RUSORO MINING LTD. Interim Consolidated Financial ... · Intangible Assets provides guidance on the...

Interim Consolidated Financial StatementFOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008

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RUSORO MINING LTD.Interim Consolidated Financial Statements (unaudited)

THREE MONTHS ENDED MARCH 31, 2009 AND 2008(Expressed in thousands of US Dollars)

(unaudited)THREE MONTHS ENDED MARCH 31, 2009 AND 2008

RUSORO MINING LTD.CONSOLIDATED BALANCE SHEETS(Expressed in thousands of US Dollars)

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CURRENT ASSETS

Cash and cash equivalents

Short-term investments

Receivables (Notes 3 and 14)

Inventories (Note 4)

Prepaid expenses and deposits (Note

Assets held for sale (Note 21)

NON CURRENT ASSETS

Receivables (Note 3)

Property, plant and equipment (Notes 6 and 14)

Mineral properties (Notes 7 and 14)

CURRENT LIABILITIES

Accounts payable and accrued liabilities (Notes 8 and 14)

Income taxes payable

Note payable (Notes 9 and 14)

NON CURRENT LIABILITIES

Other liabilities

Asset retirement obligation

Convertible loan (Notes 10 and 14)

Future income tax liability

NON-CONTROLLING INTEREST

SHAREHOLDERS' EQUITY

Share capital (Note 11(a))

Equity component of convertible loan (Note 10)

Contributed surplus (Note 11(d))

Accumulated other comprehensive

Deficit

Commitments and contingencies – Note 19

Risks – Note 20

Subsequent events – Note 23

APPROVED BY THE BOARD:

“George Salamis” , Director

George Salamis

CONSOLIDATED BALANCE SHEETSUS Dollars) – unaudited

March 31, 2009

$

61,609

3,999

9,565

11,498

expenses and deposits (Notes 5 and 14) 8,428

-

95,099

8,111

Property, plant and equipment (Notes 6 and 14) 647,257

(Notes 7 and 14) 262,719

1,013,186

Accounts payable and accrued liabilities (Notes 8 and 14) 32,439

4,277

500

37,216

823

2,613

Convertible loan (Notes 10 and 14) 73,022

249,167

362,841

604

736,048

Equity component of convertible loan (Note 10) 6,310

115,292

857,650

Accumulated other comprehensive (loss) income (Note 12) (40,921)

(166,988)

(207,909)

649,741

1,013,186

Note 19

(See Accompanying Notes)

Director “Gordon Keep”

Gordon Keep

December 31, 2008

$

2,245

-

9,089

16,598

9,063

2,771

39,766

6,616

721,938

275,884

1,044,204

34,451

1,671

-

36,122

783

2,631

71,733

280,827

392,096

-

674,556

6,310

114,807

795,673

23,966

(167,531)

(143,565)

652,108

1,044,204

“Gordon Keep” , Director

Gordon Keep

RUSORO MINING LTD.CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICITFOR THE THREE MONTHS ENDED MARCH 31,(Expressed in thousands of US Dollarsunaudited

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REVENUE

COSTS AND EXPENSES

Mining operating expenses (Includes stockof $10 (2008: $18) (Note 11(b)))

Mining amortization

INCOME (LOSS) FROM MINING OPERATIONS

General and administrative (Includes stockof $451 (2008: $1,908) (Notes 11(b) and 14

Amortization

Interest on convertible loan

Foreign exchange (gain) loss

Income (loss) before the undernoted

OTHER (EXPENSES) INCOME

Impairment of mineral properties (Note 7

Interest income

Litigation and unsuccessful acquisition

INCOME (LOSS) BEFORE INCOME TAXESCONTROLLING INTEREST

Current income taxes

Recovery of future income taxes

INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST

Non-controlling interest

NET INCOME (LOSS)

