Gold Reserve: The Wall Street Analyst Forum Presentation Transcript

Aug.20.07 | About: Gold Reserve, (GDRZF)
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Gold Reserve, Inc. (GRZ)

The Wall Street Analyst Forum

August 14, 2007 2:00 am ET

Executives

Douglas Belanger - President and Director

Presentation

Moderator

Good afternoon, ladies and gentlemen. I would like to introduce the next company in this afternoon's Precious Metals and Mining Program. For those of you that are physically here, as I mentioned a couple of times already today, the webcast or audio and PowerPoint presentations are retrievable for those of you that are here. And if you want to reattend the meeting, then you can just go to analysts-conference.com.

And the next company in this afternoon's Precious Metals and Mining Program is Gold Reserve. They are a Canadian company developing the Brisas world class gold/copper project in Venezuela. The project is expected to produce over 450,000 ounces of gold and 60 million pounds of copper over the 19-year mine life, at a cash cost of $126 per ounce.

Construction has commenced and is expected to take about 30 months with production expected in the year 2010. I would note to you that there is a handout that's been given to everybody. If you don't have one, I will make sure you get one, which is going to be the presentation and a little bit coupled with the PowerPoint. So that you have the same PowerPoint presentation and handout, and the speaker has his PowerPoint presentation and handout, so we will just use that as your visual part of the program. So, I would like to introduce Douglas Belanger. I pronounced it right?

Douglas Belanger

Good enough.

Moderator

I can pronounce it both ways. As an Army Infantry Company Commander, I had a Sergeant Major in my Brigade whose name was that. But I have heard it a couple of different ways. So, in any case, here is the President and Director of the company. Thanks.

Douglas Belanger

Thanks very much. What I would like to do is just walk you through little bit of history of the company and then into the actual highlights of our major project, Brisas. Brisas has been our property in the company for 15 years. We have been in Venezuela for 15 years and as you’ll see, these are large deposits of both gold and copper.

The Gold Reserve is a Canadian company. It has been in existence since 1956 and you’ll see that the management of the company has been with the company from 10 years to as much as 25 years. We’ve worked together for a long time, which I think is one of our major assets. We are well incentivized as a company because we are all shareholders, and we have developed, I think, a very positive track record in Venezuela for how we’ve gotten this far. Obviously, the gold and copper markets couldn't be better in our estimation, and all this culminates in a very attractive valuation for the company.

I think what makes us a little different as a company, from the junior sector, is that most of the people in the company come from an operating or financial background. So, this will be the eighth mine that our management team has been involved with over the years and most of us have more than 30 years experience. So, I think that's something to keep in mind when you look at where we are headed as a company.

As I said, Brisas is a world-class deposit, very large scale, but extremely conventional, with no new technology, and very simple metallurgy. It doesn't have a lot of the challenges that new mines can have, especially today in the world. We are permitted too. The government in March approved our Environmental Impact Statement. Previous to that, the Ministry of Mines had also approved our mine operating plan, and the project itself is Equator Principle-compliant, which are the most stringent environmental and social standards in the world today and across all international boundaries.

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The basis of the Equator Principles is that the banking community has adopted a set of principles to govern how new mines are developed in the world. And in most cases, these exceed most country standards.

You’ll also see going to the infrastructure, when you are building a mine, this can add a tremendous cost to the operation capital cost. You will see that infrastructure in Venezuela is one of the best I have ever seen in my 35 years in the business. As I said, the technology is simple, the metallurgy is simple, the geography and geology all simple. This is about as close to a vanilla ice-cream mine as you get in the gold/copper arena.

All this culminates in a very low cost of production, but superimposed upon that, besides the copper byproduct credits, is that we have the lowest energy prices in the world today, and I will also talk about that.

When you look at the reserves and resources, Brisas is one of the largest undeveloped gold/copper deposits in the world. There are only a few deposits out there that are undeveloped and are larger than us, such as Donlan Creek, Las Cristinas, which is the other part of this orebody, and Cerro Casale, which is owned by Arizona Star and Kinross.

And then we commented about gold equivalent. We are well over 15 million ounces of gold, 10 million ounces of gold in reserve and that's both US and Canadian compliant, and 1.3 billion pounds of copper. At 70,000 tonnes a day, this will be one of the larger gold concentrators certainly in Latin America and around the world.

