brisas del Cuyuni, C.A., a Venezuelan corporation and an indirect foreign subsidiary of the Company. Brisas is the holder of the Brisas concession. commercially mineable ore body A mineral deposit that contains ore reserves (see reserve) that can be profitably mined at current metal prices. concentrate A fine powdery product of the milling process, containing a high percentage of valuable metal. A concentrate is sent to a smelter for further processing. concession A privilege, license or mining title granted, in the case of the Company, by MEM, to explore and, if warranted, produce minerals from a specified property. core hole Drilling with a hollow bit which has a diamond-cutting rim to produce a cylindrical core that is used for geologic study and assays. Such drilling is used in exploration and development to determine the location, orientation and magnitude of a mineral deposit. Also referred to as Diamond Drilling
cut-off grade The lowest grade used to determine the size and content of a mineralized deposit. Also means the lowest grade of mineralized material deemed economic to mine in a commercial ore body. CVG Corporacion Venezolana de Guayana, a Venezuelan government-owned entity formed to explore and develop mineral resources in the Guayana region of Venezuela including Bolivar State. CVG owns 30% and Placer Dome, Inc. owns 70% of MINCA, a Venezuelan company which holds the Las Cristinas properties. cyanidation A method of extracting gold or silver from a crushed or ground ore by dissolving it in a weak cyanide solution. deposit A mineral deposit or mineralized material is an area which has been intersected by sufficient closely-spaced drill holes or underground sampling to support sufficient tonnage and average grade(s) of metal(s) to warrant further exploration or development activities. A deposit does not qualify as a commercially mineable ore body (reserves) under standards promulgated by the U.S. Securities and Exchange Commission until a final, comprehensive economic, technical and legal feasibility study based upon test results has been concluded. development drilling Drilling done to more accurately measure the quantity of minerals contained in a deposit after exploration drilling. development stage Activities related to the preparation of a deposit for extraction, prior to construction. environmental impact statement A report, compiled prior to a production decision that examines the effects that proposed mining activities will have on the natural surroundings exploration stage Activities such as drilling, bulk sampling, assaying and surveying related to the search for mineable deposits. feasibility study A report prepared to support a production decision on a proposed mining and milling operation. The study is an analysis and compilation of technical and economic data with the objective of proving the economic and technical feasibility of the project. flotation A process for concentrating minerals based on the selective adhesion of certain minerals to air bubbles in a mixture of water and ground up ore. When the right chemicals are added to a frothy water bath of ore that has been ground to the consistency of talcum powder, the minerals will float to the surface. The metal rich flotation concentrate is then skimmed off the surface. geophysical survey Methods of investigating the subsurface at or near the surface of the earth or airborne, using, the applications of physics including, electric, gravimetric, magnetic, electromagnetic, seismic, and radiometric.
GLDRV Gold Reserve de Venezuela, C.A., a Venezuela corporation and an indirect foreign subsidiary of the Company. GLDRV was organized in September 1992 to operate the Brisas concession. gold equivalent Gross value of copper at $1.00 per pound divided by the gross price of gold at $380 per ounce. grade A term used to assign a value to mineralization, such as grams or ounces per tonne. gravity separation Recovery of gold from crushed rock or gravel using gold s high specific gravity to separate it from the lighter material. Guayana Shield A geologic formation in central and eastern Venezuela comprised of Archean volcanics and intrusive rocks and, in the area of the Brisas concession, schists and deeply weathered and kaolinized rocks. hardrock tuffs Rocks that are classified as a volcanic sediment hardrock Solid rock underlying an alluvial deposit. Also referred to as bedrock. hectare A metric measurement of area equivalent to 10,000 square meters. igneous Rocks formed by the cooling and solidifying of magna or lava. in-fill drilling Similar to development drilling but closer spaced to increase the accuracy of the estimate of contained minerals and geologic parameters of the deposit. intrusive Rock which while molten penetrated into or between other rocks, but solidified before reaching the surface. KM 88 mining district An area in Bolivar State in southeastern Venezuela containing significant alluvial and hardrock mineralized deposits. The Company's Brisas concession is located in this district. magnetic surveying A mineral exploration technique which employs a magnetometer to measure the magnetic intensity of an area to determine possible mineralization. MEM The Venezuelan Ministry of Energy and Mines, which granted the Brisas concession and exercises supervisory jurisdiction over the concession, the pending application to the Brisas veta concession, and the Company's exploration and exploitation efforts on the Brisas property. metamorphism A classification of rock that has been altered by high temperature and/or pressure mill A processing plant where ore is crushed and ground, usually to fine powder, and the metals are extracted by physical and/or chemical means.
mineralization The presence of minerals in a specific area or geological formation. molybdenum An element, usually in the form of molybdenite, primarily used in alloys and lubricants. overburden Waste rock and other materials which must be removed from the surface in order to mine underlying mineralization. pit slope The angle of the walls of an open pit mine generally measured in degrees. Precambrian A period in geologic time dating more than 570 million years ago. production stage Activities related to the actual exploitation or extraction of a mineral deposit. prospect pit Small areas mined by local miners using primitive open pit mining methods usually only 5 to 15 meters in depth proterozoic volcanic flows Volcanic rocks from the Precambrian period that demonstrate flow or permanent deformation recovery rate The percentage of metals recovered in the mineral separation process. Recovery rates vary considerably depending on physical, metallurgical, and economic circumstances. reserves That part of a mineral deposit which could be economically and legally extracted or produced at the time of determination. Reserves are subcategorized as either proven (measured) reserves, for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, and grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and geologic character is so well defined that size, shape, depth and mineral content are well-established; or probable (indicated) reserves, for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, yet the sites for inspection, sampling and measurement are farther apart. saprolite Clay-rich intensely weathered bedrock of various colors formed under tropical to subtropical conditions. schists A strongly foliated crystalline rock which readily splits into sheets or slabs as a result of the planar alignment of the constituent crystals. shear zone A tabular zone of rock which has been crushed and fragmented by parallel fractures due to "shearing" along a fault or zone of weakness. Shear zones can be mineralized with ore-forming solutions. strip ratio The tonnage of non-mineralized waste material removed to allow the mining of one tonne of ore in an open pit. sulfides or sulfide bodies Compounds of sulphur with other metallic elements.
syenite Intrusive igneous rock of intermediate composition. It is a light colored coarse-grained rock and generally contains 55-65% silica. tailings The material removed from the milling circuit after separation of the valuable metals. trend The directional line of a hardrock or bedrock formation. veta Adjectively used to describe veins of mineralization and/or the deeper, hardrock deposit believed to underlie the Brisas concession. The Company has applied for a concession to explore and, if warranted, develop the veta deposit. volcaniclastic or volcanogenic Rock composed of clasts or pieces that are of volcanic rock composition.
CONVERSION FACTORS: 1 Troy Ounce = 31.1034 Grams 1 Tonne = 1.1023 Tons = 2204.6 Pounds 1 Hectare = 2.4711 Acres 1 Kilometer = 0.6214 Miles 1 Meter = 3.28084 Feet PART I Item 1. Business. --------- Gold Reserve Corporation is an exploration-stage mining company whose principal asset, the Brisas property, is located in the KM 88 mining region of Bolivar State in southeastern Venezuela. The Company acquired its interest in the Brisas property in 1992 and based on its exploration work, the Company believes the Brisas property contains a gold and copper mineralized deposit estimated at 6.4 million ounces of gold and approximately 800 million pounds of copper. The Company has not yet completed a feasibility study of the Brisas property and has not determined whether the deposit is commercially mineable. This feasibility study is expected to be completed in 1998. The Company was incorporated in Montana in 1956 for the purpose of acquiring, exploring and developing mining properties, and placing them into production. Its operations in Venezuela are conducted through subsidiary corporations. Unless the context indicates otherwise, the terms "Gold Reserve" or the "Company" used throughout this report refer to Gold Reserve Corporation and the following subsidiaries: Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas"); Gold Reserve de Venezuela, C.A. ("GLDRV"); Compania Minera Unicornio, C.A. ("Unicorn"); Great Basin Energies, Inc. ("Great Basin"); MegaGold Corporation ("MegaGold"); Gold Reserve de Aruba A.V.V. ("Gold Reserve Aruba"); G.L.D.R.V. Aruba A.V.V. ("GLDRV Aruba"); Glandon Company A.V.V. ("Glandon"); Stanco Investments A.V.V. ("Stanco"); GoldenLake A.V.V. ("GoldenLake"); Mont Ventoux A.V.V. ("Mont Ventoux") and Gold Reserve Holdings A.V.V. ("Gold Reserve Holdings"). The Company wholly owns all of these subsidiaries except Great Basin and MegaGold which are owned 58% and 63%, respectively. Unless the context indicates otherwise, the terms "Brisas property" or "Brisas mineralization" used throughout this report include: the Brisas alluvial gold concession, the application for the mining title to the gold, copper and molybdenum contained in the hardrock beneath the alluvial gold concession, other mineralization applied for in the alluvial and other mineralized areas applied for contiguous to the alluvial concession. Approximately 10% of the known mineralized deposit on the Brisas property is contained in the alluvial gold concession, the mining title or rights to which have been granted, and approximately 90% is contained in the hardrock beneath the alluvial concession, the rights to which are expected to be formally granted in 1997. During the year ended December 31, 1996, the Company expended approximately $7 million on the Brisas property. These expenditures consisted of approximately $6.8 million in capitalized development and exploration costs and $0.2 million for equipment. On a cumulative basis, the Company has expended approximately $51.5 million on the Brisas property. These costs include property acquisition costs of $2 million, capitalized development and exploration costs and equipment expenditures of $27 million (including Company stock valued at $9.8 million issued to purchase the minority interest in subsidiaries which owned the Venezuelan corporation holding the Brisas property) and litigation settlement costs of $22.5 million ($17.5 million of which was stock and warrants) which was expensed in 1994. Amounts recorded as property, plant and equipment (capitalized exploration and development costs) include all costs associated with the Brisas property, including personnel and related administrative expenditures incurred in Venezuela, drilling and related exploration costs, capitalized interest expense, legal costs associated with the Brisas ownership dispute settled in 1994 and general support costs related to the Brisas property. The Company has financed its general business and exploration and development activities on the Brisas property principally from the sale of common stock. The Company has raised approximately $68 million since 1992 from the sale of common stock, warrants to purchase common stock, and the exercise of previously issued warrants and options to purchase common stock. As of February 28, 1997, the Company held approximately $37.5 million in cash and cash equivalents along with $6.5 million in common shares of the Company which are held by several subsidiaries. The Company's exploration and development drilling to date indicates the Brisas mineralization is comprised of a