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Executives

A. Douglas Belanger - President, Director

Analysts

John Healy - Forest Investments

Robert Bunger - Private Investor

Jim Holme - Miller Tabak

Scott Newhall - Trees Investment

Bob Hudson - Private Investor

Steve Pascay - Private Investor

Randy Johnson - Concord

Gold Reserve Inc. (GRZ) F1Q08 Earnings Call June 17, 2008 4:30 PM ET

 

Operator

 

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Gold Reserve earnings conference call. My name is Lisa and I will be your operator for today. (Operator Instructions) I would now like to turn the call over to Mr. Doug Belanger, President of Gold Reserve Inc. Please proceed, sir.

A. Douglas Belanger

Thank you very much and welcome to the first quarter conference call for Gold Reserve. Obviously after a number of years, this is not a good situation we have ourselves in right now. I would like to make just a couple of opening remarks and then go through kind of where we are at. I think one of the things I want to stress is that it’s important that people look at facts and not rumors. That’s what we have to act on and it’s a very formal process that we are involved in. Last quarter, we had the permit, we were preparing to construct the mine, the permit was revoked and here we find ourselves basically in a position of trying to clarify.

But before I get into the situation in Venezuela, just go through the first quarter report, and I think probably what’s most important, not too much change in terms of the report quarter over quarter in terms of income and balance sheet, but I think what is most important given our current situation now is our cash position, our financial position.

As many of you know, one of our first tenants of operating Gold Reserve is to remain financially strong, and that does tend to drive a lot of our decisions. We are financially strong. Right now we have cash of about $120 million, having made a recent payment for some of our equipment. When you look at the book value, the last news release shows that we had around $130 million. That’s down to about 120 now based on overhead, some expenditures, and also some money paid for equipment for the Brisas Project. So we now have about $50 million worth of book value of equipment, and we have commitments of, over the next year-and-a-half, of close to $80 million.

So in looking at that situation, we are financially strong with $120 million. And then we look at the equipment. Obviously if the current situation prevails and we don’t go forward with the development of Brisas, the equipment looms as a fairly large asset but also a large liability in the sense that we still have much more to pay for.

As many of you are aware, the current status of the equipment market, be it mills, motors, drives, mining equipment, is in tremendous short supply, long lead items. For example, the mills that we ordered about a year-and-a-half ago, or a year ago, I guess, if you ordered them today would be probably 15% to 20% more expensive and would not be delivered until about 2012, possibly even 2013. So things have changed and we see those first and foremost as obviously an asset, and an asset that we may -- the decision has not been made today but we may have to make a decision on whether or not we keep the equipment, depending on what happens with the situation in Venezuela.

One thing to point out -- the equipment that we have, when it’s completed and fabricated, is very specialized equipment and at this point in time, it has a much more generic value to it to other people and of course, with the long lead times for some of this equipment, we believe we can get the money we paid at least, and possibly even make a little money on this equipment. Certainly some of it, the large pieces which make the bulk of the amount.

So you really have a situation where if we liquidated the equipment at book value, we are sitting on just under about $170 million. We have also, of course, the $103 million of convertible notes, which are not callable until mid-2012. To reassure people, nothing has occurred in Venezuela that would cause those notes to be called, nor if, for example, and I will go into more detail on this, if we lost our mineral rights to the property completely, then that also is not what they call a fundamental change and would not be callable.

So the debt right now is trading in the marketplace at about $0.50 to $0.55 on the dollar, so if you did a market value liquidation, we would have net of about $120 million or so, $115 million to $120 million, which is obviously not what we want to be at but we certainly can say we are financially strong, and are not in any imminent need of capital or any imminent need to have to restructure.

So moving on beyond that, what are the facts? I’ve seen an awful lot of speculation, an awful lot of newspaper articles and as we have learned over the number of years, a lot of it is not right, simply not factual.

The fact is we had received one letter from the Ministry of Environment which revoked our permit. However, they did not revoke the approval of the environmental and social impact statement. The Ministry of Mines, MIBAM, we also have the approval of our technical operating plan, which is still in place as well as compliance certificates from the Ministry.

So what we have is a project that is still approved but we don’t have the permit to construct and the action, based on advice of Venezuelan counsel is groundless and not legally supported by Venezuelan law. We have three decrees that support the granting of the permit last year and the decree that is quote in the letter to us, decree 4633, expired in June of 2006 -- sorry, in 2007.

The other major factors in the letter were the presence of small or illegal miners on the Brisas property, which there are none, and degradation, which again all of the activity that was done on the property in terms of environmental damage was done prior to our arriving on the property in the early 90s, which we did a complete audit, and we’ve done remediation efforts, and again re-emphasizing that the remediation and reclamation plan is part of that environmental and social impact statement that is still approved.

Beyond that, the area, based on a reaffirmation by the current administration, decree 3110, says that mining is approved for this area. So I think beyond that, as many of you are aware too, and then and certainly after this action, we have enjoyed the tremendous support of the local communities. We have a community council that was set up by the 21 communities in the region, the indigenous tribes, the Creole people, the small miners. That is their community council for Brisas and that they continue to support our project, they continue to write letters. They continue to request our project be approved to go forward, and beyond that they’ve even on their own expense, they’ve recently engaged the national television station, which is owned by the Government of Venezuela, to do a documentary on the Brisas property.