As I mentioned, 456,000 ounces will be our annual average production for a 19-year mine life plus 60 million pounds of copper credit, and we expect to produce starting in 2010, very low strip ratio, and as we said, it’s a very standard open pit mine.

Project economics, as you can imagine, this is very sensitive to the gold prices. So when you get gold and copper prices like we have today, this project throws off an awful lot of cash flow. Even in the base case, when we did the update of the feasibility study in late 2006, with a three-year trailing average of 470 gold and 180 copper, we had 126 cash cost with the copper credit, yielding an internal rate of return of 15.4%. But more importantly when you look at the NPV, I think one of the valuation models, in which you will see the difference between a non-producer and a producer, is that the producers generally are valued at a multiple of their 0% discount NPV.

Right now, our NPV is about at 0%, is about 1.9 billion, but even at a 5% discount, it's about 783 million. Our market cap is currently about 250. So when I said attractive valuation, it's a very attractive valuation. However, in 2.5 to 3 years when we achieve our full scale production, based on today's valuations and today's gold prices, we should have a market cap of somewhere between $2.2 billion and $4.4 billion, which is a substantial multiple above of what it is today. So that really has been the company's objective to achieve that productive level.

What you’re finding too in the industry today, and while we’re approved for construction by the government, that is becoming one of the big challenges in the entire world mining industry. As the information world, the Internet, local communities now have access to information, things like the Equator Principles also require the companies to give the information to the local communities so that permitting has become a significant part of the development. Where they used to say rule of thumb was five to eight years to develop a mine, from discovery to first production, I would say that is now in the eight to 12 range, reaching as much as a 15-year timeframe. A lot of that has to do with permitting. Once you even develop a deposit in terms of the feasibility study and get your environmental impact statement, you quite often run into lot of opposition.

When you look at the companies, at the mines that are being developed today, there are very few that have actually past this permitting stage and most of them are in pre-permitting or even in the resource reserve definition phase. So, it is also not only one of the largest undeveloped deposits, it is one of the most advanced in terms of where it is in that process.

I said earlier about the outstanding infrastructure. We built mines in Montana many years ago that had less infrastructure than what we have in Venezuela. Venezuela has absolutely outstanding infrastructure because of their natural oil wealth. The government has spent over the decades an awful lot in roads, power lines, and other facilities that help you develop a mine. That, in fact, if you don't have these things, can add $300, $400, or $500 plus million to the capital cost of the mine, as you have to bring in water, power and transportation.

We have a paved highway, basically the pan-American Highway to Brazil, runs within three kilometers of the property. We have a 400 KB transmission line, and power facility, a transformer station that was built by the government at a cost of $43 million which is accessible to us for just a contract. And also, with the paved road, that's where our ocean-going port will be where we transship our concentrates. So, this has, without a doubt, in my experience, this has the most outstanding infrastructure I have ever seen in developing the mine.

The Brisas mill site, we have laid this out. We have been fortunate that that we have a fairly large amount of property, about 12,000 hectares, I should say. And that has allowed us to have a fairly elegant layout that allows for expansion. We have -- the orebody itself actually occupies about 60% of our existing concession, which is our minimal tenure, but we have acquired other lands and mineral rights in the area to be able to build our mill. But as I said, it's a very conventional open-pit mining, then crushing, grinding, gravity gold, flotation for the copper concentrate, and then sanitization of the tails, a very clean concentrate so that there is no long-term environmental effects that are going to be difficult to deal with. So, it has an awful lot going for it.

This deposit is also open at depth. The layout is very advantageous to open-pit mining, it dips at about 35 degrees, which you really couldn't ask for a better footwall angle, so that keeps the strip ratio low. So, we don't have to mine a lot of waste rock, which you might have to do in different orientation ore bodies. There is a very thick, 150 to 200 meter thick, ore zone and about -- while there is four rock types, about 90 plus percent is in the one hard rock gold-copper ore. So, it's a fairly homogenous continuous orebody.

Brisas will be a low-cost producer; by any standards we will be in the bottom quartile of the industry in terms of operating cost under any assumed copper price assumption. And if we get -- certainly today's copper prices will be in the bottom decile because they will have negative operating cost at today's copper price.