northern area characterized as a gold copper deposit and a southern area characterized as primarily a gold deposit. In addition to these north/south areas, which are comprised of the main Pozo Azul zone and the Southwest zone, a number of other areas of mineralization interest have been identified, including the El Remo area and the southern part of the property where visible gold has been observed in drill core. The Brisas mineralization does not yet qualify as a commercially mineable ore body under standards promulgated by the U.S. Securities and Exchange Commission, and may so qualify only after a comprehensive, economic, technical and legal feasibility study has been completed. The Company has commenced the feasibility study, but has not established either proven or probable reserves (commercially mineable) on the Brisas property and no assurances can be given that such reserves will be established. A number of significant events need to occur before commercial production on the Brisas property could begin. These events include the completion of the feasibility study, financing of significant mine development costs, and the procurement of the hardrock mining title for gold, copper and molybdenum and all other necessary regulatory permits and approvals. As of February 28, 1997, the Company employed nine people in its Spokane office and approximately ninety-five people in Venezuela, of which approximately seventy-three are located at the Brisas property. The day-to-day activities of the Company's Venezuelan operations are managed from its offices in Caracas and Puerto Ordaz. The following table sets out, as of and for the years ended December 31, 1996, 1995 and 1994, identifiable assets attributable to the Company's operations in the United States and Venezuela, and net losses from United States and Venezuelan operations. Year Ended December 31, --------------------------- 1996 1995 1994 ------- ------- ------- (in thousands of dollars) Identifiable assets: United States $43,733 $29,721 $33,503 Venezuela 30,039 22,541 9,760 ------- ------- ------- Totals $73,772 $52,262 $43,263 ======= ======= ======= Net loss: United States $ 656 $ 182 $23,434 Venezuela 174 155 306 ------- ------- ------- Totals $ 830 $ 337 $23,740 ======= ======= ======= The Company is solely engaged in mining and continually evaluates other precious metal mining opportunities in Venezuela and throughout the world for possible acquisition or joint venture, and from time-to- time, engages in exploratory discussions regarding such opportunities. The Company does not at this time have any discussions underway regarding such transactions. The Company's growth strategy is to develop proven and probable reserves as well as mining and process operations by (i) the successful development of proven and probable reserves at its Brisas property, (ii) discovering new properties through its exploration program, (iii) entering joint ventures with advanced exploration properties and (iv) making selective property or corporate acquisitions. During 1996, Great Basin and MegaGold each completed common share private placements of approximately $1 million to various individuals, some of which are officers and directors of the Company, and to the Company which maintained its proportionate ownership interest in the two subsidiaries. The proceeds of the private placements were for working capital purposes to identify and possibly acquire income producing assets and or income producing businesses. To assist with future financings both companies are investigating the various requirements to list their shares on one or more stock exchanges; however, no assurances can be given that the companies will be able to qualify or meet the listing requirements. The principal executive offices of Gold Reserve are located at West 601 Riverside Avenue, Suite 1940, Seafirst Financial Center, Spokane, Washington 99201. Item 2. Properties. ----------- The Brisas Property ------------------- LOCATION. The Brisas property is in the KM 88 mining region of southeastern Venezuela in Bolivar State, approximately 300 kilometers (186 miles), by a paved highway southeast of Puerto Ordaz. The property, 2.5 kilometers (1.5 miles) west of KM 88 on Highway 10, occupies a rectangular area of 2,500 meters (1.5 miles north-south) by 2,000 meters (1.25 miles east-west) or approximately 500 hectares (1,235 acres) and is accessible by an all-weather dirt road. OWNERSHIP. The Company, through a wholly owned Venezuelan subsidiary, currently owns the mining title to the Brisas alluvial gold concession. The Venezuelan subsidiary has submitted applications for mining titles to the Ministry of Energy and Mines ("MEM") for other mineralization and areas identified as the Brisas property. In particular, the application for the mining title for gold, copper and molybdenum contained in the hardrock or veta (vein) beneath the near- surface alluvial gold concession was submitted to MEM in February 1993 and is currently in the final stages of granting by MEM. The Company believes it has met all of the requirements to obtain the hardrock mining title and is not aware of any fact or circumstance that would prevent MEM from granting the mining title to the Company. The process of obtaining a concession (mining title) in Venezuela is lengthy and bureaucratically complex and no assurances can be given that the Company will be granted the hardrock mining title in the near term. GEOLOGY. The general geology of the area includes thick sequences of Proterozoic volcanic flows, volcanoclastic sediments and various intrusives of the Guayanan Shield. These rocks were folded, sheared, faulted and metamorphosed during Proterozoic and later events. The prospect pits and mineralization on the Brisas property show a northeasterly regional trend. The mineralization found in the larger existing pits on the property has many geological characteristics similar to other large gold deposits in Precambrian rocks. The rocks identified on the Brisas property consist of two major types of materials--saprolite/clay-hosted surface material occurring in the upper several meters of the property and hard rock tuffs, andesite and volcanoclastics extending below the alluvial material at depth. Gold, copper and molybdenum mineralization are found in both materials, and the mineralization is open at depth. EXPLORATION AND DEVELOPMENT. Extensive exploration work has been on going on the property since 1992, including a regional geophysical survey which outlined the most altered and potentially mineralized areas in the KM 88 region. The most prospective area outlined from the survey encompassed the Brisas property and the Placer Dome/Corporacion Venezolana de Guayana (the "CVG") Las Cristinas property to the north. Placer Dome/CVG has announced a mineable reserve on its Las Cristinas property of more than 9 million ounces of gold. Exploration and development activities on the Brisas property include surface mapping, sampling and assaying, geochemical and metallurgical studies. These activities have confirmed that the mineralization is characterized by a large lower grade body with higher-grade mineralization in certain areas. The mineralization, approximately 1.7 kilometers (approximately one mile) in length and from 400 to 800 meters wide, is on strike and contiguous with the Placer Dome/CVG Las Cristinas deposit to the north. One of the most significant developments in 1996 was the extension of the Pozo Azul mineralized trend into the Southwest zone, where the Company drilled approximately 30 strongly mineralized holes. In total, the 1996 exploration program included more than 250 exploration and development drill holes totaling approximately 50,000 meters. Generally, drill spacing of the mineralized deposit is 50 meters throughout the significantly mineralized trend, with 25 meters in selected areas. Drilling for condemnation of waste areas is nearing completion on an approximate 300 meter spacing across the concession. On a cumulative basis, the Company has drilled approximately 550 core and auger drill-holes totaling over 100,000 meters. Recent pit slope stability testwork indicated the potential for allowable pit slopes up to 55 degrees. In addition, preliminary surface and subsurface hydrological test work indicate adequate work conditions with respect to groundwater flow. Environmental studies have been ongoing since the Company acquired the property in late 1992 and, using Venezuelan and North American based environmental consultants, the Company has been preparing studies and reports to support the various Environmental Impact Statements required for the property. The Company has an ongoing program to neutralize rainwater runoff to minimize acid drainage that occurs naturally due to the high sulfur content in the rock and has also been studying reforestation alternatives necessary upon completion of mining activities. The Company is committed to a sound environmental policy to protect the environment At the present time, conventional open pit mining is contemplated at the Brisas property and preliminary mill design and operating cost estimates are being developed from recent testwork. Initial scoping studies for the mill design are well advanced and currently the mill or recovery plant is estimated to be a simple gravity, flotation, and cyanidation facility with recovery rates for both copper and gold of 85%. The mill will produce gold bullion and gold/copper/molybdenum concentrate. The Company's preliminary estimate of capital costs associated with the Brisas property is approximately $150 million. The mill is expected to cost $120 million with an additional $30 million for ancillary facilities, mining equipment and working capital. Subsequent final metallurgical design criteria and final drill results, together with geotechnical, hydrological and environmental data, will be instrumental in the completion of the feasibility study. The major focus of the drilling has shifted to development and in-fill drilling related to a final feasibility study, although certain exploration drilling will continue and management expects to drill at least 100 more exploration, development and condemnation drill holes of at least 25,000 meters during 1997. A number of deep drill holes, up to 1000 meters, will also be completed in 1997. Approximately $8 million will be spent on the Brisas property which will include exploration and development drilling, permitting, administration and the necessary work required to complete the Brisas feasibility study. The feasibility study is expected to be finalized during the early part of 1998. Various permitting required for the Brisas property is ongoing and approval from MEM and the Ministry of Ambiente (Environment) is expected to occur throughout 1998. Detailed engineering work will commence after the receipt of the necessary operating and environmental permits. Management is hopeful that mine and plant construction can commence after the 1998 rainy season, usually lasting from May to July. Construction is estimated to take approximately 18 months, with commissioning and achievement of commercial production by the end of the second quarter of 2000. Final development of the Brisas property is contingent upon obtaining the mining title to the hardrock or veta area beneath the alluvial concession, results of future drilling, completion of a feasibility study and obtaining the appropriate environmental and operating permits. MINERALIZED DEPOSIT. The Company has to date announced a gold and copper deposit of 6.4 million ounces of gold and approximately 800 million pounds of copper. The Brisas mineralized deposit consists of 224 million tonnes grading 0.88 grams (0.028 ounces) per tonne gold and 0.16% copper. The Brisas alluvial gold concession contains 10% of the deposit and the hardrock area, for which a mining title has been applied, contains 90% of the deposit. The deposit is defined by approximately 480 holes (50x50 meter spacing with 25 meters in selected areas) and is approximately 1700 meters long and 400 to 800 meters wide. Drilling results indicate the Brisas mineralization is comprised of a northern area characterized as a gold/copper deposit and a southern area characterized as primarily a gold deposit as shown in the following table:
Copper Gold and Gold Equivalent Gold ---------------------------- ------------------------ Tonnes Ounces Pounds Gold Equiv. ozs Ounces Avg. Grade Area (millions) (millions) (millions) (millions) (millions) (gms/t) ----- ---------- ---------- ---------- --------------- ---------- ----------- North 126 2.75 685 1.8 4.55 1.12 (1) South 98 3.65 115 .3 3.95 1.16 (2) --- ---- --- --- ---- ---- Total 224 6.40 800 2.1 8.50 1.18 (1) === ==== === === ==== ====
