Board Strongly Urges Shareholders Not to Tender Their Shares
Into Rusoro's Inadequate Offer
SPOKANE, WA, Dec. 30 /CNW/ - Gold Reserve Inc. (NYSE Alternext: GRZ) (TSX: GRZ) today announced that its Board of Directors unanimously voted to reject Rusoro Mining Ltd.'s ("Rusoro") (TSX-V: RML.V) unsolicited offer of December 15, 2008 (the "Offer") to acquire all of the outstanding shares and equity units of Gold Reserve in consideration for three shares of Rusoro for each Gold Reserve share tendered under the Offer. The Board also recommended that Gold Reserve shareholders not tender their shares into the Rusoro Offer. Based on the closing price for the Rusoro Shares on the TSXV on December 29, 2008, the last trading day before the date of the Board's recommendation, the implied offer price of the Rusoro Offer was C$1.86 per Gold Reserve Class A Share. The basis for the Board's recommendation is set forth in the Directors' Circular filed today by Gold Reserve with SEDAR (the "Directors' Circular") and the related Schedule 14D-9 filed with the Securities and Exchange Commission ("SEC"), and will be available on Gold Reserve's website at www.goldreserveinc.com.
In response to the Rusoro Offer, the Gold Reserve Board of Directors formed an Independent Committee of the Board to consider the terms of the Offer and its value to Gold Reserve shareholders. The Independent Committee, comprised of James H. Coleman, Chairman of the Independent Committee, Jean Charles Potvin, Chris D. Mikkelsen and Patrick D. McChesney, carefully reviewed the terms of the Offer and reported to Gold Reserve's Board of Directors. Based on that review, and after careful consideration with its independent financial and legal advisors, Gold Reserve's Board unanimously recommended that shareholders reject the Offer and not tender their Gold Reserve shares into the Rusoro Offer.
"Gold Reserve's Board of Directors believes that the Rusoro Offer is opportunistic, financially inadequate and significantly undervalues the Company, its assets and their relative contribution to the proposed combination," said Doug Belanger, President of Gold Reserve. "We believe that Rusoro is attempting to acquire Gold Reserve's valuable assets - including the Brisas Project and our large cash reserves - without offering adequate consideration to Gold Reserve shareholders. Furthermore, we believe that Rusoro's own weak financial position and lackluster operating performance present significant risks to Gold Reserve shareholders if Rusoro's unsolicited offer is successful."
Mr. Belanger added, "Our Board and management team are committed to enhancing shareholder value and are taking all appropriate steps to position the Company for the future. Our plan is to continue to work with the Venezuelan government to finalize the necessary pre-production permits for the Brisas Project. To this end, we expect to meet with the Venezuelan government in January 2009 to address anticipated mining sector reforms and the potential impact on our Brisas Project."
In its Directors' Circular and Schedule 14D-9, the Gold Reserve Board strongly recommends that all Gold Reserve shareholders reject the Rusoro Offer and not tender their shares. The Board's recommendation is based on a number of factors, including, but not limited to, the following:
- The Rusoro Offer does not represent a premium as it does not
adequately compensate Gold Reserve shareholders for the fair value of
the world-class Brisas Project or Gold Reserve's cash assets. Under
the terms contemplated in the Rusoro Offer, Gold Reserve would
contribute 84% of the combined company's proven and probable gold
reserves, 100% of the combined company's proven and probable copper
reserves, 84% of the combined company's cash and investments, and
advanced project engineering, site analysis and drill data. On the
other hand, Rusoro would contribute liquidity and operational
problems, substantial reserve impairment and a weak asset base.
Despite Gold Reserve's far greater contribution to the value of the
combined company, the Rusoro Offer proposes to provide Gold Reserve
shareholders with a mere 30% interest in the combined company on a
non-diluted basis. Furthermore, the Offer calls for the delisting of
Gold Reserve shares from the NYSE Alternext and TSX in exchange for a
Canada-only listing on the junior Canadian TSXV exchange, thereby
decreasing the combined company's liquidity in the United States.
- The Gold Reserve Board believes Rusoro lacks the financial resources
to fund its aggressive growth plans for the combined company.
Rusoro's contribution to the combined company would expose Gold
Reserve shareholders to significantly increased financial risk due to
Rusoro's negative cash flow, working capital deficit and near term
debt repayment obligations. Gold Reserve does not believe that Rusoro
has the financial resources to continue its existing business
activities, let alone its aggressive growth plans for the combined
company. Specifically, according to Rusoro's interim financial
statements for the three and nine months ended September 30, 2008 and
2007, Rusoro had current liabilities of approximately $46 million and
cash of approximately $21 million, and incurred a loss before income
taxes of approximately $74.1 million for the nine months ended
September 30, 2008. Rusoro also has long-term debt of $80 million
(Hambro/Endeavour Loan), which when aggregated with Gold Reserve's
obligations under Gold Reserve's 5.5% Senior Subordinated Convertible
Notes, equates to an annual interest obligation of approximately
$14 million. Furthermore, the entire $80 million loan is due in full
on June 10, 2010, yet Rusoro fails to explain how it intends to repay
any part of that amount.