So, we use the copper as a byproduct credit under the Gold Institute guidelines. And for example, even at 120 copper, which is about a little more than one-third of today's price, we would have 190 an ounce operating costs at 180 copper. I see that most long-term estimates by analyst now are between $1.80 and $2 a pound, we would be at 126. Basically for about every $0.10 move in copper, our operating cost change by about $10 an ounce.

So, and obviously at today's feasibility study prices, as we said, we are looking at 126, which was at 180 copper. Today's current spot price, you can see the sensitivity on this chart takes us down into the negative factor. So, we at about 275 is where we go zero operating cost based on the copper byproduct credit.

It's a very simple, as I said, orebody to mine, and it's a basic what I call chicken guts and feathers mine, you just take it off. So it's not a real challenge in terms of grade control. You might own the very largest equipment that money can buy, but the other aspect is that we enjoy by far the lowest energy cost in the world.

When we look at what other countries pay for power and power costs, and both diesel and the hydro cost to run mills and operate mining equipment, is the single largest factor in most mining cost operations. By paying 2.9 cents a kilowatt hour for hydro, $0.15 a gallon for diesel, we estimate we saved over a $100 an ounce compared to North American energy cost. And North American energy costs are still on the low end of the world cost scale for mining countries.

So, just based against a North American cost base, we save over $1 billion in operating costs being in Venezuela and those costs are not likely to change. So, when you look at peak oil scenario, where people project $100 barrel for oil, we are very much insulated from that kind of increase in Venezuela because in the 15 years we have been in Venezuela, for example, diesel costs haven’t varied more than a few cents. And the hydro contract is at 2.9 cents and is for 10 years. So, we are protected from rising energy costs in a big way, which is a plus.

If you’re applying the peak oil investment philosophy, we are another, basically offshoot of the peak oil philosophy that if you are investing in mining stocks, then look at companies that have some kind of protection from either a hedge or whatever fund rising to generate their own power. In our case, we, being in Venezuela, we do enjoy these costs.

I mentioned earlier too that the 19-year mine life, the deposit is open, completely open over the entire length at depth. We are still in ore grade material below 500 meters, we are at 400 meters at the current mine plan. So, we do expect this mine to operate well beyond 20 years, probably closer to 25 years. But based on our reserves to-date, based on the bankable feasibility study, we generated the mine plan as just under 19-year mine life, but there is plenty potential to add to that.

I will just briefly mention that we have another property called Choco 5, which we have been kind of slowly moving along. Permitting was an issue earlier. We now have that permitted and are ready for drilling. And, it's interesting too that the perception, I think that I'll get into this later, about Venezuela is one of the biggest problems we have in Venezuela right now is you can't get a drill rig, because every drill rig in the country available is working.

Exploration is booming in the country. And so, we expect -- we do although expect to have the drill arrive, it was supposed to arrive in July. It has not arrived yet. We expect to now have it later this month and start drilling early in September once we get some results out of this.

Choco 5, which is in the El Callao district, a couple of hundred kilometers to the North of Brisas, is in a very old mining district in Venezuela called El Callao. It is a very large property; 10 times larger than Brisas in physical size, 5,000 hectors versus the actual 500 hectors Brisas concession. So, from a geologic standpoint, we are at the crossroads of three major fault structures, which tend to identify mineralization in this district. So, the geochemistry we've done all indicate a fairly large target. We are going to focus that drilling here shortly, as soon as we do get the drill and hopefully with some results, with some positive results.

So, in the case of Choco 5, we do hope to have some results in focus faults. And if there are good results, I think, it will bring a whole new kind of an exploration element. Up until now, we definitely have been what they call a one-pony industry or a rather large pony, Brisas, it will bring some other interesting examples.

Okay. So, when I look at Brisas, one thing to look at when you look at mining in general in the world, is what I call the fatal flaws of the industry, and that a lot of deposits have one or two or three things that can be, in some cases, deal killers in terms of your ability to develop the mine on a economic basis.

