Mixed Company

Empresa Mixta Ecosocialista Siembra Minera, S.A.

In August 2016, we executed an agreement (“Mixed Company Agreement”) with Venezuela for the formation of a jointly owned company (“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 Brisas Cristinas Project.

Siembra Minera is beneficially owned 55% by Corporacion Venezolana De Mineria, S.A., a Venezuelan government corporation, and 45% by Gold Reserve and the parties will retain their respective interest in Siembra Minera in the event the agreed upon payments, pursuant to the Settlement Agreement, 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, (each having a 40 year term comprised of 20 years with two 10 year extensions) and 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.

The Company’s cumulative expenditures associated with Siembra Minera through June 30, 2017 amounted to approximately $3.5 million, including approximately $1.6 million in 2016 and $1.9 million during the six months ended June 30, 2017. In addition, the Company has entered contracts for further expenditures amounting to approximately $1.4 million.

GR Engineering (Barbados) Inc. (“GR Engineering”), under a Technical Services Agreement, is providing 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.

Brisas Cristinas Initial Scope of work

GR Engineering continues its work associated with the design and cost of two separate and concurrent processing plant scenarios. One is an oxide saprolite ore processing plant that would provide for a fast track production and cash flow. This is a smaller plant that could be constructed in less than a two year time frame. The other is a large scale processing plant for the sulfide saprolite and hard rock ores which would take longer to put into production.  In this regard, GR Engineering has signed initial contracts totaling an estimated $1.5 million with the following consultants initiating work on the Brisas Cristinas Project on a number of fronts:

  • Roscoe Postle Associates Inc. (RPA) has commenced work on a NI 43-101 report and Preliminary Economic Assessment (PEA) which will include updated resource estimates and cost estimates;
  • Samuel Engineering, Inc. is providing preliminary design and cost estimates on the oxide saprolite processing plant and is providing support to RPA on the large scale hard rock process plant design and related capital cost estimates;
  • Tierra Group International, LTD is also providing preliminary design and cost estimates for the oxide saprolite processing plant tailings dam facility and is providing support to RPA on the large scale hard rock process plant tailings dam design and capital cost estimates;
  • Ingenieria Caura, S.A. (Caura) is working on 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 oxide saprolite and hard rock process plants;
  • AATA International Inc. (AATA) has commenced work on an International Environmental and Social Impact Assessment (IESIA) for the hard rock processing plant. Prizma LLC. is providing support and assistance to Caura and AATA for the social aspects of the VEIS and IESIA;
  • Global Resource Engineering (GRE) is providing support and assistance to Caura and AATA for the geochemistry and water quality aspects of the VEIS and IESIA; and
  • Inversiones Alfamaq, C.A. an industrial company in Venezuela has been providing support services in Venezuela and will be working with GR Engineering and Siembra Minera to provide construction services for the early works at the project once the permits are received. In addition Alfamaq has already mobilized equipment to the site and has been instrumental in the anti-malaria program with smoker units going throughout the local communities to start to eradicate the source of the malaria.

The Company’s current activities also include the drafting of an Engineering Procurement Construction Management (“EPCM”) contract between GR Engineering and Siembra Minera, establishing offices in Caracas and Puerto Ordaz for operation and administrative functions, identifying and hiring administrative and operations personnel, providing incoming/outgoing transportation, preparing and implement security policies, transportation and housing policies, hiring and training security staff, and acquiring vehicles and office and field equipment.  Concurrently, the Company has conducted meetings with Venezuelan government agencies for the development of a small miner and relocation plan, development of a social development plan for the region and commenced an anti-malaria program and campaign to combat the disease.

Brisas Cristinas Combined

The original Brisas and Cristinas properties are immediately adjacent to each other. We have determined that not only did the adjoining properties share one large, continuous mineral deposit, but developing and exploiting this mineralization in a combined project would have less impact on the environment than two separate projects, and as a result would create efficiencies and economies of scale that would enhance the combined project economics.

Multiple mineral resource estimates and feasibility studies (no longer current due to stale operating and capital cost estimates), have been completed on each individual property in the past and Siembra Minera is currently completing a new resource estimate on the combined properties   by preparing a Preliminary Economic Assessment (“PEA”) in accordance with National Instrument 43-101- Standards of Disclosure for Mineral Projects (“NI 43-101”).

We are confident that because of the previous studies on Brisas, the Brisas Cristinas Project has the potential to be a large open pit mining project. With the granting of the new Economic Zone which encompasses the original properties and has additional space for infrastructure and resource expansion totaling 18,950 hectares, our base plan is to combine the Brisas and Cristinas properties into one project and utilize the 2008 Brisas design and layout to eliminate the duplication of infrastructure facilities and staff from the previously independent project plans. One large project versus two smaller projects reduces the overall footprint or disturbed ground by 30 to 40% of the area from what was anticipated for the independently developed projects. As a result, it allows the down-dip expansion of the pit area for increased recovery of substantial additional potential mineral resources while significantly reducing related environmental impacts. The early works activities will commence on the original Brisas site due to the fact that much of what is in the first permit was already permitted by the government in 2007 and therefore are at an advanced stage, which will allow the government to fast track this early permitting.

Brisas Cristinas Location

The Brisas Cristinas Project is located in the Guyana region, in the Kilometer (Km) 88 gold mining district of Bolivar State in southeast Venezuela. The name Kilometer 88 for the district came from the area being located near kilometer 88 marker of the road linking El Dorado (Km 0) with the Brazilian border (Pan American Highway or Highway 10). Las Claritas is the closest town to the property. The closest nearby large city is Puerto Ordaz situated on the Orinoco River near its confluence with the Caroní River. Puerto Ordaz is home to most of the major industrial facilities like the aluminum smelters and port facilities accessible to ocean-going vessels from the Atlantic Ocean via the Orinoco River, a distance of about 200 kilometers.