(1) Gold Equivalent (.5 grams/tonne gold equivalent cutoff using $380/ ounce gold and $1/pound copper) (2) Gold Only (.5 grams/tonne gold cutoff) The Brisas mineralization does not yet qualify as a commercially mineable ore body under standards promulgated by the U.S. Securities and Exchange Commission and may so qualify only after a comprehensive economic, technical and legal feasibility study has been completed. As a result, the Company has not yet established either proven or probable reserves on the Brisas property and no assurance can be given that any such reserves will be established on the property. SIGNIFICANT ZONES or AREAS OF INTEREST. In addition to the north/south areas which comprise the Pozo Azul zone and the Southwest zone, a number of other areas of interest have been identified including the El Remo area and the southern part of the property where visible gold has been observed in drill core. Several other areas of exploration are currently being tested and condemnation drilling is also in progress in support of a future final feasibility study. VENEZUELAN MINING, ENVIRONMENTAL AND OTHER MATTERS. The Company's Venezuelan mining operations are subject to laws of title that differ substantially from those of the United States, and to various mining and environmental rules and regulations that are similar in purpose to those in the United States. The more significant of these laws, rules and regulations are summarized below. Current Venezuelan Mining Law. ------------------------------ The principal legislation governing the exploration and development of mineral resources in Venezuela is the Mining Law of 1945 and related regulations, administrative decrees and resolutions. The law governs every aspect of mineral exploration, evaluation and extraction throughout the country, and is administered by the MEM, through its Department of Mines. A chief distinction between the mining laws of Venezuela and those of the United States is the way in which mineral rights are owned and held. In Venezuela, all minerals other than those used in construction are initially owned by the government and can be explored and developed only by state-owned corporations or private entities that have applied for and obtained concessions or permits for such activities. Concessions may be granted for near-surface development (an alluvial concession), subsurface hardrock or vein development (a veta concession) or both. There are two types of concessions: The first, an exploration and exploitation concession, gives the holder up to two years to explore a property of a maximum of 5,000 hectares (12,355 acres), and the right to choose for exploitation 50% of the area granted in parcels of 500 hectares (1,235.5 acres) each; for that purpose a certificate of exploitation has to be granted by the MEM. The second, an exploitation concession, does not have an exploration period and has an established surface area of up to 500 hectares. Under an exploitation concession, a mining title is granted directly to the holder. In both kinds of concessions, the holders have, in the case of alluvial deposits, three years to initiate exploitation and, in the case of vein deposits, five years to initiate exploitation. During such period, concession holders must submit a technical and economical feasibility study for approval to the MEM within 18 months for alluvial deposits and within 36 months for vein deposits, each case determined from the date of grant of the mining title or of the certificate of exploitation. Concessions and certificates of exploitation are granted for rectangular lots not larger than 500 hectares (1,235.5 acres), and a single holder cannot be granted a total of more than 10,000 hectares (24,710 acres) of concessions relating to vein deposits and 20,000 hectares (49,420 acres) of concessions relating to alluvial deposits. Usually a concession granted relating to alluvial deposits constitutes a separate concession from a concession relating to the underlying vein deposits. Both concessions grant the holder 20 years to actually complete development of the concession, provided all specified requirements, including compliance with environmental laws, are met. This period can be extended for up to an additional 20 years, through two 10-year extensions, following which all rights to the concession, including improvements, revert to the Venezuelan government. Holders of concessions are required to report their activities to the Department of Mines and must submit to routine inspections by Department representatives to confirm compliance with the law. All exploration and development activities must be conducted in compliance with applicable mining law, and may be undertaken only by applicants who demonstrate technical and financial capability, undertake to manufacture or refine mined ores in Venezuela, submit to Venezuela's tax laws, agree to share their mining technology with the local mining industry and recognize the reversionary interests of the Venezuelan government in the concession. In addition, an applicant for a concession must agree to certain terms, known as "special advantages", including the amount of royalties or mining taxes to be paid and the extent to which bonds or sureties may be posted to guarantee performance of the applicant's obligations. An applicant may also be required to make certain improvements for the benefit of the concession property and the surrounding area, such as constructing and maintaining access roads, airstrips, schools and medical dispensaries, and must agree to train local employees in modern mining exploration and production techniques. Venezuela has historically relied on government-owned entities to explore and develop mineral resources, although this practice is diminishing as the government seeks to encourage private investment. In the Guayana region of the country including Bolivar State, for example, the regional Corporacion Venezolana de Guayana (the "CVG") and its various subsidiary state-owned companies were granted the exclusive right to explore, evaluate and mine diamond and gold resources not previously awarded as concessions by the MEM. To accomplish this, CVG granted mining contracts to private investors in the region and has engaged in joint venture or other arrangements with foreign and local companies. This right was revoked July 15, 1996. Although the Company's Brisas concession is located in the Guayana region, it was granted by the MEM and is not subject to exploration or development claims by the CVG. Gold Sales ---------- The Central Bank of Venezuela allows gold mining companies to sell 85% of their production on the international market, the remaining 15% must be sold to the Central Bank at current market price and paid in Venezuelan currency. Gold sold on the international market is levied a minimum mining tax of 3% of the market price, unless the Company agrees to a higher tax by special advantages established in the concession agreement, and the mining tax for gold sold to the Central Bank is 1% of the market price. Taxes ----- The Venezuelan tax law provides for a maximum corporate income tax rate for mining companies of 34% and allows for certain tax credits, wholesale tax exemption during the pre-operative period and exemptions from certain custom duties. Venezuela has experienced significant political and economic instability, high inflation, and shortages of foreign currency: POLITICAL AND ECONOMIC SITUATION. In May 1993, the Venezuelan Senate voted to authorize the impeachment of President Carlos Andres Perez. Subsequently, Rafael Caldera was elected president and took office in February 1994. Upon assuming the presidency, President Caldera was immediately faced with a solvency crisis in the banking system which necessitated a government takeover of nine financial institutions, including Banco Latino, one of the largest Venezuelan banks. Consequently, the bolivar devalued sharply, inflation rose and gross domestic product contracted, though Venezuela experienced positive growth for 1995 and 1996. On April 22, 1996, the Venezuelan government announced the lifting of controls on foreign exchange transactions, having announced the lifting of controls on interest rates one week earlier. The Venezuelan government also announced a $1.4 billion preliminary loan accord with the International Monetary Fund. Although these actions led to the devaluation of the bolivar and a rise in interest rates and are likely to lead to temporary increases in inflation, they are generally viewed as likely to have a positive effect in the long term. There can be no assurance, however, that such actions will be successful in resolving Venezuela's economic difficulties. INFLATION AND CURRENCY CONTROLS. Venezuela has experienced high levels of inflation over the past decade. These high rates of inflation led the Venezuelan government to devalue the bolivar by 41% on December 11, 1995. In July 1994, the Venezuelan government imposed a program of currency exchange controls that was lifted in April 1996. Since the devaluation in April 1996, the Venezuelan bolivar has been relatively stable within a trading range of 460 Bs. to 485 Bs. to the U.S. dollar, in spite of high levels of monthly inflation. The official inflation rate in Venezuela for the first nine months of 1996 was 83.7%, and the market consensus is that the inflation rate for the full year will be somewhat above 100%. The Venezuelan Government expects the inflation rate to decrease to 25% in 1997. Although the lifting of currency controls is expected to lead to increased economic stability in the long term, it is likely to lead to a temporary rise in inflation in Venezuela. Such conditions have not materially adversely affected the Company's operations in Venezuela to date as substantially all of the Company's sources of funding for its Venezuelan operations are denominated in U.S. dollars and the Company does not repatriate funds from Venezuela. Proposed Mining Law ------------------- For over eight years, the Venezuelan Congress has been evaluating various amendments to Venezuela's existing 1945 mining law. These amendments include, among other items: an easing of costly and time- consuming bureaucratic steps necessary to obtain a concession, coupled with the introduction of a new permitting system; expansion of the area that may be covered by a single exploration concession, and extension of the exploration period to up to seven years; extension of the concession exploitation period from a maximum of 40 years to a maximum of 50 years; a re-evaluation of the method and manner in which mining activities are taxed; granting concessionaires rights to substantially all mineralization contained in surface and deep (hardrock) material; a royalty on gold production of 2%, (1% if sold to the Venezuelan Central Bank) 2% value "at the mine pit" tax for copper and a bidding process for new concessions. The Venezuelan government, the MEM, industry representatives and congressional committees are currently debating the proposed changes to the mining law and there is no indication when or if any of the proposed changes will be adopted. The proposed amendments to the mining law are not expected to substantially affect existing concessions such as the Company's Brisas alluvial concession and hardrock concession under application, or the terms under which such concessions can be explored or developed. Environmental Laws and Regulations ---------------------------------- Venezuela's environmental laws and regulations are administered through the Ministry of the Environment and Renewable Natural Resources (Ambiente or Environment). Concession holders who seek to develop a mineral property must first obtain a permit granting them the right to occupy the territory for mining purposes and then submit a report outlining the environmental impact of the development and the rehabilitative or reconditioning work to be undertaken once development activities are concluded. The Ministry also prescribes certain mining recovery methods deemed harmful to the environment and monitors the concessionaire's activities to ensure compliance. The Company has presented an environmental audit of the alluvial concession and the first and second phase of an environmental impact study to the ministry (through its Brisas subsidiary), and will soon submit the third phase of the study. The Company also expects to submit an environmental impact statement to the Ministry addressing development and reclamation of the deeper mineralization which is beneath the Brisas concession when, and if, the Company's application for the veta concession is granted. Alternatively, the Company may amend the existing environmental study to include the effect of mining the deeper mineralization. Item 3. Legal Proceedings. ------------------ The Company had no pending litigation as of the date of this report. Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 1996. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ------------------------------------------------------------- MARKET INFORMATION. The common stock of the Company is traded on NASDAQ SmallCap Market under the symbol "GLDR" and on the Toronto Stock Exchange ("TSE"), under the symbol "GLR". The following table sets out the high and low prices per share for the common stock for 1996 and 1995, as reported by the TSE and NASDAQ. The prices reported reflect inter-dealer prices, without regard to retail mark-ups, mark- downs or commissions, and do not necessarily reflect actual transactions.