You can get, for example, huge grade control problems where you do have a good average grade, but the grades are lot high and low in that -- managing that, so you have a consistent grade going into the mill. That's a technical challenge that can be very expensive, and of course with raising -- your costs are really done in a cost per ton basis. But the grade of the ore can determine your cost per ounce. So, if you have a high grade year, for example, let's say you have 2 ounces per ton one year and your costs are $200 an ounce. Well, if the grade drops to 1 ounce, your costs just double to $400 an ounce because you have half the deposit. In the case of the Brisas, it's a very consistent orebody, so your cost per ton isn't going to change that much, thereafter your cost per ounce isn't going to change much. So, it's really predictable where the price is going.

So, consistent ore grade, simple metallurgy, there are deposits where -- yes, there is a lot of gold there, but it can be refractory ore and also it’s a metallurgical challenges and that means the recoveries are quite a bit less, which again drives your cost per ounce up.

Proven technology, the market in mining really doesn't like what they call black box technology. People come along with something new that can take years for the industry to accept. This is all 100-year old proven technology that we are doing.

We do have probably one of the most advanced projects in the world which is compliant with the 2006 Equator Principles, which just came out in April of last year. This is especially true for a project of this magnitude, which is probably the largest compliant Equator Principle development project in gold in the world.

Port access, we’re 380 kilometers from an ocean-going port. We have our port facility already. Again, sometimes you have to cut your own road to get to some places. The roads are in place and the ports are there. Energy costs, I talked about, lowest in the world. Water availability, we have plenty of water. Sometimes you have to bring water in, and when you have to bring water into a mine site that can add to cost tremendously. We have plenty of water.

Topography, you can have a situation, where you are mining essentially off the side of a mountain, which gets very, very challenging technically and very expensive. This is a very flat basin and we are only at about 475 feet above sea level or so, I think, and we are near the equator, so the climate doesn't change. It's basically the same all year round. You can have a situation, like for example in the High Arctic where it's 70 below, 60, 70 below in the winter and, 60, 70 above in the summer. And you have different conditions especially with equipment, so we don't have the climate challenges. Altitude; there are mines that operate 14,000 feet that have tremendous technological challenges. As I said, we are at 475, so it's a simple deposit.

I think the other thing is that we have never seen ourselves as an exploration company. We are an experienced mine building and operating team, that's our background. Most junior companies, that's the toughest transition from being an exploration junior company to an operator, and most of the companies that are run to find the gold are run by geologists like myself. I'm a geologist, but I know enough to stay out of operations.

I think that's the real, one of the big risks is that transition and especially in this day and age, the other huge challenge facing our industry today is that the availability of the experienced mine engineers, geologists whatnot is probably at its lowest level in decades. So getting a team of people together that works well together, that are experienced and knowledgeable, that's a major asset now in any company.

And, as I said, in the case of Gold Reserve, we've been working together with our staff, even in Venezuela for ten years. Our people have been with us from 15 years, to myself and my partner Rockne Timm, who is the CEO of the company, we have been together 25 years, as has Mary Smith, our Vice President of Administration. So you really need to look at the quality of the people in a company, and I think you will see that this is something we've done before, and we go into developing such a large asset with our eyes wide open.

Also I caution you, something that the market -- the market has become very goal oriented in terms of milestones, meeting milestones at certain dates. The world is so extremely volatile that what's more important, and -- I know I am kind of speaking against the wind, is that what's more important is before you do something very quickly is that you do it right. Because doing something quickly usually ends up in higher costs, having to fix something that you did too quickly simply to meet a goal or a milestone.

It's more important that you develop it on a controlled basis and end up in a successful operation, because you really are building something that's supposed to last for 20 plus years. So getting it done quickly may be great for the short-term market, but doesn't help at the end of the day if you end up having to hand back all the profits because you had to redo the operation as you did it quickly, which has happened many times in this industry. It ends up costing more. You will pay me now or pay me later, and we tend to do the pay me now instead of pay me later.

Financing, obviously I think the issue of financing is a critical aspect for a junior company as they go forward. We are fortunate as we have been able to get money as we’ve gone forward and developed the properties at this level. We are sitting on about a 180 million in cash right now. Capital cost is about 638, but that number is going to go higher. We are experiencing tremendous inflation in the industry, so we anticipated that in our plans. And we are working with a group of banks for the debt financing and then we will do a top-up equity, quasi-equity or subordinated debt deal that will finish off the needed capital sometime next year.

