Gold Reserve Inc. (GRZ)
F1Q08 Earnings Call
June 17, 2008 4:30 pm ET
A. Douglas Belanger - President, Director
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
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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 Last quarter, we had the permit, we were preparing to construct the mine, the permit was revoked and here we find ourselves basically in a position of trying to clarify.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.