TSE NASDAQ ---------------------------------- ---------------------------------- 1996 1995 1996 1995 ---------------- ---------------- ---------------- ---------------- High Low High Low High Low High Low ------- ------- ------- ------- ------- ------- ------- ------- Canadian Dollars U.S. Dollars ---------------------------------- ---------------------------------- First Quarter $14.250 $ 7.375 $11.750 $ 7.000 $10.250 $ 5.750 $ 8.750 $ 5.000 Second Quarter 14.500 9.500 11.125 8.500 10.375 7.000 8.250 6.125 Third Quarter 21.700 10.000 11.750 7.375 15.750 7.375 8.844 5.250 Fourth Quarter 20.000 12.400 9.500 6.750 14.625 9.250 7.250 4.875
HOLDERS. The number of holders of common stock of record on February 28, 1997 was approximately 1,400. Based on recent mailings to its shareholders, the Company believes its common stock is owned beneficially by approximately 6,000 persons. DIVIDENDS. The Company has declared no cash or stock dividends on its common stock since 1984, and in the opinion of management of the Company, will declare cash dividends in the future only if the earnings and capital of the Company are sufficient to justify the payment of such dividends. Item 6. Selected Financial Data ----------------------- The consolidated financial data set forth below have been selected by the Company and should be read in conjunction with the Company's consolidated financial statements.
1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (in thousands of dollars, except share and per share amounts) Other income $ 1,489 $ 1,407 $ 1,396 $ 516 $ 215 Net loss (830) (337) (23,740) (2,844) (992) Loss per share of common stock (0.04) (0.02) (1.68) (0.28) (0.16) Total assets 73,772 52,262 43,263 13,907 6,110 Long-term debt (contract payable) -- -- -- 825 1,586 Shareholders' equity 67,193 47,073 37,900 11,792 3,774 Common stock: Issued 22,703,811 20,476,688 18,929,668 11,723,451 8,875,862 Outstanding (1) 22,222,767 19,995,644 18,577,175 11,429,291 8,581,702
(1) Great Basin, MegaGold and Stanco, each consolidated subsidiaries of the Company, own shares of the Company's common stock, representing an indirect investment in itself. The Company's proportionate ownership interest in the common stock held by these entities represents the difference between issued and outstanding shares. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ----------------------------------------------------------- SUMMARY. Over the last several years, the Company's main focus has been the exploration and development of its Brisas property located in Venezuela. All expenditures relating to exploration and development activities on the Brisas property have been capitalized and recorded on the Company's balance sheet as property, plant and equipment (capitalized exploration and development costs). As a consequence, the consolidated results of operations for the years presented consist of expenses related to activities other than the exploration and development of the Brisas property partially offset by interest income from invested funds. The Company has incurred losses in each of the last five years due to the lack of a revenue generating business activity, and in 1994 because of litigation, settlement costs relating to such litigation and the disposal of the Alfa concessions. Net losses of the Company will continue over the next few years as the result of increased expenditures associated with the corporate management of exploration and development activities relating to the Brisas property and other exploration expenses not associated with the Brisas property. Management believes the trend of net losses will reverse when gold and copper are produced from the Brisas property. A number of significant events must occur before commercial production of the Brisas property can begin: the completion of a bankable feasibility study, including the establishment of proven and probable reserves, the formal granting by the MEM of the mining title to the hardrock or veta area beneath the Company's Brisas alluvial gold concession, the procurement of all necessary regulatory permits and approvals from the Venezuelan government and the successful financing of the capital costs estimated to be required to place the Brisas property into production. Results of Operations --------------------- 1996 COMPARED TO 1995. The consolidated net loss for the year ended December 31, 1996 was $829,938 or $0.04 per share, an increase of approximately $493,000 from the prior year. Other income for 1996 amounted to $1,488,857, which is an increase of approximately $82,000 over the previous year and principally due to gains on the sale of investments partially offset by a decrease in interest income due to lower returns on invested cash. Operating expenses for the year amounted to $2,318,795, which is an increase from the prior year of approximately $575,000. The major components of the increase in operating expenses are increases in general and administrative of approximately $209,000, legal and accounting of approximately $211,000 and directors' and officers' compensation of approximately $172,000. The increase in general and administrative expense was primarily due to increases in compensation and related expenses. Legal and accounting expense increased due to the Company's ongoing securities compliance and reporting in the United States and Canada and compliance and permitting activities in Venezuela. Directors' and officers' compensation increased as a result of salary increases for officers and first time compensation paid to the directors. 1995 COMPARED TO 1994. Consolidated net loss for the year ended December 31, 1995 was $337,303 or $0.02 per share, a decrease of approximately $23,403,000 from the prior year. The year ended December 31, 1994 included one-time litigation settlement costs as well as costs associated with the disposal of subsidiaries. Other income for 1995 was $1,406,984, which is an increase of approximately $11,000 over the previous year. The increase in other income during 1995 was principally due to increases in interest income offset by lower foreign currency gains. Interest income increased approximately $518,000 during the year due to greater levels of and returns on invested cash and foreign currency gain decreased approximately $418,000 due to the increases in currency exchange rates in Venezuela. The Venezuelan exchange rate was set at 170 bolivares per U.S. dollar during most of 1995 and was increased to 290 in December 1995. Operating expenses for the year amounted to $1,744,287, which is a decrease from the prior year of approximately $191,000, excluding settlement costs and loss on disposal of consolidated subsidiary incurred in 1994. Major components of the change in operating expenses, exclusive of settlement costs and loss on disposal of consolidated subsidiary, are decreases in general and administrative of approximately $259,000 and legal and accounting of approximately $403,000, offset by an increase in directors' and officers' compensation of approximately $139,000 and a decrease in minority interest in net loss of consolidated subsidiaries of approximately $314,000. The decrease in general and administrative expenses was generally caused by the elimination of costs associated with Unicorn and its subsidiaries which operated the Alfa concessions. The Alfa concessions were disposed of in 1994. The decrease in legal and accounting expense is principally related to the settlement of the Brisas litigation. Directors' and officers' compensation increased as a result of salary adjustments in 1995 for officers. The principal change in minority interest in net loss of consolidated subsidiaries is the minority interest share of Unicorn's net loss from the Alfa concessions. Liquidity and Capital Resources. ------------------------------- INVESTING. During 1996, the Company was primarily engaged in exploration and development activities at the Brisas property which included development drilling in the Pozo Azul zone, and exploration drilling in the Southern part of the concession. More than 250 holes totaling over 50,000 meters were drilled in 1996. On a cumulative basis, the Company has drilled approximately 550 holes totaling 100,000 meters. Drill hole spacing has been completed on 50 meter spacing throughout the mineralized trend, with 25 meter spacing in selected areas. Recently, the Company announced a mineralized deposit consisting of 6.4 million ounces of gold and 800 million pounds of copper. The mineralization related to the alluvial gold concession is approximately 10% of the deposit and the remainder of the deposit is contained in the hardrock or veta area for which the Company has applied to MEM for the mining title, but has not been formally granted as of the date of this report. During the year ended December 31, 1996, the Company expended approximately $7 million on the Brisas property. These expenditures consisted of approximately $6.8 million in capitalized development and exploration costs and $0.2 million for equipment. On a cumulative basis since inception, the Company has expended approximately $51.5 million on the Brisas property. These costs include property acquisition costs of $2 million, capitalized development and exploration costs and equipment expenditures of $27 million (including Company stock valued at $9.8 million issued to purchase the minority interest in subsidiaries which owned the Venezuelan corporation holding the Brisas property) and litigation settlement costs of $22.5 million ($17.5 million of which was stock and warrants) which was expensed in 1994. Amounts recorded as property, plant and equipment (capitalized exploration and development costs) include all costs associated with the Brisas property, including personnel and related administrative expenditures incurred in Venezuela, drilling and related exploration costs, capitalized interest expenses, legal costs associated with the Brisas ownership dispute settled in 1994 and general support costs related to the Brisas property. The overall corporate budget for 1997 amounts to $10 million. Approximately $8 million will be spent on the Brisas property which will include exploration and development drilling, permitting, administration and the necessary work required to complete the Brisas feasibility study. The feasibility study is expected to be finalized during early 1998. Various permitting required for the Brisas property is ongoing and approvals from MEM and the Ministry of Ambiente (Environment) are expected to occur throughout 1998. Detailed engineering work will commence after the receipt of the necessary operating and environmental permits. Management is hopeful that mine and plant construction can commence after the 1998 rainy season, usually lasting from May to July. Construction, if commenced, is estimated to take approximately 18 months, with commissioning and achievement of commercial production by the end of the second quarter of 2000. The Company's preliminary estimate of capital costs associated with the Brisas project is approximately $150 million. The plant is expected to cost approximately $120 million with an additional $30 million estimated for ancillary facilities, mining equipment and working capital. The recovery plant is currently estimated to be a conventional, gravity/flotation/cyanidation process with recovery rates for both gold and copper of 85%. Mining is to be completed utilizing open-pit mining methods. Final development of the Brisas property is contingent upon obtaining the mining title to the hardrock or veta area beneath the Brisas alluvial gold concession, results of future drilling, completion of a bankable feasibility study including the establishment of proven and probable reserves and obtaining the appropriate environmental and operating permits. FINANCING. The Company has financed its general business and exploration and development activities in Venezuela principally from the sale of common stock and has raised approximately $68 million in equity financing, since 1992, to support its overall business activities. These transactions consisted of the sale of additional shares of common stock, or warrants to