So, I mean, we are well positioned in Venezuela. Let's talk a little bit about Venezuela because we better than most, having been in the country so long, understand the perception versus reality argument, that the perception of Venezuela is extremely negative by most of the investment community.

We think that's based on a lot of long and misreported news. There is no question that President Chavez has been doing things to repatriate and take control of strategic industries like oil and power, which is no different from here. Really, when you think about it, we have a regulated communications industry; we have a regulated power industry; and that's really all it amounts to.

But I think what you have to look at in Venezuela is not the words, but the actions. And the actions are that they follow the rule of law and that is the most important factor of the company. When you are going to be in a country as long as we will be, you want to see a tendency that the -- the first tendency is to follow the rule of law.

It does not mean they don't have political objectives and if they want to do things, but if they follow the rules of law. And in the case of, I would like to call it nationalization; well, nationalization, if there is compensation that's no different than what we call the right of eminent domain. How many times does the government takes over real estate to build highways, railroad, whatever is needed for some kind of infrastructure. And nobody is ever happy about the compensation, but there is compensation.

Unidentified Audience Member

It depends on the formula they use.

Douglas Belanger

Exactly, so, when you look at -- I think a lot of people when they hear about Venezuela, they think, they are going to nationalize the telephone company, and pay nothing for it. But I haven't heard it and the people that sold say they got a bad deal considering they made a lot of good money during the period that they did own it.

Unidentified Audience Member

(Inaudible)

Douglas Belanger

Well, now US Steel is a good example. It goes back many decades. US Steel operated --

Unidentified Audience Member

(Inaudible)

Douglas Belanger

Yes. I mean, they operated it through the extent of their term, and then they had to turn it over to the government. If we were still operating at the end of the concession life, which is 40 years, all of the assets will turn over to the government with no compensation.

But that was the whole point. That was the deal we struck. It was the same deal that US Steel struck. It was a 40-year life and then they turn the assets over to the government. We will turn over everything, all of our trucks, our equipment and everything, to the government at the end of the mine life. Well, at the end of the mine life they have no use to us anyway.

So that part is not of too much concern. The concern is if they do follow the rule of law? And yes, they do. I would challenge anybody to show me -- I mean there is always exception. But by and large, they have followed the rule of law in most -- certainly all the major cases. Now that doesn't mean people are happy. But that's better than being ushered out of the country at gunpoint, which has happened in lots of other countries, not just in Latin America, but all over the world, certainly in Africa. You have not seen that in Venezuela.

I mean, we have 15 years. And I think the problem is the misreporting of what goes on in Venezuela in terms of the actions. For example, in September of '05, Chavez was quoted by international press as saying, “I am canceling all concessions.” That's not what he said. What he said was, I'm canceling all concessions that are idle, and there are hundreds of them in Venezuela.

And it's the use it or lose it philosophy that most countries of the world have adopted. In Canada, for example, if you don't use a property claim area, just sit on it and pay your annual dues, annual subsidies, you will eventually lose that property back to the government. You can't have -- governments have decided they can’t have large tracts of land sitting idle. And there is no question that Chavez said, ‘I am canceling concessions that are idle’. In concessions that are active, we have thrived under this environment. So, the environment, also when you look at the challenges to find gold and other metals around the world today, you have the Guyana Shield, which is similar to the Canadian Shield. The Canadian Shield being one of the most prolific mine producing environments of the last 100 years in the world. The Guyana Shield is similar in geology and it's virtually unexplored in Venezuela. We are in the Guyana Shield. This is the Guyana Shield deposit.

Considering when you put this deposit together with our neighbors, Cristinas, this is a 50 million plus ounce resource. This is the sixth largest gold discovery in the history of gold mining.

Unidentified Audience Member

Are you on the Orinoco River?

Douglas Belanger

No, the Orinoco River is about 380 kilometers to the north. We are on the Kuyuwini River, which flows into Guyana. Yes.

Unidentified Audience Member

(Inaudible)

Douglas Belanger

Not really. The government is certainly aware when we say that, because that gets into a discussion. Let me finish this and then we will go to the question.

Unidentified Audience Member

Okay.