You know, we wish we were actually aware of that action before they did it because we think that there could have been a broader application to the whole region in showing the potential of the region, but nevertheless they just did it for the Brisas Project, which are very gratified for.

It is also important to say that this is a legal and administrative process which we are in. They revoked the permit, as we say, which we believe is groundless and not legally supported. But having said that, there is a procedure, which we will follow. Regardless of the actions that the Ministry of Environment took, we will follow the procedures of the Venezuelan Government.

We filed the appeal to that action with the Ministry on May 21st. They have 90 days, business days, to respond, which takes us right to the end of September.

So for us to do anything further, until that process plays out or something else happens to affect the situation, we will follow that process. Really what is most interesting, again factually, there’s been no official comment on this issue from either the Ministry of Mines or the Ministry of Environment, other than the letter; nor has there been any official comment from the President’s office. However, as we say in our discussions with advisors to the ministers, of especially mines, that the Ministry of Environment letter does not challenge the product nor the company. It simply revokes the permit, as we say for some things that aren’t even based in law nor are factual.

On the Ministry of Mines, we’ve had a number of conversations with people who advise the Minister or work in the ministry and we believe that the government supports mining in this area. That is the current state of decrees in the area. I also noticed today in a news release that Crystallex put out, that they had their hearing at the national assembly where they say that a senior official of the Ministry of Mines, MIBAM, supported their position. And of course, we also know that the Ministry of Mines, the Ministry of Environment will apply the law equally, as is guaranteed by the constitution of Venezuela.

So when you see what’s going on in the country, I think you have to step back and say is this about mining or is this about the whole country? It’s obviously a very challenging time for the country -- the economy, inflation, unemployment. Mining is just one element, and quite frankly a small element compared to, as we know, the oil industry. So there is a tendency to get too much involved in I think the minutiae of politics, of conspiracy theories, for example, and not look at what is the factual situation.

You know, we as a company can really only act on what we know to be factual. And we can informally communicate but there is also a formal process going on. Along with the formal application of a rebuttal for the appeal, we also filed a letter to the Minister of Mines informing of the action and our response to it, and basically getting them, requesting they get involved.

It is interesting that we are approaching two months since this has occurred and we still have had, as I mentioned previously, no official comment from anyone really in the government as to this specific, our specific issue or mining in the Imataca or mining in the Kilometer 88 region.

There has been a couple of comments attributed in the press to named officials, primarily Minister [Sans] of the Ministry of Mines where he said that Kilometer 88 is approved for mining, which is correct. He also has recently said that small miners who are very concerned about losing their ability to mine in this region because of environmental reasons, or at least one indication of that based on certainly the revocation of our permit, that they are being assured that they can mine.

I think there’s also a lot of confusion out there about the Kilometer 88 [Kueni] River Basin and the Paragua River Basin, which was this decree of 4633 that was enacted in June 26, 2006. It was an emergency declaration which covered a number of regions but was primarily done to stop the mining in the Paragua because the mining in the Paragua River was causing damage to the Caroní River Basins to the hydro-dams, which is obviously an important part of the government’s supplying of power to the people of Venezuela. So they are different. The [Kueni] River is not the Caroní River, so you have to always know what area people are talking about.

Just as a simple aside, there was also -- people think the Imataca is a generic term and they’ve heard no mining in the sierra Imataca. The sierra Imataca is a specific area. We are not in the sierra Imataca. We are in an area of the Imataca Forest Reserve that is approved for mining under two separate decrees.

So those are the facts. The rumors I think, as I said, center around a lot of the controversy to do with small or illegal mining and there’s no question this is a major issue with the government. And as many of you know, we have always believed that a solution for modern mining that doesn’t include small miners is not a solution, and I think that might be one of the cores of the problem we are faced with today, is trying to resolve the substantial degradation that does occur because of the lack of environmental methodology employed by the small miners because they simply don’t know, and lack of regulation.

So when we look at the situation, there is the presence of small miners in the region. There is substantial degradation in the region, but it is not on Brisas.

So quite frankly, not to sound trite, we all believed when we saw the letter we got that it was written -- you know, it didn’t apply to us. It was to the wrong company. So I think the -- what we can do is we will try to work with the facts. We believe that again, based on discussions, that the projects will be treated properly under the law and of course, if they’re not, we do have alternatives.

There really are three steps in this process. Right now we are simply on step one -- resolve the situation, and that’s where we are today, obviously. Get the permit back, get the initiation act, get this project built and do what we really want to do, is build and operate this mine.

And if we cannot do that, either by government action or whatever, then obviously we would try to come to a satisfactory solution with the government -- satisfactory to all of our stakeholders.

If we can’t do that, then we do have legal rights and we can exercise those rights. But a discussion of those legal rights really at this point is premature and I think is counter-productive.

Another thing I’ve seen is a ban on mining in the Imataca. Again, you have to have a decree because, as I pointed out, the current law says that mining is approved in this area of the Imataca. So it would require a presidential decree or a new mining law from the national assembly that was specific to this area that would change the current policy to one of no mining. Again, should that occur, we have certain legal rights which we would employ.