- Rusoro's claim that Gold Reserve shareholders would own approximately
30.4% of the combined company is misleading. Rusoro's calculation is
based on a combined company on an "as issued" non-diluted basis and
implies that no additional Rusoro shares will be issued by the
combined company. If Rusoro's options and warrants are exercised and
the Hambro/Endeavour Loan converts into shares in the future, Gold
Reserve shareholders would only own approximately 22% of the combined
company. Furthermore, Rusoro has a history of growth through
acquisitions financed by issuing additional shares. Given its
aggressive growth plans and the current dislocation in the debt
markets, Gold Reserve believes that Rusoro would need to issue a
substantial amount of additional equity in the combined company,
thereby further diluting the collective ownership of Gold Reserve
shareholders.
- Based on Rusoro's track record, Gold Reserve does not believe Rusoro
has the operational expertise necessary to even maintain, much less
enhance, the value of the combined company. Rusoro has often failed
to achieve its own forecasts in almost all categories, and Rusoro's
management is failing to meet production rates, ore grade and
metallurgical recovery projections and is operating at a loss despite
historically high gold prices. In fact, Rusoro's key management has
no demonstrated experience in developing gold mining properties,
which Gold Reserve believes is reflected in Rusoro's poor operational
results at its Choco 10 mine, where Rusoro's cost of production
exceeds the price at which it sells its gold. During the three months
and nine months ended September 30, 2008, Rusoro realized an average
gold sales price of $676 and $663 per ounce, respectively, which
represents a discount to the international gold spot price of
approximately 19% and 26%, respectively, for the same periods. Taken
together, there is no reason to believe that Rusoro will be any more
successful at achieving its plan and forecasts for the combined
company than Rusoro has been at achieving its own plan and forecasts
in the past.
- Financial and mining experts raise material concerns regarding
Rusoro. The Gold Reserve Board retained two independent experts to
review Rusoro's public disclosures regarding its financial statements
and its mining operations. Rosen & Associates Limited, an independent
litigation and investigative accountant, reviewed Rusoro's public
financial disclosures and concluded, "In our opinion, Rusoro's
financial reporting of its historical results and of the pro forma
combined entity does not provide sufficient information for GRI's
shareholders to make an informed assessment about the Offer. The
available information indicates that there are serious concerns that
need to be addressed, such as the discrepancies in Rusoro's gold sale
prices, its accounting for production costs and its extensive related
party dealings." Behre Dolbear & Company (USA), Inc., an independent
mining industry consultant, reviewed Rusoro's public technical
disclosure concerning its operations and concluded, "Succinctly,
based on our review, Behre Dolbear has concluded that Rusoro's
filings lack sufficient information from which a typical investor
could make an informed decision."(1)
- Rusoro has accessed Gold Reserve's Choco 5 Project without Gold
Reserve's authorization and has conducted unauthorized exploration
sample drilling. In May or early June 2008, agents or employees of
Rusoro's subsidiary Promotora Minera de Guayana, S.A. entered onto
Gold Reserve's Choco 5 Project and obtained drill samples without
Gold Reserve's permission. Since Gold Reserve first became aware of
Rusoro's unauthorized actions, Gold Reserve has repeatedly demanded
the drilling results improperly obtained by Rusoro. Rusoro has
acknowledged possession of the drilling data, but has never provided
any of those results to Gold Reserve. Since Rusoro has stated that
one of the four reasons for its Offer is to "identify opportunities
to optimize the development of Gold Reserve's Choco 5 Project," Gold
Reserve believes that Rusoro must have, or must think that it has,
material information regarding the value of the Choco 5 Project.
Importantly, while Rusoro had this data in its possession in
formulating its Offer, to date, neither Gold Reserve nor its
shareholders have had the same benefit of this information in their
evaluation.
- There is no reason to believe that Gold Reserve shareholders would
benefit from Rusoro's purported "established" relationship with the
Venezuelan government. Rusoro's contention that Gold Reserve
shareholders will benefit from Rusoro's "established" relationship
with the Venezuelan government is unsubstantiated. Rusoro continues
to be subject to the same mining law and government actions as all
mining companies operating in Venezuela. Despite Rusoro's claim that
is has an "established" relationship with the Venezuelan government,
a Venezuelan government entity, Ferrominera del Orinoco ("FMO"), has
instigated legal proceedings against a Rusoro subsidiary, Promotora
Minera de Guayana S.A. ("PMG"), asking for the annulment of a
shareholders meeting whereby FMO's equity stake in PMG was diluted
from 30% to 0.02%. In addition, Rusoro has not obtained all of the
permits required by the Venezuelan government for the Choco 10 mine
and Cooperativa de Molineros El Callao II RL has commenced an action
against Rusoro in the Venezuelan courts claiming possession of the
Choco 10 mine site and damages in the amount of approximately
US$10,500,000 for eviction from the Choco 10 mine site. Neither the
Board of Corporación Venezolana de Guayana, a Venezuelan state
company, nor the council of Ministers has approved Rusoro's claimed
95% ownership interest in Choco 4 and Choco 10. Finally, if the
Venezuelan government reforms the mining law in a manner that allows
mining companies to participate profitably in mixed enterprise joint
ventures, which Gold Reserve believes is likely, then Gold Reserve
believes its shareholders would benefit more fully without a dilutive
combination with Rusoro.