Douglas Belanger

So, you've got an excellent geology, but we've already defined our deposits. You've got absolutely excellent infrastructure, low energy costs, and I think one of the facts that is a huge impediment to mining is the opposition by the locals. We in fact enjoy the support of the local community. They are very much interested in seeing our deposit developed, because we've worked with them for a number of years to get their support.

The environment, we got this thing permitted in 20 months. I would challenge North America to get a 70,000 ton a day gold/copper mine permitted in 20 months. In North America, including Nevada, this would almost be impossible. So, the perception, it takes long to do everything. The reality took us 20 months.

And there is other [active], there is not enough known about Venezuela. Hecla has been operating there a number of years. I think Loma de Niquel, which is owned by AngloAmerican, which is not a very well followed company in North America. AngloAmerican built the $450 million Loma de Niquel deposit the year that Chavez became President. Last year they made a 134 million of net income, and I think their actual cash flow was over 200 million. So, there are companies that are thriving in the mining business, but it's a well kept secret.

I mentioned earlier our cash on the balance sheet is 180 million as of the end of July. We are working at a $425 million package with CAF, which is the Andean Pac Finance Corporation. Actually the largest shareholder is Venezuela and the only reason CAF is participating in this loan, potentially is because Chavez gave CAF $1 billion for projects like ours.

So, indirectly some of our loan, project loan would come from the Venezuelan government through their development bank. Export Development Canada, which is Canada's development bank. UniCredit Group of Italy, they were dealing with the HVB unit out of Germany, WestLB out of Germany, which of course then brings in political risk insurance from the German government as well as the Canadian government.

So, we are dealing with a fairly well experienced mine finance team in terms of the project debt. And then, of course, the money we got raising from Cormark, J.P. Morgan and RBC Dominion Securities in June of this year is basically the 180 million we have today.

I mentioned about the gold and commodity markets being excellent. And then as I said, I was an analyst back in the 1970s, early 1980s with both RBC and Burns Fry, which is now Nesbitt Burns. I have never seen a better gold market and basically base metal market, although I have never been a base metal analyst, than we have today, and for a number of reasons.

I mean, everybody talks about the weak dollar scenario. But I think, the more important is looking at the productive supply/demand of the actual metals themselves. Because of what I call the drunken brawl of the 1990s, we call it the high-tech boom, the dollar itself stayed higher than it should have for a very long period of time, which kept the price of commodities that are priced in dollars low for longer than it should have been, which forced the companies to high grade their deposits. This basically did structural damage to the productive capability of the basic industries of the world.

And at the margin, that's why we are seeing as they come out of this downturn of the 1990s for the metal industries and other basic industries. That's why we are seeing higher stronger prices, lower inventories. And then you superimpose upon that the Asian changes where you basically, since the 1950s which was the last super cycle in metals, where we had the emerging middle class of North America and Europe after the Second World War, which was about 40 to 50 million people, we now have 400 to 500 million people entering the middle class of the world in China and India. And India is ahead of China.

And so, you've got a situation, the expression is like, we say, the perfect storm. I think that because of the permitting delays, because of the more discipline in the financial markets in terms of financing, mining commodities, the banks have still not raised their price estimates higher like in the case of copper. They are still assuming $1.10, $1.15 copper for the long term.

So there are a lot of projects that won't get financed. So, you are not going to see this rush to production that we have in previous cycles. All of this says that even an ounce found today is not going to be in production until probably 2015 or even later. So, we do see a longer timeframe. The aspect is that it is taking longer to get equipment, the shortage of people, all of this is going to amount as to why we have high metal prices and why we should have sustained metal prices. So, there isn’t a better time to be financing and building a mine than what we have today.

This just shows the public market valuation, where obviously we are well down at the bottom. And one of the reasons we say quite openly, one of the reasons we've got our permit besides the very, very good staff we have in Venezuela is that we kept a very low profile during the permitting phase.

When we had a permit issue with any regulatory agency, it is their process to decide whether or not you are going to get this permit or what variations they want to see to develop the mine. So, going out and quite frankly doing a lot of promotion during that timeframe can very much lengthen and distract the government, because you have given them a study that says this is what you are going to do. If you react to what's going on in the marketplace and do a lot of talking, you can affect that timing.