New mining law -- we’ve been hearing, as you know, for a new mining law -- as I point out, we’ve been hearing about resolving the 1872 U.S. mining law for 25 years in the United States and we are still talking about resolving it. There have been many discussions about a new mining law coming, a new mining law coming under President Chavez’s current special powers, which expire sometime in July. But all we know factually about a draft mining law is the last draft that was floating around and which was given and approved. The first reading was done by Congress and what that did was grandfather a concession like ours, as long as it was in compliance and that’s why it was so important that we receive the compliance certificates from the Ministry of Mines late last year, and that we have to look at also, we have a contract with the CVG on our Choco 5 project, but underlying that is a concession; owned by CVG Minerven, because as it states also in the draft that contracts with the CVG would have to be migrated to a joint venture with the national mining company. But I stress, that’s a draft mining law and as we’ve all seen, compared to the situation in the United States, we’ve seen all sorts of ideas and drafts about a new mining law here. But until it’s passed into law, you really don’t know the implication. All we can do is prepare for it and be ready to respond when we see a new law.

Whether or not President Chavez is going to issue a decree, a new mining law before the end of July remains to be seen. I’ve see evidence that he might do that. I also see evidence that he might now.

What we are obviously doing is simply trying to get through this process and achieve number one -- get back to where we want to be, build this mine. But it may take time. As I said, it’s a legal administrative process and we will follow that process.

The last thing to say is Choco 5, obviously we are waiting for clarification because while the Choco region is not in the Imataca, issues about mining, about whether or not, you know, speculation that there may be a migration to a joint venture, especially since we have kind of a hybrid, it’s a contract with CVG Minerven but CVG Minerven owns a Ministry of Mines concession.

So there’s probably more questions than there are answers, so to speculate on answers when you really don’t even know the right questions in some cases I think is just a question of having to play it out.

I think that 16 years we’ve been working on this property, as many of you know, and we have shown and demonstrated time and again our commitment to this project. We have demonstrated the commitment of the local community who are still very supportive and active in trying to help us get back to where we want to be. So all we can do now is work in a productive way with the government trying to resolve this situation. And making comments and incriminations and, as I say, shouting at the rain doesn’t really do any good. So we will continue to administer the process the best we know how. And our people in Venezuela are dealing with a very difficult situation and we are fortunate that we have great people down there. We have not laid anybody off at this point. Obviously prudent management, we have to look at that situation. Obviously what we are doing though right now is we are not initiating any new capital projects or major capital or operating expenditures until we clarify the situation, so that we can reduce our expenditures. Obviously up until the end of April, we were proceeding as if we were building this project. That has obviously stopped but we are still in the process of analyzing our budgets going forward as to what cuts, if any, are appropriate. But as I say certainly right now we’re not initiating any new expenditures and we’ll conserve our cash.

The final statement to make is, you know, I think one that people are concerned about that should this go to the third alternative, some kind of a legal process, either nationally or internationally, is that that is not the intention of the company, first and foremost. It’s also not the intention of this company, given our financial and human resources, that we become what some refer to as a lawsuit company.

We will look for, actively look for other opportunities and, notwithstanding record metal prices, we see a number of potential opportunities out there for the company, but again it’s a little premature to be doing that just yet until we clarify what is the real situation, what is the objective of the government as regards to our project?

So with that, I will open it up to questions.

Question-and-Answer Session

 

Operator

(Operator Instructions) Your first question comes from the line of John Healy with Forest Investments.

John Healy - Forest Investments

Just looking at, you know, in a situation where if you were not to get the permit back and you do pursue alternatives, I guess that would be a joint venture or mine somewhere else or sell the equipment. I mean, how much can you elaborate on what you’ve explored or whether it’s theoretical or not in that area? I mean -- and looking at your equipment, so you said you paid about $10 million in payments since the end of the first fiscal quarter, so can I assume that your cash burn, again just looking at the sort of alternative scenario, is about a little over a million dollars a month?

A. Douglas Belanger

No, not at all. There are staged payments that occur at regular intervals but not certainly on a quarterly basis. We had ordered about $120 million worth of equipment. At the end of the first quarter, we had paid about 40, 39, and now it’s about -- under 50. So what you see there, if you look on the balance sheet, you’ll see restricted cash. Those are letters of credit that they transfer from restricted cash to then essentially a percentage ownership of some equipment or outright ownership.

For example, we have about $12 million worth of construction in mining equipment that we own outright. The mills, the motors and the drives for the mill, they are partially fabricated and partially paid for, but we do have an ownership of that percentage we have paid for. So that it would be like buying a car and then somebody takes over the payments from you, but they also have to pay for what you paid for the car. In this case, rather than the idea of selling equipment that has already been sold, you would assume a discount. Given the situation in the mining market today, some of this equipment is worth more than what we paid for it.

John Healy - Forest Investments

Sure, yeah, no, I saw one analyst had an estimate of about almost 20% more. My question is if you -- I mean, how would that work if you did say okay, we don’t get the permit, we’re just going to sell the equipment. Do you sell effectively the deposits you made at a premium? And then -- what do you --

A. Douglas Belanger

It’s obviously in -- we’re talking about a list of equipment. It isn’t just a couple of --

John Healy - Forest Investments

Sure, right, right.