purchase common stock, and the exercise of previously issued warrants and options to purchase common stock. Management anticipates that the Company will require additional financing in order to place the Brisas property into production which is estimated to be as much as $150 million for the construction of the recovery plant, ancillary facilities and equipment, related development costs and working capital. Future acquisition costs and exploration expenses, and the cost of placing the Brisas property or additional future properties into production, if warranted, are expected to be financed by a combination of the sale of additional common stock, bank borrowings or other means. The Company routinely evaluates the market for the Company's common stock and other appropriate conditions for the possible sale of common stock to finance its future activities and from time-to-time the Company reviews potential financing activities with its investment bankers. The Company has no current plans to issue additional common shares other than in connection with the exercise of employee common stock options but, may determine that market conditions for its common shares are appropriate and as a result issue additional common shares during the next twelve months. As of February 28, 1997, the Company held approximately $37.5 million in cash and cash equivalents. Whether and to what extent additional or alternative financing options are pursued by the Company depends on a number of important factors, including the results of further exploration and development activities on the Brisas property, whether the Company obtains the mining title or concession to the hardrock or veta mineralization located beneath the Brisas alluvial concession, management's assessment of the financial markets, the acquisition of additional properties or projects and the overall capital requirements of the consolidated corporate group. At this time, management anticipates that its current cash and investment position are adequate to cover estimated operational and capital expenditures associated with the 1997 exploration and development program related to the Brisas property. Forward Looking Statements -------------------------- Except for the historical information contained herein, certain of the matters discussed in this annual report are "forward-looking statements." When used in this report, the words budget, budgeted, anticipate, expect, believes, goals or projects and similar expressions are intended to identify forward-looking statements. In accordance with the provisions of the Private Securities Litigation Reform Act of 1995, the Company cautions that important factors could cause actual results to differ materially from those in the forward - looking statements. Such factors include the Company's concentration of operations and assets other than cash and investments in Venezuela, regulatory risks (such as obtaining the veta or hardrock concession or obtaining approval of environmental compliance plans), the political and economic risks associated with international operations, the anticipated future development costs for the Company's Brisas property, the risk that actual reserve estimates may vary considerably from mineralized deposit estimates presently made, the impact of metals prices and metal production volatility, the dependence upon the abilities and continued participation of certain key employees of the Company, and the risks normally incident to the operation and development of mining properties. All of the Company's mining operations are presently concentrated in Venezuela. In addition, at December 31, 1996 approximately 40% of the Company identifiable assets (90% of its noncash assets) were located in Venezuela. Such operations and investments could be adversely affected by exchange controls, currency fluctuations, taxation and laws or policies of Venezuela and the United States affecting trade, investment and taxation. In addition, Venezuela has adopted environmental laws and regulations for the mining industry which impose significant obligations on companies doing business in the country. An application for the hardrock (veta) concession covering the mineralization beneath the near-surface alluvial mineralization was submitted in February 1993 and initially approved by the Ministry of Energy and Mines ("MEM") in March 1995. Since then management has completed a number of procedural steps related to the final issuance of the concession. Management is not aware of any fact or circumstance that would prevent the MEM from granting the hardrock (veta) concession to the Company. The process of obtaining a concession in Venezuela is lengthy and bureaucratically complex, and no assurance can be given that the Company will be successful in obtaining a concession to this mineralized deposit in the near term. The Company has no revenue from mining operations and has experienced losses from operations for each of the last five years. This trend is expected to continue for at least the next two to three years as the result of increased expenditures associated with the corporate management of exploration and development activities related to the Brisas property and other properties, and is expected to reverse only when gold and copper production commences from the Brisas property. Based upon currently available information, the Company estimates that it will be required to expend approximately $150 million in order to place the project into production, should it elect to do so. These expenditures are expected to be funded from additional sales of common stock of the Company, bank borrowings or other means, and no assurance can be given that such funding can or will be obtained. Alternatively, the Company may determine that it is in the best interest of its shareholders to sell its rights to the Brisas property to another mining company or to enter into a joint development or similar arrangement with another mining company to develop the property. No assurance can be given that any such sale or arrangement would yield benefits to the Company commensurate with those that could be obtained were the Company to develop and place the Brisas property into production. The Company is subject to all of the risks inherent in the mining industry, including environmental hazards, industrial accidents, labor disputes and periodic interruptions due to inclement weather. Although the Company maintains or can be expected to maintain insurance within ranges of coverage consistent with industry practice, no assurance can be given that such insurance will be available at economically feasible premiums. Insurance against environmental risks (including pollution or other hazards resulting from the disposal of waste products generated from exploration and production activities) is not generally available to the Company or other companies in the mining industry. Were the Company to be subjected to environmental liabilities, the payment of such liabilities would reduce the working capital available to the Company and if it were unable to fund the cost of remedying an environmental problem, it might be required to suspend operations or enter into interim compliance measures pending completion of remedial activities. The Company's future operations may be significantly influenced by the prices of gold and copper. Gold prices fluctuate widely and are affected by numerous factors beyond the Company's control, such as inflation, the strength of the United States dollar and foreign currencies, global and regional demand, and the political and economic conditions of major gold producing countries throughout the world. Copper prices also fluctuate and are generally affected by global and regional demand and existing inventories. The Company believes, based on engineering and geological studies which have been completed, that significant reserves may exist on the Brisas property, although no independent reserve reports or evaluations have been prepared. The Company has not yet established proven and/or probable reserves on the Brisas property and no assurance can be given that any reserves will be established on the Brisas property. Item 8. Financial Statements and Supplementary Data ------------------------------------------- Index to Consolidated Financial Statements Report of Independent Accountants Consolidated Balance Sheets December 31, 1996 and 1995 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ----------------------------------------------------------- There were no changes in or disagreements with accountants on accounting or financial disclosures during the year ended December 31, 1996. REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders Gold Reserve Corporation We have audited the accompanying consolidated balance sheets of Gold Reserve Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gold Reserve Corporation and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2, the Company changed its method of accounting for the impairment of long-lived assets in 1996 and investments in 1994. /s/ Coopers & Lybrand L.L.P. Spokane, Washington February 26, 1997 GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 1996 1995 ----------- ----------- ASSETS Cash and cash equivalents $30,329,024 $10,095,616 Investments: Held-to-maturity securities, at amortized cost 8,442,492 10,630,963 Accrued interest on investments 143,580 101,793 Deposits, advances and other 528,458 520,599 Litigation settlement held in escrow 4,500,000 4,500,000 ----------- ----------- Total current assets 43,943,554 25,848,971 Property, plant and equipment, net 29,097,305 22,065,868 Investments: Available-for-sale securities 119,504 215,364 Held-to-maturity securities, at amortized cost - 4,000,000 Other 611,204 131,504 ----------- ----------- Total assets $73,771,567 $52,261,707 =========== =========== GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONTINUED December 31, 1996 and 1995 1996 1995 ----------- ----------- LIABILITIES Current Liabilities: Litigation settlement payable $ 4,500,000 $ 4,500,000 Accounts payable and accrued expenses 938,892 262,219 Note payable-KSOP, current portion 186,708 149,960 ----------- ----------- Total current liabilities 5,625,600 4,912,179 Note payable-KSOP, non-current portion - 186,749 Minority interest in consolidated subsidiaries 952,571 90,160 ----------- ----------- Total liabilities 6,578,171 5,189,088 ----------- ----------- Commitments and contingencies - - SHAREHOLDERS' EQUITY Shareholders' Equity: Serial preferred stock, without par value Authorized: 10,000,000 shares Issued: None Common stock, without par value Authorized: 40,000,000 shares Issued: 1996... 22,703,811; 1995... 20,476,688 Outstanding: 1996... 22,222,767; 1995... 19,995,644 100,952,778 80,068,854 Less, common stock held by affiliates (1,428,565) (1,428,565) Unrealized gain on available-for- sale securities 2,750 85,960 Accumulated deficit (32,146,859) (31,316,921) KSOP debt guarantee (186,708) (336,709) ----------- ----------- Total shareholders' equity 67,193,396 47,072,619 ----------- ----------- Total liabilities and share- holders' equity $73,771,567 $52,261,707 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------ ------------ ------------ Other Income: Interest income $ 1,477,955 $ 1,548,998 $ 1,031,206 Foreign currency (loss) gain (135,509) (130,244) 288,628 Net gain (loss) on investments 111,286 (11,770) 61,635 Miscellaneous 35,125 - 14,210 ------------ ------------ ------------ 1,488,857 1,406,984 1,395,679 Expenses: General and administrative 1,170,329 961,829 1,220,740 Directors' and officers' compensation 637,825 465,684 327,005 Legal and accounting 499,700 288,371 691,140 Depreciation 38,831 28,549 15,751 Interest, net of amount capitalized 11,841 8,214 3,318 Minority interest in net loss of consolidated subsidiaries (39,731) (8,360) (322,348) Loss on disposal of consolidated subsidiary - - 688,051 Litigation settlement - - 22,512,500 ------------ ------------ ------------ 2,318,795 1,744,287 25,136,157 ------------ ------------ ------------ Net loss $ (829,938) $ (337,303) $(23,740,478) ============ ============ ============ Net loss per share $ (0.04) $ (0.02) $ (1.68) ============ ============ ============ Weighted average common shares outstanding 20,841,025 19,415,805 14,102,646 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 1996, 1995 and 1994