We saw the effects of that. We kept a pretty low profile, which did not help our market capitalization or our stock price. So, that's why you see us down at the bottom. But then, when you see us in terms of how big this deposit is relative to our competitors, that arrow going from right now at about $22 an ounce up to something where you see Gabriel, Miramar, Arizona Star, Crystallex, NovaGold on a relative basis, we should be up at those market cap levels, and that certainly is our objective.

This is just another way of looking at the same market capitalization for reserves and resources. This is another valuation model that I've seen over the decades that certainly has indicated valuations. You always get what I call the darling of the market factors, when a company is well valued by the companies, new exciting exploration or whatever.

But in the long term, relative to our competitors with at least over one million ounces of reserves or resources, we are certainly by far still the cheapest gold stock in the industry. And it's really just in the last few months that we started to reemerge again in terms of talking about the company and obviously the first half of this year hasn't been very robust for the junior metals. The metal has done fine, but in the stocks themselves there have been a few exceptions, but it's been a slow period. I think we are going to see that this fall might be a very good period for the metals and stocks.

So when you look at the reality, what the Venezuelan people say while you are in Venezuela, that's why your stock is so cheap. But look at the Venezuelan peer group that we are compared to. They also have exactly the same risks and challenges that we have. Crystallex, I couldn't believe it when it was taken over by Gold Fields almost two years ago, but its valuation I think is apt for this situation.

So again on our market capitalization, when you look on a gold equivalent basis, we have the largest gold equivalent reserves in Venezuela, yet we have the lowest market capitalization in the country. So we should see here a reevaluation of the company. Again, on the same thing, the market cap are ounces of gold equivalent.

You can see RussOil, which as an exploration company, because it has no reserves and I think about 1.5 million in resources right now, obviously evaluation per ounce is based on exploration potential and excitement. Bolivar was a takeover of a producer that had just cheap production that was taken over at close to $200 an ounce. Crystallex is currently valued, I believe, at about $65 to $75 an ounce and it has essentially the same ore body as we do.

And I think the final evaluation is really when you look at the Bolivar situation, what a willing buyer pays a willing seller and that's with knowledge. So one of these major companies or intermediate companies buys a junior company, they usually spent several months looking at it, analyzing it, looking at all of the data and then make some informed decision. And that averages $240 to $300 an ounce in the ground. We are trading at $20 to $22 an ounce right now in the ground.

I don't know what that price is, but I know it’s more than $20. And I think too that we as a company, we as the management of the company can be somewhat indifferent. While our objective is to put this mine into production and see the full value of the company realized, our shareholders were also cognizant of the fact that the major companies need ounces. And that as we go forward here developing the mine and the bigger companies need reserves it’s something we essentially just leave up to the shareholders. That if someone wanted to come in and make an offer to the company to buy it, we certainly won't stand in the way as long it is a fair offer. But we would always put it to shareholders.

So you look at Brisas, I mean there is no question it's one of the largest and so therefore a world class deposit. There is still open exploration upside with Brisas as well now as our new project Choco.

We are fully incentivized with management as shareholders. We have showed that we know how to operate in Venezuela, having been there all this time and having been able to advance on a methodical basis of the project. The gold and copper markets look excellent and I think you will agree just on a relative evaluation. The stock is very attractive today and each day that passes. As we advance with the project that will get even more attractive.

So, let's talk about your question. There is no question. We have never avoided the issue as you know. This is one orebody between Brisas and Cristina's. We've been there so long that we – you can see what's developed. It is one of the largest, as I said, the sixth largest gold deposit in gold mining history, which is 50 plus million ounces. Your first reaction, anybody's first reaction when they look at the totality of the information would say, well, does it make any sense to build one big mine.

We have recognized that for sometime. But as I always say, why are there two mines at Hemlo? People draw lines in the sands, pattern boundaries, claim boundaries and things get developed. All along we've said that we are happy to sit down and discuss with the government, with Crystallex, with whomever and talk about making more money and more of an efficient operation. But having said this, we can't sit around and wait for it. And that's quite some time ago that we elected that, while the opportunity is there, we have designed Brisas to maintain the optionality of that potential opportunity to put these together, we could not sit and wait for it. The opportunity was there.