A. Douglas Belanger

You work with the suppliers, in some cases if we’ve got it owned outright, once people are aware that you have this equipment, that it’s available, some of it can be sold very quickly on a one-off basis. Others would obviously involve the fabricator themselves to be involved in the process.

For example, somebody could just take over where we are in line and give us X amount of dollars to take that over and have those, that equipment then delivered to themselves. But again, there would have to be some working with the fabricator because there will be some details of that equipment that have to be changed before they get to a final finished product.

So it’s not something like let’s sell the equipment -- even if we said let’s sell the equipment tomorrow, it’s not going to happen tomorrow.

John Healy - Forest Investments

Sure, but I mean -- I guess what I’ve just -- go ahead.

A. Douglas Belanger

We’re going to have some time to see what’s out there. Obviously I can say without -- you know, we’ve had some already expressions of interest on all of the big pieces of our equipment, so we do feel comfortable that should we elect to sell the equipment, once we made a decision that that’s the right thing to do, or the proper thing to do, even then it will probably be a month or two before we actually do it.

John Healy - Forest Investments

Sure, because you still have some time before you hear from the environmental ministry.

A. Douglas Belanger

Right now, if nothing else happens, no clarifications, no statements, nothing by anybody, we are going through until the end of September before we will hear something official from the government. However, one speculation, as I mentioned about the ban on open pit mining that has been in the press in some cases, if they come out with a decree that bans open pit mining, well that pretty much makes the situation clear as regards to going forward with the project.

So should that occur, that obviously makes our decisions sooner and easier. So I think it’s one of those things that -- it’s like a pert chart; it has many directions which it could go and to speculate on which way it would go would be really just a guess at this point.

John Healy - Forest Investments

Right. Now, looking at your convertible bonds and the book value of $103.5 million, I mean, over time your cash balance transfer is effectively, besides small burn, to deposits on this equipment which from what I’m hearing you say, you can sell collectively at least at book value. You know, it makes these -- your ability to satisfy this debt -- I mean, it looks like you would be able to pay these bonds off, if you had to --

A. Douglas Belanger

Well, we have no -- there is no mechanism to pay them off.

John Healy - Forest Investments

No, no, no, I mean, not to be forced to but just if you chose to sell the equipment and say let’s pay these bonds off and keep the cash over and above that to explore other opportunities, and a legal battle with Venezuela, that is an opportunity to you, right?

A. Douglas Belanger

Yeah, that’s correct. I think the other thing is that looking at the bonds, I mean, as I say, it’s four years from when they are callable and that’s an awful long time. Should we choose to go in a different direction, that’s an awful long time to have to come up with the money and obviously if we see something in the next six months to a year or a year that looks very attractive, the decision can be made to just leave the bonds in place.

John Healy - Forest Investments

Right.

A. Douglas Belanger

So at this point in time, again it’s one of those decisions until we have more information, it’s kind of do nothing for now and obviously we’ll monitor the situation. If we -- we can go into the open market and buy them. Right now we can buy them, as I say, for probably $0.50 to $0.55 on the dollar.

John Healy - Forest Investments

Right. I was just looking not even necessarily at the current market price but just the fact that the bonds are money good looking at your effective, you know, your deposits on that equipment plus the cash.

A. Douglas Belanger

Yeah, I mean, depending on -- you know, I think it’s -- you can say okay, we owe $103 million. If you net out everything, then you still are left with $50 million, $60 million.

John Healy - Forest Investments

Plenty of cash to fight Venezuela and pursue other opportunities -- I mean, if it went that way, just looking at the severe case.

A. Douglas Belanger

The most severe, in terms of 100% liquidation all around, yeah, I agree.

John Healy - Forest Investments

I appreciate it. Thank you very much.

Operator

Your next question comes from the line of Robert [Bunger], a private investor.

Robert Bunger - Private Investor

Doug, good afternoon. I appreciate the fact that you spent so much time discussing with these other gentlemen all the worst case scenarios. But I am trying to look at a more constructive way of things, and my question is, is there any -- and I realize the difference between Crystallex and Gold Reserve as far as the structure of their complex and stuff like that is concerned, but is there any sort of common ground, or let’s call it a united approach vis-à-vis the Ministry of Environment with Crystallex? Or is everybody on his own?

A. Douglas Belanger

Well, you know, we had differences with Crystallex and those were resolved in October of ’06 at the assistance of the Canadian Embassy and the Ministry of Mines and the Ministry of Environment and those agreements are still in place in terms of working together on those kind of overlapping situations.

You know, as you say, it is a different -- and as I mentioned, it’s a legal administrative process and obviously that’s -- we do differ in that regard because Crystallex works through CVG and we work directly to the Ministry, so -- and a concession is one legal thing and a contract is another, so -- but they are really not -- I mean, from a standpoint of we are all in mining and we obviously, and as I said that we believe that certainly the constitution of the country and the attitude of the Ministry of Mines is that mining is treated equally fairly. That’s their law.

So it’s really a question of --

Robert Bunger - Private Investor

But you are both facing the same brick wall, and the question is, is there any way that cooperation between the two, or continuing the operation of the two might help both companies?