- Gold Reserve's financial advisors, J.P. Morgan Securities Inc. and
RBC Capital Markets, have each provided a written opinion dated
December 30, 2008 that the consideration offered under the Rusoro
Offer is inadequate, from a financial point of view, to Gold Reserve
shareholders.
- The Rusoro Offer is not a "Permitted Bid" under Gold Reserve's
Shareholder Rights Plan. At the time of its Offer, Rusoro had the
ability to make a Permitted Bid under Gold Reserve's Rights Plan, but
chose not to make a Permitted Bid. In addition, Gold Reserve believes
Rusoro collected information regarding Gold Reserve's Choco 5 Project
through unauthorized drilling, thereby precluding the Rusoro Offer
from being a Permitted Bid under the amended Rights Plan, which
excludes any takeover bid made by a party who possesses confidential
information concerning Gold Reserve without an appropriate
confidentiality agreement. Similarly, despite Rusoro's claims to the
contrary, Gold Reserve believes that Rusoro has also benefited from
direct or indirect access to confidential information regarding Gold
Reserve's operations because Rusoro's financial advisor in connection
with the Offer, Endeavour Financial, has served for a number of years
as Gold Reserve's financial advisor.
- The timing of the Rusoro Offer is opportunistic and disadvantageous
to Gold Reserve shareholders. Gold Reserve believes that the Rusoro
Offer is opportunistically timed to take advantage of recent low
trading prices of Gold Reserve Class A Shares, which, like the share
prices of many companies, have been depressed at least in part as a
result of the global economic crisis. The Board believes the Rusoro
Offer is also timed to deprive Gold Reserve shareholders of the
benefits of the expected near term announcement and implementation of
mining sector reform in Venezuela.
Shareholders are encouraged to read Gold Reserve's Directors' Circular and Schedule 14D-9, which are available at www.sedar.com or www.sec.gov respectively, to carefully consider the reasons for the Board's recommendation.
J.P. Morgan Securities Inc. and RBC Capital Markets are acting as financial advisors to Gold Reserve. Fasken Martineau DuMoulin LLP and Baker & McKenzie LLP are serving as legal advisors.
Gold Reserve Inc. is a Canadian company, which holds the rights to the Brisas gold/copper project and the Choco 5 gold exploration property in Bolivar State, Venezuela.
This press release, including the discussion of the reasons for the Board of Directors' unanimous recommendation that Gold Reserve shareholders reject the Rusoro Offer and not tender their Gold Reserve shares, contains certain statements that constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, as amended, that are based on expectations, estimates and projections as of the date of this press release. These forward-looking statements can often, but not always, be identified by the use of forward-looking terminology such as "plans", "predicts", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases, or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause the actual financial results, performance, or achievements of Gold Reserve to be materially different from our estimated future results, performance, or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, concentration of operations and assets in Venezuela; corruption and uncertain legal enforcement; the outcome of any potential proceedings under the Venezuelan legal system or before arbitration tribunals as provided in investment treaties entered into between Venezuela, Canada and other countries to determine the compensation due to Gold Reserve in the event that Gold Reserve and the Venezuelan government do not reach an agreement regarding construction and operation of the Brisas Project (as defined in the Directors' Circular), or the Brisas Project is transferred to the Venezuelan government and the parties do not reach agreement on compensation; requests for improper payments; regulatory, political and economic risks associated with Venezuelan operations (including changes in previously established laws, legal regimes, rules or processes); the ability to obtain, maintain or re-acquire the necessary permits or additional funding for the development of the Brisas Project; significant differences or changes in any key findings or assumptions previously determined by us or our experts in conjunction with our 2005 bankable feasibility study (as updated or modified from time to time) as a result of actual results in our expected construction and production at the Brisas Project (including capital and operating cost estimates); risk that actual mineral reserves may vary considerably from estimates presently made; impact of currency, metal prices and metal production volatility; fluctuations in energy prices; changes in proposed development plans (including technology used); our dependence upon the abilities and continued participation of certain key employees; the prices, production levels and supply of and demand for gold and copper produced or held by Gold Reserve or Rusoro; the potential volatility of both Gold Reserve shares and Rusoro shares; the price and value of the Gold Reserve Notes (as defined in the Directors' Circular); uncertainty as to the future value of Rusoro, Gold Reserve or the Combined Company (as defined in the Directors' Circular); the prospects for exploration and development of projects by Gold Reserve or Rusoro; whether or not an alternative transaction superior to the Rusoro Offer will emerge; and risks normally incident to the operation and development of mining properties. This list is not exhaustive of the factors that may affect any of Gold Reserve's forward-looking statements. Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to Gold Reserve or persons acting on its behalf are expressly qualified in their entirety by this notice. Gold Reserve disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise; and whether or not an alternative transaction superior to the Rusoro Offer may emerge.
---------------------- (1) Full reports are available in the Company's Directors' Circular and Schedule 14D-9, filed with SEDAR and the SEC, respectively.