Common Stock Issued Common Stock Unrealized Gain ------------------------- Accumulated Issued to on Available-for- Shares Amount Deficit Affiliates Sale Securities ---------- ------------ ------------ ------------ ----------------- Balance, December 31, 1993 11,723,451 $ 19,147,345 $ (7,239,140) $ (70,944) Effect of change in accounting for investments $ 108,425 Net loss (23,740,478) Common stock issued: Services 6,000 33,000 Litigation settlement 2,750,000 16,912,500 Cash 2,020,000 19,754,290 Options and warrants 2,430,217 13,650,244 Value attributed to issuance of warrants 800,000 Decrease in unrealized gain on available-for-sale securities (29,408) Increase in common stock held by consolidated subsidiaries (433,332) Reduction of shareholders' equity associated with change in subsidiaries' minority interest (843,986) ---------- ------------ ------------ ------------ ------------ Balance, December 31, 1994 18,929,668 69,453,393 (30,979,618) (504,276) 79,017 Net loss (337,303) Common stock issued: Cash 50,000 280,195 Options 167,835 460,162 Exchange for minority interest of subsidiaries 1,329,185 9,882,028 Increase in common stock held by consolidated subsidiaries (924,289) Increase in unrealized gain on available-for-sale securities 6,943 Reduction of shareholders' equity associated with change in subsidiaries' minority interest (6,924) ---------- ------------ ------------ ------------ ------------ Balance, December 31, 1995 20,476,688 80,068,854 (31,316,921) (1,428,565) 85,960
GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, CONTINUED For the Years Ended December 31, 1996, 1995 and 1994
Common Stock Issued Common Stock Unrealized Gain ------------------------- Accumulated Issued to on Available-for- Shares Amount Deficit Affiliates Sale Securities ---------- ------------ ------------ ------------ ----------------- Balance, December 31, 1995 20,476,688 80,068,854 (31,316,921) (1,428,565) 85,960 Net loss (829,938) Common stock issued: Cash 1,729,500 18,202,500 Options 497,623 2,673,988 Decrease in unrealized gain on available-for-sale securities (83,210) Addition to shareholders' equity associated with change in subsidiaries' minority interest 7,436 ---------- ------------ ------------ ------------ ------------ Balance, December 31, 1996 22,703,811 $100,952,778 $(32,146,859) $ (1,148,565) $ 2,750 ========== ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------ ------------ ------------ Cash Flow from Operating Activities: Net loss $ (829,938) $ (337,303) $(23,740,478) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 38,831 28,549 15,751 Accretion of discount on held- to-maturity securities (339,581) (765,451) - Foreign currency loss (gain) 135,509 130,244 (308,711) Minority interest in net loss of consolidated subsidiaries (39,731) (8,360) (322,348) Net loss (gain) on disposition and revaluation of equity securities (111,286) 11,770 (61,635) Loss on disposal of consolidated subsidiary - - 688,051 Common stock issued for services/ expenses - - 33,000 Loss on disposal of equipment - - 25,909 Common stock and warrants issued for litigation settlement - - 17,712,500 Changes in current assets and liabilities: Net increase in current assets (49,646) (4,368,656) (412,308) Net (decrease) increase in current liabilities 676,673 (310,494) 4,656,881 ------------ ------------ ------------ Net cash used by operating activities (519,169) (5,619,701) (1,713,388) ------------ ------------ ------------ Cash Flow from Investing Activities: Purchase of held-to-maturity securities (17,396,948) (20,609,690) (32,022,160) Purchase of property, plant and equipment (7,205,777) (3,807,683) (5,034,437) Proceeds from maturity of held-to- maturity securities 23,925,000 32,824,000 5,942,338 Net cash acquired from increased investment in majority owned, consolidated subsidiaries 909,578 - - Proceeds from sale of available-for- sale securities 123,936 - 75,769 Other (479,700) (107,438) (1,512) ------------ ------------ ------------ Net cash provided (used) by investing activities (123,911) 8,299,189 (31,040,002) ------------ ------------ ------------ GOLD RESERVE CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994 ------------ ------------ ------------ Cash Flow from Financing Activities: Proceeds from issuance of common shares 20,876,488 740,357 33,404,534 Payments on contract payable - - (742,085) ------------ ------------ ------------ Net cash provided by financing activities 20,876,488 740,357 32,662,449 ------------ ------------ ------------ Change in Cash and Cash Equivalents: Net increase (decrease) in cash and cash equivalents 20,233,408 3,419,845 (90,941) Cash and cash equivalents - beginning of year 10,095,616 6,675,771 6,766,712 ------------ ------------ ------------ Cash and cash equivalents - end of year $ 30,329,024 $ 10,095,616 $ 6,675,771 ============ ============ ============ Supplemental cash flow information Cash paid during the year for: Interest, net of amount capitalized $ 11,841 $ 10,202 $ 3,318 Other non-cash activities: Issuance of common shares for minority interest in subsidiaries - $ 9,882,028 -
The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE CORPORATION and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: THE COMPANY. The Company was incorporated in Montana in 1956 for the purpose of acquiring, exploring and developing mining properties and placing these properties into production. The Company's principal activity is the development and further exploration of the Brisas property in Venezuela. CONSOLIDATION. The consolidated financial statements include the accounts of the Company, three Venezuelan subsidiaries, Gold Reserve de Venezuela, C.A. (GLDRV), Compania Aurifera Brisas del Cuyuni, C.A. (Brisas), Compania Minera Unicornio, C.A. (Unicorn), two domestic majority-owned subsidiaries, Great Basin Energies, Inc. (Great Basin) and MegaGold Corporation (MegaGold) and seven Aruban subsidiaries which were formed to hold the Company's interest in its foreign subsidiaries or for future transactions. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's policy is to consolidate those subsidiaries where majority control exists and control is other than temporary. CASH AND CASH EQUIVALENTS. The Company considers short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. At December 31, 1996, the Company had certificates of deposits totaling $186,708 pledged as security for bank loans related to the Gold Reserve KSOP Plan (see Note 4). At December 31, 1996, the Company had $6.9 million in U.S. banks in excess of federally insured limits and had $635,000 in Venezuelan and Aruban banks. INVESTMENTS. Investments classified as available-for-sale are carried at quoted market value. Unrealized gains and losses are recorded as a component of shareholders' equity. Investments classified as held-to-maturity are carried at amortized cost. Realized gains and losses on the sale of investments are recorded based upon specific identification. EXPLORATION AND DEVELOPMENT COSTS. Exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Exploration costs of properties or working interests with specific areas of potential mineralization are capitalized pending the determination of a property's economic viability. Development costs of proven mining properties not yet producing are capitalized and classified as property, plant and equipment. Upon commencement of production, capitalized exploration and development costs will be amortized based on the estimated proven and probable ore reserves benefited. Deferred exploration and development costs of unsuccessful projects are expensed. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are recorded at the lower of cost or estimated net realizable value. Replacements and major improvements are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Depreciation is provided using straight-line and accelerated methods over the lesser of the useful life or lease term of the related asset. During the exploration and development phase, depreciation of mining assets is capitalized. Interest costs incurred during the construction and development of qualifying assets are capitalized. During 1994, approximately $218,000 of interest was capitalized. In March 1995, Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was issued. The Statement prescribes the accounting treatment for the recognition and measurement of impaired long-lived assets. The Statement requires a review for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the expected future net cash flows to be generated from the use or disposition of a long-lived asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss should be recognized. There was no financial statement impact as a result of adopting the provisions of SFAS No. 121 as required on January 1, 1996. FOREIGN CURRENCY. The Company's Venezuelan subsidiaries operate in a highly inflationary economy. As a result, non-monetary assets and liabilities are translated at historical rates, while monetary assets and liabilities are translated at current rates, with the resulting foreign currency translation gains and losses included in operations. Gains and losses from foreign currency transactions are also included in the results of operations. ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Substantially all of the Company's investment in property, plant and equipment represents amounts invested in the Brisas property. Management's capitalization of exploration and development costs and assumptions regarding the future recoverability of such costs is subject to the risks and uncertainties of developing a NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: mineable ore reserve on the Brisas property which is based on engineering and geological estimates including gold and copper prices, estimated plant construction costs and operating costs and the procurement of all necessary regulatory permits and approvals, including the hardrock (veta) rights to the property. These estimates could change in the future and this could affect the carrying value and the ultimate recoverability of the amounts recorded as property, mineral rights and capitalized exploration and development costs. Inflation and other economic conditions Venezuela have resulted in political and social turmoil on occasion, which can be expected to continue. Such conditions have not materially adversely affected the Company's operations in Venezuela to date. Whether and to what extent current or future economic, regulatory or political conditions may materially adversely affect the Company's financial position in the future cannot be predicted. NET LOSS PER SHARE. Net loss per share is based on the weighted average number of common shares outstanding during each year, which has been reduced by the Company's proportionate ownership of common shares owned by Great Basin, MegaGold and Stanco Investments, A.V.V. (Stanco). Common stock equivalents are anti- dilutive and therefore have been excluded from the computation. RECLASSIFICATIONS. Certain reclassifications of the 1995 and 1994 consolidated financial statement balances have been made to conform with the 1996 presentation. These reclassifications had no effect on the net loss or accumulated deficit as previously reported. 2. INVESTMENTS: The Company accounts for its investments in equity securities as available-for-sale securities, and its investments in government- backed bonds as held-to-maturity securities according to the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which was adopted by the Company January 1, 1994. The effect of applying this new standard was to increase shareholders' equity by $108,425. There was no income tax effect on the unrealized gain. Held-to-maturity securities consist NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. INVESTMENTS, CONTINUED: primarily of U.S. Treasury bonds which are recorded at amortized cost. The bonds outstanding at December 31, 1996 mature in 1997.