A. Douglas Belanger

Well, I think we are essentially doing that right now. Each of us have our own legal process that we have to follow and that we support -- you know, if it’s good for Crystallex, it’s good for us and visa versa. So I think the -- but in terms of pursing, I think people -- I don’t know, I’ve had people ask me about -- you know, if we have to go a legal route, doing a joint legal. And of course, again, different situations. They are really not -- while there is -- we’re in the same industry and there’s a similarity and obviously the deposits are right next door, the legal framework is quite a bit different in that regard.

Robert Bunger - Private Investor

One final quick question; there was a meeting with the economic development committee of the national assembly a few days ago, where Crystallex made their presentation. Is Gold Reserve in a similar boat? Were they invited to do that? Will they be invited to do that?

A. Douglas Belanger

You know, we’re not seeking it. We’ve always -- I think I’ve said this before, that there’s the three branches of government -- judicial, executive, and legislative, and right now the issue is purely with the executive branch, the Ministry of Mines, the Ministry of Environment. And we’ve never seen that the national assembly has any authority to do something unless they debate the mining law, and certainly if you look at the special powers that President Chavez has that are expiring in July, if there’s going to be a new mining law and they do not renew those special powers, then it will be a law that -- you know, it will have to be the national assembly that debates and approves a new mining law.

But I’ve never seen any evidence that, quite frankly, that the two ministries listen too much to the national assembly. It doesn’t hurt. I’m pleased to see Crystallex’s news release today and the statements they made. That’s great because I think that’s great for everybody, but we don’t intend to pursue that as a course.

Robert Bunger - Private Investor

Okay. All right. Thanks for your answers and I wish you luck and lots of success.

Operator

Your next question comes from the line of Jim Holme with Miller Tabak.

Jim Holme - Miller Tabak

I appreciate your comments on the equipment. Can you comment or give us any color on whether any entity or government has approached you regarding buying your mining rights or concessions?

A. Douglas Belanger

Well, that’s one thing I really didn’t emphasize. I mean, we have our mineral rights in totality right now that we’ve always had. There’s been no suggestion whatsoever that we’ve seen that there’s any question about that. And as I say, in fact, evidenced by the fact that we got our compliance certificates last year, late last year from the Ministry of Mines.

I think that it’s fair to say this whole action was -- caught everybody by surprise. The revocation of our permit and the denial of Crystallex’s, you know, under what we believe are very questionable, if at all, legal norms.

But in terms of somebody approaching us, you know, it’s not something we’re seeking right now obviously because we are somewhat -- you know, we are somewhat down and sitting on our behinds and that’s not exactly the time you want to go out and promote a transaction.

Jim Holme - Miller Tabak

Okay, great. Thanks very much and good luck to you.

Operator

(Operator Instructions) Your next question comes from the line of Scott Newhall with Trees Investment.

Scott Newhall - Trees Investment

I just have two quick questions, one is on the equipment specialization. You were saying at some point in the near future you would have to specialize the equipment and at what point would another company not be able to buy your equipment because it’s too specialized?

A. Douglas Belanger

Well, I think it’s a ways off. Most of the -- first of all, things like the caterpillar gen sets or tractors and all that stuff, that stuff is generic and obviously is not most of the things. Really when we get down to the most specialized equipment, it’s really the thing that’s being processed -- pebble crushers, gyratory crushers, the mills, the motors, the drives, and they are in a position where they are not specialized at this point. And as I said, it’s a timing thing and we can’t really pin down two months from now or a month from now or three months from now or six months, we’ve got to make a decision.

It’s really potential buyers as what do they need, and it’s not -- these are not off-the-shelf type equipment, so it’s having enough time to identify who might be a potential buyer, them understanding what it is we have being made and what changes can be made to modify to their order, and then what kind of a deal we could cut. So we are just still in that analyzing, but knowing that at some point we have to make a decision. And unfortunately, one thing I didn’t say is that decision may not give us time to, you know, if we have not resolved the situation in Venezuela -- in other words, we’re still in the same position we are today -- we may have to make that decision without clarity.

Scott Newhall - Trees Investment

So this decision doesn’t necessarily have to be made before the end of September?

A. Douglas Belanger

I would think that we would be pursuing but not like, as I say, if we said today let’s look at selling the equipment, it’s going to be several months to complete that sale, so -- and obviously if things changed, we could possibly change our mind at some point, so it’s really a very, very elusive concept right now because it’s not all the same and potential buyers, somebody might -- for example, as some of you know, we might have -- we have two circuits with [inaudible] to one sag mill and two ball mills. We could have somebody that simply wants one sag mill and the two ball mills, or a combination.

So you have to look at all of those issues and we’ll work with SNC Lavalin, who is our procurement company, who would have the best idea of who is out there and what it is they are looking for and how our equipment would be adaptable to that as a potential buyer. And as I said, going through the process, looking what’s out there does not necessarily mean we’ve made the decision to sell. We are just getting ourselves in a position to do that should the decision be made.

Scott Newhall - Trees Investment

Okay. And from what you’ve been saying, you guys are doing everything you can do work with the government but in terms of a worst case scenario, it sounds like it could be international arbitration. Is that correct?

