Empresa Mixta Ecosocialista Siembra Minera, S.A.
In August 2016, we executed an agreement (the “Mixed Company Agreement”) with Venezuela for the formation of a jointly owned company (the “Mixed Company”) and in October 2016, together with Venezuela, we established Empresa Mixta Ecosocialista Siembra Minera, S.A. (“Siembra Minera”), the entity whose mission is to develop the Siembra Minera Project, as defined below.
Siembra Minera is beneficially owned 55% by Corporacion Venezolana de Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve. The parties will retain their respective interest in Siembra Minera in the event the agreed upon payments, pursuant to the Settlement Agreement (See Brisas Arbitral Award/Enforcement and Collection), are not made by Venezuela.
Siembra Minera holds the gold, copper, silver and other strategic mineral rights within Bolivar State, including the Brisas Cristinas Project (the “Siembra Minera Project”) and such mineral rights have a 20 year term with two 10 year extensions. Siembra Minera is, among other things authorized, via Presidential Decrees and Ministerial and Central Bank resolutions, to carry-on its business, pay a net smelter return royalty to Venezuela on the sale of gold, copper, silver and any other strategic minerals over the life of the project and provide net profits participation based on the sales price of gold per ounce.
Gold Reserve through certain wholly owned Barbados subsidiaries is expected to provide, under a Technical Services Agreement, engineering, procurement and construction services to Siembra Minera for a fee of 5% over all costs of construction and development and, thereafter, for a fee of 5% over operating costs during operations.
PRELIMINARY ECONOMIC ASSESSMENT
Set forth in the Technical Report on the Siembra Minera Project section is the March 16, 2018 technical report for the Preliminary Economic Assessment (“PEA”) of the Siembra Minera Project Report prepared in compliance with NI 43-101. The scientific and technical information contained therein, including resource estimates, pit design, mine plan, flowsheet design, design criteria, project layout, infrastructure requirements, capital and operating estimates was prepared by Roscoe Postle Associates, Inc. (“RPA”), Samuel Engineering Inc. (“Samuel Engineering”), Tierra Group International, Ltd (“Tierra Group”), and AATA International, Inc. (“AATA”). The Qualified Persons (as defined in NI 43-101) in respect of the PEA who have reviewed, verified and approved such information are Richard J. Lambert, P.E., P.Eng., José Texidor Carlsson, P.Geo., Grant A. Malensek, P.Eng., Hugo Miranda, C.P., and Kathleen A. Altman, Ph.D., P.E., each of whom is independent of the Company. The PEA was filed on SEDAR on April 6, 2018 and is available at www.sedar.com.
The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. The PEA only demonstrates potential viability and there is no certainty that the PEA will be realized, or that any production will be realized from the Siembra Minera Project. Mineral resources are not mineral reserves and do not have demonstrated economic viability. The potential viability of the mineral resources at the Siembra Minera Project have not yet been supported by a pre-feasibility or a feasibility study. The terms “mineralised material” and “material” are used in this summary to denote mineralised material above an economic cut-off grade on which the proposed mining and processing activities are designed to operate. It does not imply that mineral reserves have been estimated.
SIEMBRA MINERA PROJECT COMPLETED ACTIVITIES
- Obtained the Permit to Effect for the Siembra Minera Project from the Venezuelan Ministry of the Environment on May 7, 2018;
- Participated in an inauguration ceremony to mark the formal commencement of activities on the Siembra Minera Project now that the Environmental Permit to Effect has been issued;
- Launched a number of social programs to improve the health care in the Siembra Minera Project;
- Completed and published the Siembra Minera Technical Report with respect to the PEA as discussed above;
- Samuel Engineering provided preliminary design and cost estimates for a smaller 15,000 tonne per day (“tpd”) cyanidation plant (the “Small Plant”) and also provided support to RPA on a larger 140,000 tpd flotation plant (the “Large Plant”) with design and related capital cost estimates. The Small Plant is expected to complement the Large Plant for the early production of gold and generation of cash flow;
- Tierra Group provided preliminary design and cost estimates for the Small Plant tailings dam facility and also provided support to RPA on the Large Plant tailings dam design and capital cost estimates;
- Ingenieria Caura, S.A. (“Caura”) outlined an Early Works Program (including earthwork, timber clearing and road building) along with various permitting applications which have been submitted to the government. In addition, Caura is preparing the Venezuela Environment Impact Statements (“VEIS”) for both the Small and Large Plants;
- AATA is preparing to complete an International Environmental and Social Impact Assessment (“IESIA”) for the Siembra Minera Project utilizing input from the above consultants. This report will be instrumental in project financing of the Large Plant. Prizma LLC is providing support and assistance to Caura and AATA for the social aspects of the VEIS and IESIA;
- Global Resource Engineering is providing support and assistance to Caura and AATA for the geochemistry and water quality aspects of the VEIS and IESIA;
- Local contractors have provided support services working with Gold Reserve and Siembra Minera by mobilizing certain equipment to the site and assisting with the anti-malaria program with smoker units going throughout the local communities to assist with the eradication of the source of the malaria; and
- As a result of the PEA produced by RPA the business model was modified according to the new findings and capital and operating costs were updated. Also, a new Cash Flow Model was developed by RPA to represent separately both the Large and Small Plants.
The Company has incurred the initial costs associated with the work so far completed on the Siembra Minera Project, which through March 31, 2018 amounted to a total of approximately $9.7 million. These expenditures primarily include costs associated with consultants working on the project.
SIEMBRA MINERA PROJECT DEVELOPMENT
Siembra Minera is expected to continue to undertake initiatives to secure financing(s) to fund the anticipated capital cost of the Siembra Minera Project, which is expected to be in excess of $2 billion. Concurrent with financing efforts, the next phase of the Siembra Minera Project’s development is expected to include detail design work for the Small Plant and related facilities along with the metallurgical testing to support the metallurgical process used in the Small Plant. Subject to appropriate funding we expect to initiate the feasibility study on the Large Plant and concurrent detailed engineering.
With the issuance of the Permit to Effect we expect to commence various on-site activities such as site clearing, construction of a temporary camp and warehouse facilities, drilling of dewatering and development drill holes, access roads on the property, opening of the quarry for construction aggregates and commencement of initial construction activities. Further permits and authorizations will be required to place the project into production which will be requested during this initial period of activity.
Proposals are currently being evaluated for a drilling program which will support the overall project development activities, water management wells, and test areas where additional resource potential is evident. Siembra Minera has established local management offices in Caracas and Puerto Ordaz which will support its plan to complete various geotechnical studies as well as environmental and social studies to augment and update previous work on the property. This work will support the generation of a pre-feasibility study for the Small and Large Plant and generate an International Environmental & Social Impact Assessment (IESIA) for the support of the various operating and environmental permits that will be required for the project.
Siembra Minera also announced a number of social programs to improve the health care in the Siembra Minera Project area specifically addressing the malaria problem with medicines and preventive measures, rehabilitating and upgrading schools and sports courts located in the Siembra Minera Project vicinity and generating engineering assessments for future upgrades to the local communities’ water supply and sewage system infrastructure.
On May 11, 2018 an inauguration ceremony on the property was held to mark the formal commencement of activities now that the Environmental Permit has been issued. The ceremony was attended by the Minister of the Environment, the Minister of Mines, the Bolivar State Governor, the Commanders of the Army for Bolivar State and Commanders of the National Guard, along with representative of Sifontes Municipality, the surrounding communities and local labor leaders as well as representatives of Siembra Minera and the Company.