Held-to-Maturity Securities ----------------------------------------------------------- Amortized Cost/ Unrealized Unrealized Quoted Carrying Value Gain Loss Market Value --------------- ----------- ----------- ------------ December 31, 1996: Government backed bonds $ 8,442,492 $ 2,629 $ (5,686) $ 8,439,435 =========== =========== =========== =========== December 31, 1995: Government backed bonds $14,630,963 $ 39,401 $ (1,879) $14,668,485 =========== =========== =========== =========== Available-for-Sale Securities ----------------------------------------------------------- Carrying/ Unrealized Unrealized Quoted Cost Gain Loss Market Value --------------- ----------- ----------- ------------ December 31, 1996: Gold Reserve Corporation $ 220,318 $ 6,409,956 $ - $ 6,630,274 Less, ownership by the Company (1) (128,564) (6,409,956) - (6,538,520) ----------- ----------- ----------- ----------- 91,754 - - 91,754 Other equity securities 25,000 2,750 - 27,750 ----------- ----------- ----------- ----------- $ 116,754 $ 2,750 $ - $ 119,504 =========== =========== =========== =========== December 31, 1995: Gold Reserve Corporation $ 220,318 $ 3,683,310 $ - $ 3,903,628 Less, ownership by the Company (1) (128,564) (3,683,310) - (3,811,874) ----------- ----------- ----------- ----------- 91,754 - - 91,754 Other equity securities 37,650 85,960 - 123,610 ----------- ----------- ----------- ----------- $ 129,404 $ 85,960 $ - $ 215,364 =========== =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. INVESTMENTS, CONTINUED: (1) The Gold Reserve Corporation shares above are owned by the Company's subsidiaries, Great Basin, MegaGold and Stanco. The Company's effective ownership of its own stock through its subsidiaries is deducted from the above number of shares held and recorded as a reduction of common stock outstanding on the balance sheets. These shares are carried at cost. 3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment as of December 31, 1996 and 1995 consisted of the following: 1996 1995 ----------- ----------- Domestic Furniture and office equipment $ 217,860 $ 184,271 Transportation equipment 162,000 162,000 Leasehold improvements 11,174 - ----------- ----------- 391,034 346,271 Less accumulated depreciation (137,719) (98,888) ----------- ----------- 253,315 247,383 ----------- ----------- Foreign Property and mineral rights 11,002,335 11,002,335 Capitalized exploration and development costs 17,326,751 10,247,988 Buildings 86,989 86,989 Furniture and fixtures 346,996 295,323 Transportation equipment 255,119 225,832 Machinery and equipment 289,874 286,463 ----------- ----------- 29,308,064 22,144,930 Less accumulated depreciation (464,074) (326,445) ----------- ----------- 28,843,990 21,818,485 ----------- ----------- Total $29,097,305 $22,065,868 =========== =========== In June 1995, the Company issued 1,329,185 common shares valued at $9.8 million in exchange for shares, other than shares held by the Company, of Gold Reserve Aruba and Glandon Company which hold the Company's interest in its Venezuelan subsidiaries. The fair value of the common shares issued to acquire the minority interests was recorded as additional property and mineral rights costs associated with the Brisas property. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. EMPLOYEE BENEFIT KSOP PLAN: The Company's KSOP Plan, adopted in 1990 for the benefit of its employees, is comprised of two parts, (1) a salary reduction component, or 401(k), and (2) an employee stock ownership component, or ESOP. The salary reduction component has not, to date, been utilized by any participant. On a cumulative basis, the KSOP Plan has purchased 323,571 common shares of the Company since inception of which 34,736 remain unallocated to plan participants as of December 31, 1996. Common stock purchases by the KSOP Plan are financed by a bank loan at 7.24 percent interest and due in March 1997. The loans are guaranteed by the Company and accordingly are recorded as a reduction to shareholders' equity. Allocation of common shares to participants' accounts is based on contributions by the Company, up to a maximum of 25 percent of the participants' annual compensation or $30,000, whichever is less, divided by the original purchase price of the common shares. The Company contributed $150,000, $92,247, and $20,000 to the KSOP plan in 1996, 1995 and 1994, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. STOCK OPTION PLANS: The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) on January 1, 1996. Pursuant to the provisions of SFAS No. 123, the Company continues to measure compensation cost for stock-based employee compensation plans using the intrinsic value method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" and provides pro forma disclosure of compensation expense related to stock-based plans using the fair value based method of accounting as shown below. The Company's only active plan (the 1994 Option Plan) allows for the granting of up to 2,000,000 common share purchase options, which may be granted to officers, directors, and key individuals for terms of up to ten years. The vesting period of options ranges from immediately to up to three years. Stock option transactions for the last three years are as follows:
1996 1995 1994 ------------------- ------------------- ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- --------- -------- --------- -------- Options outstand- ing, begin- ning of year 1,636,793 $ 5.31 964,628 $ 3.91 979,963 $ 3.57 Options exercised (496,623) 5.44 (167,835) 2.78 (295,967) 2.32 Options canceled (136,178) 7.51 (118,334) 7.07 (237,968) 11.25 Options granted 958,100 8.41 958,334 6.50 518,600 7.01 --------- ------ --------- ------ --------- ------ Options oustand- ing, end of year 1,962,092 $ 6.64 1,636,793 $ 5.31 964,628 $ 3.91 --------- ====== --------- ====== --------- ====== Options exercisable at end of year 1,460,406 1,044,053 721,323 ========= ========= =========
Price Range Price Range Price Range ------------ ------------ ------------ Option price at end of year $1.09-$14.69 $1.09-$8.19 $1.00-$6.00 Option price for exercisable shares $1.09-$13.51 $1.09-$7.06 $1.06-$6.00 Weighted-average fair value of options granted during the year $3.45 $2.61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. STOCK OPTION PLANS, CONTINUED:
Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------------ Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding at Contractual Exercise Price at Exercisable at Exercise Price at Exercise Prices December 31, 1996 Life December 31, 1996 December 31, 1996 December 31, 1996 ---------------------- ----------------- ----------- ----------------- ----------------- ----------------- $1.0900 to 1.2400 222,852 5.66 years $ 1.1425 222,852 $ 1.1425 3.3750 to 5.0800 12,680 6.44 years 4.8745 12,680 4.8745 5.3750 to 5.3750 258,835 8.97 years 5.3750 117,584 5.3750 5.5000 to 5.5000 34,662 8.12 years 5.5000 20,328 5.5000 5.6250 to 5.6250 435,000 9.01 years 5.6250 435,000 5.6250 6.0000 to 7.0600 194,061 7.29 years 6.1459 194,061 6.1459 7.0630 to 7.0630 392,500 8.05 years 7.0630 342,500 7.0630 7.2810 to 11.6000 222,902 9.56 years 9.3388 53,401 8.7467 13.5100 to 13.5100 114,500 9.75 years 13.5100 62,000 13.5100 14.6900 to 14.6900 74,100 9.73 years 14.6900 0 0.0000 ---------- ---------- -------- --------- -------- $1.0900 to 14.6900 1,962,092 8.36 years $ 6.6394 1,460,406 $ 5.7679 ========== ========== ======== ========= ========
Had compensation cost for the Company's option plan been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts indicated below: 1996 1995 ----------- ----------- Net loss - as reported $ (829,938) $ (337,303) Net loss - pro forma $(3,421,234) $(1,766,405) Net loss per share - as reported $ (0.04) $ (0.02) Net loss per share - pro forma $ (0.16) $ (0.09) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. STOCK OPTION PLANS, CONTINUED: The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995: expected volatility of 40%; risk-free interest rates of 5.92% to 6.16%; no dividends, and expected lives of 4 to 7 years. 6. RELATED PARTY TRANSACTIONS: COMMON STOCK ISSUED. During 1994, the Company issued 6,000 shares, valued at $33,000 for services provided to the Company by certain employees. MEGAGOLD. The President, Executive Vice President and Vice President-Finance of the Company are also officers and directors of MegaGold. At December 31, 1996 and 1995, the Company owned 23,304,174 and 7,592,226 common shares, respectively, of MegaGold and MegaGold owned 125,083 common shares of the Company. In addition, MegaGold owned 280,000 common shares of Great Basin at December 31, 1996 and 1995. During 1996, MegaGold sold additional common shares to various individuals as well to the Company, which maintained its proportionate interest in the two subsidiaries. The Company performs various administrative functions and sublets a portion of its office space to MegaGold for $1,200 per year. GREAT BASIN. The President, Executive Vice President and Vice President-Finance of the Company are also officers and directors of Great Basin. At December 31, 1996 and 1995, the Company owned 24,210,636 and 15,177,400 common shares, respectively, of Great Basin and Great Basin owned 391,161 common shares of the Company. Great Basin also owned 170,800 common shares of MegaGold at December 31, 1996 and 1995. During 1996, Great Basin sold additional common shares to various individuals as well to the Company, which maintained its proportionate interest in the two subsidiaries. The Company performs various administrative functions and sublets a portion of its office space to Great Basin for $1,200 per year. LEGAL FEES PAID TO DIRECTOR'S FIRM. One of the Company's directors also serves as Canadian legal counsel for the Company. During 1996, 1995 and 1994, the Company incurred expenses of approximately $149,000, $60,000 and $440,000 respectively, for legal services performed by the director's firm, in which he is Chairman and a partner. At December 31, 1996, approximately $45,000 of these fees are included in accounts payable and accrued expenses. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAX: The Company accounts for income taxes according to the provisions of SFAS No. 109, "Accounting for Income Taxes." No income tax benefit has been recorded for the three years ended December 31, 1996 due to the uncertainty of recoverability of the benefit associated with the net operating loss carryforwards. The Company's Venezuelan subsidiaries are subject to Venezuelan income tax. All costs related to the Company's Brisas property have been recorded as capitalized exploration and development costs for tax purposes, and therefore the Company has not recorded any foreign tax attributes. No income tax has been paid or accrued by the Company's subsidiaries during 1996, 1995 and 1994. The Company has recorded a valuation allowance to reflect the estimated amount of the deferred tax asset which may not be realized, principally due to expiration of net operating losses and other carryforwards. The valuation allowance for deferred tax assets may be reduced in the near term if the Company's estimate of future taxable income changes. The components of the deferred tax assets and liabilities as of December 31, 1996 and 1995 were as follows: Deferred Tax Asset (Liability) --------------------------- 1996 1995 ------------ ------------ Accounts payable and accrued expenses $ 34,736 $ 9,908 Investment income (105,037) (126,574) Property, plant and equipment 8,497,728 8,502,255 ------------ ------------ Total temporary differences 8,427,427 8,385,589 Net operating loss carryforward 1,797,395 1,522,290 Investment tax credit 5,967 5,967 Alternative minimum tax credit 19,871 19,871 Foreign tax credit - 825 Capital loss carryforward - 283,041 ------------ ------------ Total temporary differences, operating losses and tax credit carryforwards 10,250,660 10,217,583 Valuation allowance (10,250,660) (10,217,583) ------------ ------------ Net deferred tax asset - - ============ ============ NOTES TO FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAX, CONTINUED: The changes in the valuation allowance for the years ended December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 ------------ ------------ ------------ Balance, beginning of year $ 10,217,583 $ 10,348,600 $ 2,031,630 Change in valuation allow- ance due to change in in deferred tax asset subject to uncertainty of recovery 33,077 (131,017) 8,316,970 ------------ ------------ ------------ Balance, end of year $ 10,250,660 $ 10,217,583 $ 10,348,600 ============ ============ ============
At December 31, 1996, the Company had the following U.S. federal tax basis loss carryforwards and tax credits: Amount Expires ---------- ---------- Regular tax net operating loss: $ 272,248 2006 1,650,395 2007 1,244,312 2008 700,536 2009 609,833 2010 809,132 2011 ---------- $5,286,456 ========== Alternative minimum tax net operating loss: $ 289,523 2006 1,624,454 2007 1,218,023 2008 671,999 2009 572,555 2010 771,854 2011 ---------- $5,148,408 ========== Investment tax credit $ 5,967 2001 Alternative minimum tax credit $ 19,871 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 8. GEOGRAPHIC SEGMENTS:
United States Venezuala Consolidated ------------ ------------ ------------ December 31, 1996: ------------------ Depreciation $ 38,831 - $ 38,831 Net loss $ 656,435 $ 173,503 $ 829,938 ============ ============ ============ Identifiable assets: (1) Property, plant and equip- ment, net $ 253,315 $ 28,843,990 $ 29,097,305 General corporate assets 43,479,713 1,194,549 44,674,262 ------------ ------------ ------------ Identifiable assets at December 31, 1996 $ 43,733,028 $ 30,038,529 $ 73,771,567 ============ ============ ============ December 31, 1995: ------------------ Depreciation $ 28,549 - $ 28,549 Net loss $ 182,216 $ 155,087 $ 337,303 ============ ============ ============ Identifiable assets: (1) Property, plant and equip- ment, net $ 247,383 $ 21,818,485 $ 22,065,868 General corporate assets 29,473,430 722,409 30,195,839 ------------ ------------ ------------ Identifiable assets at December 31, 1995 $ 29,720,813 $ 22,540,894 $ 52,261,707 ============ ============ ============ December 31, 1994: ------------------ Depreciation $ 15,751 - $ 15,751 Net loss $ 23,433,755 $ 306,723 $ 23,740,478 ============ ============ ============ Identifiable assets: (1) Property, plant and equip- ment, net $ 230,304 $ 9,321,372 $ 9,551,676 General corporate assets 33,272,338 438,866 33,711,204 ------------ ------------ ------------ Identifiable assets at December 31, 1994 $ 33,502,642 $ 9,760,238 $ 43,262,880 ============ ============ ============
(1) Identifiable assets of each segment are those that are directly identified with those operations. General corporate assets consist primarily of cash, cash equivalents and investment securities. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 9. LITIGATION SETTLEMENT: Pursuant to a December 1994 litigation settlement agreement related to an ownership dispute of the Brisas property, the Company placed $4.5 million in escrow to be released to one of the defendants at such time as the Company is granted the hardrock (veta) concession for the Brisas property on or before January 1, 2000. The Company paid $22,512,500 in common shares and cash, including funds held in escrow and recorded the litigation settlement as an expense in 1994. 10. DIFFERENCES BETWEEN U.S. AND CANADIAN GAAP: The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles ("GAAP") in the United States. The differences between U.S. GAAP and Canadian GAAP had no effect on total shareholders' equity as of December 31, 1996 and 1995 nor net loss for the years ended December 31, 1996, 1995 and 1994. Under Canadian GAAP, the other non-cash activities noted in the supplemental cash flow information would be included in the Statement of Cash Flows. Accordingly, under Canadian GAAP, net cash used by investing activities would have been $1,582,839 and net cash provided by financing activities would have been $10,622,385 in the 1995 Statement of Cash Flows. PART III Item 10. Directors and Executive Officers of the Registrant. --------------------------------------------------- The information requested by this item is contained in the registrant's 1997 proxy statement and is incorporated by reference herein. Item 11. Executive Compensation. ----------------------- The information requested by this item is contained in the registrant's 1997 proxy statement and is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------- The information requested by this item is contained in the registrant's 1997 proxy statement and is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions. ----------------------------------------------- The information requested by this item is contained in the registrant's 1997 proxy statement and is incorporated by reference herein. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. ------------------------------------------------------- EXHIBITS. The following exhibits are filed as part of this report. Exhibits previously filed are incorporated by reference, as noted. Exhibits filed herewith appear beginning at page 32. Exhibit Number Exhibits ------- ------------------------------------------------------ 3.1 Copy of Articles of Incorporation of Registrant, as amended. Filed as Exhibit C to the Registrant's Registration Statement on Form 10 dated July 12, 1982 and incorporated by reference herein. 3.2 Bylaws of Registrant, as amended March 4, 1993. Filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. Exhibit Number Exhibits ------- ------------------------------------------------------ 10.29 Mining Operations Agreement dated July 1, 1992 between Compania Minera Bajo Caroni - Caromin, C.A. and Compania Minera Unicornio, C.A. Filed as Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. 10.30 Stock Purchase Agreement dated August 1992 between Antonio Sosa Aviles and Servicios Escriber S.R.L., and Stock Purchase Agreement dated November 26, 1992 between Servicios Escriber S.R.L. and Gold Reserve de Venezuela. Filed as Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. 10.31 License and Technical Assistance Agreement dated September 1, 1992 between Registrant and Compania Minera Unicornio, C.A. Filed as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. 10.32 Credit Agreement dated October 13, 1992 between Registrant and Compania Aurifera Brisas del Cuyuni, C.A. Filed as Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. 10.33 Services Agreement dated November 6, 1992 between Registrant and A. Douglas Belanger. Filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 and incorporated by reference herein. 10.34 Settlement Agreement dated December 21, 1994 among the Registrant, Brisas, GLDR, Marwood International Ltd., TVX Gold, Inc., BlueGrotto Trading Limited and Inversiones 871010, C.A. Filed as an exhibit to the Registrant's current report on Form 8-K dated December 21, 1994 and incorporated by reference herein. 13* 16.1* 18* 19* 21.1 Subsidiaries of Registrant. 23.1 Consent of Coopers & Lybrand L.L.P. 24* 25* 27.1 Financial Data Schedule 28* 29* * Items denoted by an asterisk have either been omitted or are not applicable. FINANCIAL STATEMENTS. An index to the financial statements included in this report appears at page 13. The financial statements themselves appear at pages 14 through 26 of this report. REPORTS ON FORM 8-K. No report on Form 8-K was issued during the quarter ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOLD RESERVE CORPORATION By: s/ Rockne J. Timm --------------------------------- Rockne J. Timm, its Chairman, President and Chief Executive Officer March 25, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: s/ Robert A. McGuinness --------------------------------- Robert A. McGuinness, its Principal, Financial and Accounting Officer March 25, 1997 By: s/ A. Douglas Belanger --------------------------------- A. Douglas Belanger, Director March 25, 1997 By: s/ Jean Charles Potvin --------------------------------- Jean Charles Potvin, Director March 25, 1997 By: s/ James H. Coleman --------------------------------- James H. Coleman, Director March 25, 1997 By: s/ Patrick D. McChesney --------------------------------- Patrick D. McChesney, Director March 25, 1997 EX-27 2
5 1000 YEAR DEC-31-1996 DEC-31-1996 30329 8706 0 0 0 43944 29699 602 73772 5626 0 0 0 100953 (33759) 73772 0 1489 0 0 2307 0 12 (830) 0 (830) 0 0 0 (830) (0.4) (0.4)
EX-21.1 3 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Subsidiary %Ownership ---------------------------------------------------------- ---------- Compania Aurifera Brisas del Cuyuni, C.A. ("Brisas") 100 Gold Reserve de Venezuela, C.A. ("GLDRV"); 100 Compania Minera Unicornio, C.A. ("Unicorn") 100 Great Basin Energies, Inc. ("Great Basin") 58 MegaGold Corporation ("MegaGold") 63 Gold Reserve de Aruba A.V.V. ("Gold Reserve Aruba") 100 G.L.D.R.V. Aruba A.V.V. ("GLDRV Aruba") 100 Glandon Company A.V.V. ("Glandon") 100 Stanco Investments A.V.V. ("Stanco") 100 GoldenLake A.V.V. ("GoldenLake") 100 Mont Ventoux A.V.V. ("Mont Ventoux") 100 Gold Reserve Holdings A.V.V. ("Gold Reserve Holdings") 100 EX-23.1 4 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Gold Reserve Corporation on Form S-3 (File No. 33-62804) and Form S-8 (File No. 33-61113) of our report, which includes an explanatory paragraph concerning changes in accounting for long-lived assets in 1996 and investments in 1994, dated February 26, 1997, on our audits of the consolidated financial statements of Gold Reserve Corporation and subsidiaries as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. Spokane, Washington March 25, 1997 -----END PRIVACY-ENHANCED MESSAGE-----