A. Douglas Belanger

Well, we’re not really -- you know, that’s such a complex situation, that it really is hope for the best, which is plan A, and plan for the worst, and that’s what we will do. And there’s actually a number of avenues which, both nationally and internationally, we could pursue and at this point, I think to make those kind of statements other than that is really counter-productive.

Scott Newhall - Trees Investment

Okay, but --

A. Douglas Belanger

I mean, we think there are certainly elements --

Scott Newhall - Trees Investment

Is international arbitration one course that you guys could go?

A. Douglas Belanger

Well, obviously. That’s why there’s a bilateral investment treaty between Canada and Venezuela, and that’s what protects investments that you make internationally.

Scott Newhall - Trees Investment

Okay. And then one of the things we are trying to figure out is what would be the size of a claim that you guys would put against the government? From my understanding is that there’s an initial capital and then there’s future profits. I mean, do you have a size in terms of future profits? Is it done on the current gold price, copper price, or future prices? How would we go about computing something like that?

A. Douglas Belanger

Well, as I understand the process, and we are not -- by any means, I’m not an attorney. There are three elements -- your investment, interest on that investment over the time the investment is made, and then you have a potential claim for lost profits at the economic conditions that prevailed at the time of the action, giving rise to the action. I think if you look at the -- you know, Vanessa has a claim or Exxon has a claim right now in Venezuela under the [IXID], which is one of the avenues. You can see it’s that kind of claim.

Scott Newhall - Trees Investment

So your initial investment, or your investment so far is about $300 million, and then -- I mean, based upon the gold and copper prices around the time that this was issued two months ago, it looks like that would be then another $3.5 billion. Is that the ballpark that we should be looking at, or --

A. Douglas Belanger

Well, it depends on again what price you use. It’s obviously very sensitive to the price but certainly on an undiscounted cash flow basis, it’s in the billions.

Scott Newhall - Trees Investment

Okay.

A. Douglas Belanger

And there’s a claim, and then there’s an award, so --

Scott Newhall - Trees Investment

No, I know. I’m just trying to figure out what the claim would be in terms of what Gold Reserve would be going after, but I mean, $3.5 billion, that’s not too far --

A. Douglas Belanger

Well, if you look at the claim that Vanessa made when the price of gold was under $400, it was -- their claim was over $1 billion.

Scott Newhall - Trees Investment

Okay. And I guess my last question is in order to revoke a permit, can that be done by a Minister or does that have to be done by an executive order or something like that?

A. Douglas Belanger

Well, there’s certainly a legal opinion that we were granted the permit to construct under known decrees, presidential decrees and/or laws, mining law and the environment law. So to go against a decree would imply you have authority over a decree, which we don’t believe any Minister has.

Ministers -- from example, the Minister -- certainly a Minister of any ministry can propose a new law or a presidential decree governing their area but until it’s signed into law by either the congress or by the President in a decree, a Minister does not have that authority. So there is certainly an opinion that the revocation of a properly granted permit is not in the authority of the Ministry.

Scott Newhall - Trees Investment

Okay.

A. Douglas Belanger

So again, why we say we believe it’s baseless in fact and law.

Scott Newhall - Trees Investment

Okay. Well, thank you very much, Doug. I appreciate it.

Operator

Your next question comes from the line of Bob [Hudson], a private investor.

Bob Hudson - Private Investor

Thank you very much. Doug, a couple of questions; it seems like things are going to really resolve down to a political issue, or that’s what’s going on. Can you explain what the relationship is between the Ministry of Mines and the Ministry of Environment? Does one supercede the other in terms of their ability to stop or allow things to go forward? That’s the first question.

A. Douglas Belanger

Well, I think the -- there are two ministries which again, one of the best ways to analyze what’s going on in Venezuela is to put it back here to North America, to Canada and the United States and how often do you see one ministry dictate to another ministry what to do? They each have the responsibility to administer their laws, the ones that they are responsible for. In the case of the Ministry of Environment, the environment laws, and that the Ministry of Mines has no authority to overrule an environmental law and visa versa. And obviously that’s where you get into conflict between positions.

For example, small miners can be legally -- in fact, in the Kilometer 88 region, small miners are legally given mineral rights under the small miner concession rules, and so they are legally on a property and have the ability to mine. But it doesn’t give them the right to use mercury and flush their product down the river and cause pollution when they are violating environmental laws. And the fact that the Ministry of Mines says they are there legally, as I say, emphasizing they don’t have the right to break other laws.

So it was once said, I remember a number of years ago that the Ministry of Mines has some oversight responsibility/maybe authority over the Ministry of Environment but I do not believe they have authority to overrule, and I think that’s where you get into this -- you know, is there a conflict the ministries and their position? There appears to be right now that they have opposing positions but are we going to see this play out in the public? Probably not. It ultimately may have to be resolved by the President’s office.

The question is, do they want mining in this region, be it small miner or modern mining or both? And that is still a question mark right now. Obviously by the actions of the Ministry of Environment -- and while I say, as I said, everything we hear or most of what we hear from the Ministry of Mines contacts is that they support mining in the region and that’s again comments from the Minister tend to support that. But obviously words have to be matched by actions and so we have to get to a position where we are legally able to do what we’ve been approved to do.