So we went ahead with the development of Brisas standalone, because standalone is a world class deposit and project. Together it's even better. And we made our position very clear to the government that if they want to pursue that idea, we are happy to sit down and discuss that. But the government is trying to come up with new mining policies, so while they do that we don't want to be wasting our time just sitting and waiting. There has been enough of that in the past.

So, we are just proceeding with the development. But as I said, we developed and are developing Brisas on the basis that at anytime over the next number of years we are not giving up that optionality. We actually spent time and effort to make sure we maintain the optionality of that great opportunity. Because together we've said, and many people know this, we have said that this would be a 1.5 million ounce producer possibly, put together. This is something, mineability of 35 to over 40 million ounces of mineable gold plus the copper. This is a spectacular deposit in the history of gold mining.

But there are always other issues which we don't have enough time to go through. But we have always maintained our possibilities. I think that's the job of management. You do your plan A, and you maintain your options. You don't lock yourself out from other opportunities. So we have always designed and operated on the basis that we can always go in another direction and we haven't locked up that opportunity.

Question-and-Answer Session

Unidentified Audience Member

[Question Inaudible]

Douglas Belanger

The question is when do we begin production? Right now we are assuming 2010. We should have commercial completion in early 2010 and so start-up will be in the first half. Again, quite frankly that's probably going to slip a few months here and there. We have not done this before and there is no set timeframe, especially in mining.

And it's gotten worse because of the demand for materials, for equipment, lead times. In fact, we did a tentative study here recently, looked at six different mining cycles and the average time to order equipment and basic supplies. This cycle is two times longer than the average. So, for example, if it took a year to get something in previous cycles, it's most likely taking two years now. So, you have to build that into your development plans. Yes?

Unidentified Audience Member

You talked about optionality [since]?

Douglas Belanger

Well, apparently according to Crystallex, I think they are approved. They are waiting for it to be issued. There was an article I think somebody sent me today. I have it on my PDA that Mine Rep said something about what the decision has been -- the Minister or Vice Minister of Environment said that the decision on the permit has been passed to the President, to Chavez himself. I don't know if that is true or not, but that was out in the press. But I believe it was mid June when they put out a report saying they had been approved, but I don't have a sense of it myself now.

Unidentified Audience Member

[Question Inaudible]

Douglas Belanger

I'm hoping the -- the question was when do we see the bank piece coming? I'm hoping to see commitment by year end and closing sometime, but these things we have to do. We are in the kind of final documentation and there is -- we have the technical and environmental review by the bank’s independent engineer firm is virtually done; there are still some pieces there. But, we are moving along, we are basically spending the first 100 or so million of equity. And then at that point, which should be sometime mid next year, we would then hope to have the bank drop into place. Once we have the -- also we are waiting to see the final engineering we need to have to get about 70% to 75% complete on the final engineering, well, I will know after tomorrow and there is a meeting tomorrow. But I think we are about 60 plus percent complete on engineering. We will need to get above 70-75 and then we will have a more definitive capital cost estimate for the bank, and then the bank would then say based on their coverage how much equity we need to put on top. So, whether it's $75 million, $100 million or $125 million top up. So the idea is to hopefully close the banking and then do the top-up financing sometime next year.

Unidentified Audience Member

[Question Inaudible]

Douglas Belanger

Question is about the issue of the government saying about 51/49. I think if you look at what the government has said about existing operations, this is the kind of a look forward policy, or a potential policy because it is not set yet. But existing projects, what they've said wouldn't be affected in the first reading of the draft changes to the law, which was adopted by the Congress last year. There is even a section called Transitory Provisions, where concessions like ours are grandfathered. So as long as we stay in compliance we would grandfather to the extent of our terms.

But even then if you take the 51/49, it has not been raised with us, we have actually raised it with the government. And their response is that is not the objective of the new mineral policies. But even then the government take wants 51%. Hey, if they want to put up 51% of the capital and become partners, it’s like tell us when and where, we will sit down and chat. But that's not been the issue.

So, I think its more. They are trying to develop a policy going forward in terms of granting at the beginning of a new concession or new contract and not looking backwards. And that's been our experience. We are going to say that, we don't like to look backwards. We really would prefer to move forward. And I think we are done. Thank you very much.

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