Bob Hudson - Private Investor

And a follow-up on that; if it came down to the two ministers into a political contest, if we are trying to handicap who has the ear of the President where a new decree would have to come from? Given the fact that the players seem to have been changing in a number of the ministries -- who right now has the inside track in terms of the confidence of the President?

A. Douglas Belanger

I really couldn’t say. I think there’s -- you know, politics is an ugly business and to try to guess what’s in the minds of the ministers and the president and -- you know, one day they can go one way and politicians the next day can go the next. So in my opinion, it’s impossible to handicap, because if one position is stronger than the other, then we would have resolution to this.

I think there’s a debate going on as to what to do with mining in Venezuela. Maybe as a result of this action, it’s brought it to a head that it wouldn’t have otherwise, but I just don’t -- I think it’s going down that path of trying to figure out which one is more important or more powerful than the other is I think gives -- more than anything it would probably just give you a headache.

Bob Hudson - Private Investor

Okay, and the last question I have is with respect to you mentioned that your folks have been trying to get meetings and evidently have been unsuccessful in doing that. Is it that they just don’t want to meet with you or is there -- are they stalling you? What exactly seems to be the rationale for not meeting with you folks?

A. Douglas Belanger

Well, I mean there’s not meeting and there’s not meeting. And because it is a very formal kind of philosophy within the government, when you have this kind of situation there is a formal process that must be followed, and so formal requests for meetings have not occurred. But that doesn’t mean we’re not meeting with people from the Ministry. So you are trying to clarify it but again it’s more -- it leans more towards opinion than this is the official position of the Ministry and the only official position we will get is what we get in writing or by decree or whatever. So that’s where the challenge or the problem lies right now, is what is the official position? And at this point, it appears to support -- the Ministry of Mines appears to support mining by comment, but we have to see more than just words. We have to see action.

Bob Hudson - Private Investor

Okay. And have you tried or have been successful in approaching the President’s office itself in terms of trying to get that resolved at that level, which apparently is probably where it’s got to ultimately reside?

A. Douglas Belanger

No, we have been -- again, we have meetings with people in the President’s office but official meetings, you know, we’ve met with the Minister of Finance. We’ve met with the Minister of Planning. But in a more of an unofficial capacity, trying to find out what is the position of the government. And I think one thing is clear, is that I think that that issue is being -- we’re trying to determine where is this going and as we know, they’ve been trying to determine that for a number of years.

Bob Hudson - Private Investor

Okay. Thank you, Doug. I’ll let somebody else have a chance

Operator

Your next question comes from the line of Steve [Pascay], a private investor.

Steve Pascay - Private Investor

Doug, I’ve got a question regarding Minister [Sans] -- you have not had any formal meetings with Minister [Sans], although you are meeting with members of his administration. Given that he is also the President of the CVG, your partner in your project, why is it do you believe we as investors have not heard any complaints of the actions by the Ministry of Environment or any show of support for the project?

A. Douglas Belanger

Well, first, we have had formal meetings with our people prior to this action occurring in late April. But we have not had a formal meeting since then. But we do not -- we don’t work with CVG on the Brisas Project.

Steve Pascay - Private Investor

You do not?

A. Douglas Belanger

No, we have no -- with the Brisas concession, that deals directly with the Ministry of Mines and the Ministry of Environment, so we do not have a CVG contract on Brisas. We have a CVG contract on Choco 5, our other property, but there is a concession that underlies the Choco 5 property, a Ministry of Mines concession and we were given a power of attorney when we did the original deal to deal again directly with the government and not have to go through CVG in our compliance efforts with Choco 5. And we negotiated that a number of years ago.

So we do not -- we keep certainly CVG informed. We also, as it relates to Brisas because we do have some infrastructure properties that are CVG land, we do keep CVG or try to keep CVG informed of what’s going on and we have I think a fairly open relationship with them. But as it relates to the Brisas Project, we don’t work through CVG.

Steve Pascay - Private Investor

You had stated earlier that there is a lack of clarity from the executive office of President Chavez as to what their position is on mining in that region. But do you believe the Ministry of Environment would have made such a drastic policy reversal by revoking your permit and denying the permit of Crystallex if she didn’t feel she had the at least support of Hugo Chavez?

A. Douglas Belanger

Well, I can certainly see that -- you can certainly, based on historical experience in the country, you would expect that. But here we are, as I said, almost two months later and we’ve had no affirmation, no decree supporting the banning of mining in the Imataca area of Kilometer 88. And as I say, in fact, the Presidential decree from Chavez currently approves that area, which is -- then her actions, unless there is a change, her actions actually are in contravention of the current presidential decree.

So it’s more confusing than anything until we get some sort of statement of either support or denial, and at this point what we get is, informally, is they support mining. But part of it is also the issue with the small miners. The small miners have worked there for 50 years. Some of them are third generation. This is the only thing they know how to do. The town of Las Claritas in Kilometer 88 grew up as a result of small mining. So they are very concerned about not only what’s happening to us and their support for our project, but what happens to themselves because there are a number of properties where small miners are legally mining, albeit they may be violating environmental rules and it’s really, that’s a function for the government.

So one is bound up with the other. So what is the policy of the government towards mining? And I think the issue, it may be as a result of the actions of the Minister of Environment that indirectly, she has brought this issue to a head. If you’ve been either stock for the number of years, you know that review of mining in Venezuela has been going on for quite some time.

Steve Pascay - Private Investor

It’s your position that you don’t believe there will be a resolution for either company, Gold Reserve or Crystallex, if there is not also a resolution of the small mining issue?

A. Douglas Belanger

We’ve always believed that there has to, and why we proposed a number of initiatives over the years to resolve or work with the government for a long-term solution to help essentially lift up the small miners, educate them, train them on better environmental methods but still small mining. Assist them with better recovery methods, you know, and some rudimentary environmental things like rudimentary tailings ponds where you obviously don’t do it the way we will do it, or the way Crystallex would do it or any other modern mining company but it’s better than what’s going on now, which is just clear and utter devastation.

So we’ve always believed that from the government standpoint, when you’ve got anywhere from 40,000 to 60,000 constituents and a larger number than that that live off small mining, that’s a big political hot potato that we somewhat benefit because if they are there, then we are there, or visa versa. It would be hard to believe that they would allow small mining to occur and stop modern mining for environmental reasons.

Steve Pascay - Private Investor

Thank you very much for your conference call and your answers.

Operator

Your next question comes from the line of Randy Johnson with Coneco -- Concord, I do apologize.

Randy Johnson - Concord

I just want to follow-up on the -- you’ve been hammering away that you have to deal with the facts as you know them, and that you are going down this legal and administrative process. Do you get the sense that the Venezuelans fully understand the process? I know when it comes to trying to get meetings with Minister Sans and others, it’s a formal process, but do you or Arturo or anyone down there, do they get the sense that they fully grasp what has occurred?

A. Douglas Belanger

I think the -- our best guess, or my best guess, is that the actions of the Ministry to revoke our permit did not appear to be part of essentially a larger plan, and that I think because we’ve had lack of comment from both the Minister of Mines and the President’s Office, that this -- I don’t want to necessarily say caught them by surprise. Ministers have the obligation to administer their laws as they see them.

So it’s really a hard question to answer, simply because you really don’t know what was going on behind the scenes leading up to this. Quite frankly, as we say, since the revocation of our permit was not based in law, it didn’t appear to get a wide vetting procedure. Because I think that when we got our permit, I remember seeing, I think I’ve told you this, I remember seeing a check-off list where some 24 or 26 people in the Ministry of Environment had to sign off on our permit. And we find it hard to believe that this had a broad vetting that they were going to revoke our permit. And based on what we filed back in our appeal, we feel it’s very strong. But having said that, I’ve always believed governments can do whatever they want to do. The question is if they follow their own laws or don’t follow their own laws that gives rise to further consequences.

Randy Johnson - Concord

Right. And one follow-up question -- one of your [lead arranger] banks was the [Andian] development bank, [CAFF]. And with them headquartered in Caracas, I’m just curious what their reaction has been to this with their government contacts that they have. I mean, do they see the actions that have taken place against Gold Reserve as a breach of law? Or what are they saying or not saying?

A. Douglas Belanger

I think really not saying is probably the proper answer, simply for the simple fact that the Government of Venezuela is the largest shareholder of [CAFF], so I think that internal politics are such that they really would take guidance from their own shareholder first and foremost, and I think their choice is probably stay out of it.

Randy Johnson - Concord

All right. One quick follow-up then --

A. Douglas Belanger

Because again, I don’t think anybody knows at this point, other than maybe a few people who have -- like the Minister and/or the President or his highest advisors, what is really going on here.

Randy Johnson - Concord

But you have to question if President Chavez does fully understand what’s going on when he’s asking for new private foreign investment to come into the country. If he was aware of what took place with you guys --

A. Douglas Belanger

Yeah, I mean, certainly a President is only as knowledgeable as what his people tell him. Because to assume that the President knows everything that is going on in his country, or even around the world would be a bad assumption, I think. Especially when you’ve got the challenges that Venezuela has with the high unemployment, high inflation, all the things going on politically in the country that one would probably more correctly assume that the President and others are probably not well-informed, so our job is to try to make sure they are informed, at least as far as our position is concerned.

Randy Johnson - Concord

And is Rockne heading down anytime soon?

A. Douglas Belanger

Not that I am aware of, but he could go at anytime when he’s needed.

Randy Johnson - Concord

All right. I appreciate it, Doug. Thank you.

Operator

There are no additional questions at this time. I would now like to turn the presentation back over to Mr. Doug Belanger for closing remarks.

A. Douglas Belanger

Thank you. All good questions. I think obviously this is a very difficult situation. I think there is a tendency of people wanting to say this is a bad situation, this is a good situation, or to spin it. I think the situation is one that people ask me what my gut feeling is where we are headed, and quite frankly I don’t have a gut feeling. I think we don’t have enough information. We still remain hopeful that this can be resolved and that’s certainly our objective, so given where the stock is trading at, our financial strength, I believe all we can do now is try to clarify the situation as soon as possible so we can make the proper decisions. But I don’t want to leave the impression of an overly negative situation and I don’t want to leave the impression of overly positive. I think we are in good shape and the work that we’ve done over the last 16 years should do us in good stead no matter what direction we head to, as well as our people. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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