DEFICIT

Beginning of period

End of period

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic

Diluted

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share

Diluted earnings (loss) per share

STATEMENT OF OPERATIONS AND DEFICITFOR THE THREE MONTHS ENDED MARCH 31,

US Dollars, except per share amounts) –

2009

$

30,160

(Includes stock-based compensation18,369

4,381

22,750

OPERATIONS 7,410

(Includes stock-based compensationof $451 (2008: $1,908) (Notes 11(b) and 14)) 2,746

15

3,267

(1,549)

4,479

before the undernoted 2,931

(Note 7) (174)

-

acquisition (Notes 13 and 19(b)(i)) (784)

(958)

BEFORE INCOME TAXES AND NON-1,973

3,905

(3,079)

826

CONTROLLING INTEREST 1,147

604

543

167,531

166,988

NUMBER OF SHARES OUTSTANDING

413,158,970

413,158,970

0.00

0.00

2008

$

11,688

7,932

5,604

13,536

(1,848)

6,930

16

-

7,425

14,371

(16,219)

(238)

124

-

(114)

(16,333)

2,288

(2,139)

149

(16,482)

-

(16,482)

(95,284)

(111,766)

387,033,102

387,033,102

(0.04)

(0.04)

RUSORO MINING LTD.CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS)INCOME

FOR THE THREE MONTHS ENDED MARCH 31,(Expressed in thousands of US Dollars)

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NET INCOME (LOSS)

Unrealized foreign exchange (losses) gains on translation ofself-sustaining foreign operations

COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS)

MONTHS ENDED MARCH 31,(Expressed in thousands of US Dollars) – unaudited

2009

$

543

Unrealized foreign exchange (losses) gains on translation of(64,887)

COMPREHENSIVE (LOSS) INCOME (64,344)

2008

$

(16,482)

249,021

232,539

RUSORO MINING LTD.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED MARCH 31,(Expressed in thousands of US Dollars)

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OPERATING ACTIVITIES

Net income (loss) for the period

Items not involving cash

AmortizationStock based compensation (Note 1

Impairment of mineral propertiesAccretion of asset retirement obligation

Accretion of interest of convertible loanUnrealized foreign exchange (gain)

Recovery of future income taxes


Receivables non-current

Other liabilities

Changes in non-cash working capital items

Inventories

Receivables

Prepaid expenses and deposits

Income tax payable

Accounts payable and accrued liabilities

FINANCING ACTIVITIES

Proceeds from shares issued in public offeringShare issue costs (Note 11(a)(iv))

Repayment of short-term borrowingsCash received upon the exercising of share warrants (Note 1

INVESTING ACTIVITIES

Expenditures on mineral properties

Expenditures on property, plant and equipment

Purchase of short term investments

Impact of foreign exchange on cash

INCREASE (DECREASE) IN CASH

Cash and cash equivalents - beginning of period

CASH AND CASH EQUIVALENTS

Cash and cash equivalents is comprised of:

Cash

Cash equivalents

Supplemental cash flow information

Interest paidTaxes paid

Non-cash investing and financing transactions (Note 1

CONSOLIDATED STATEMENTS OF CASH FLOWSMONTHS ENDED MARCH 31,

(Expressed in thousands of US Dollars) - unaudited

2009

$

543

4,396based compensation (Note 11(b)) 461

Impairment of mineral properties (Note 7) 174Accretion of asset retirement obligation 233

Accretion of interest of convertible loan (Note 10) 1,289(gain) loss (1,488)

Recovery of future income taxes (3,079)

604

3,133

(2,532)

135

cash working capital items

3,422

(1,914)

expenses and deposits (717)

3,113

Accounts payable and accrued liabilities 2,172

6,812

shares issued in public offering (Note 11(a)(iv)) 64,636)) (4,394)

term borrowings -Cash received upon the exercising of share warrants (Note 11(a)) -

60,242

mineral properties (2,804)

Expenditures on property, plant and equipment (544

Purchase of short term investments (3,999)

(7,347)

Impact of foreign exchange on cash and cash equivalents (343)

IN CASH AND CASH EQUIVALENTS 59,364beginning of period 2,245

– END OF PERIOD 61,609

Cash and cash equivalents is comprised of:

12,933

48,676

61,609

Supplemental cash flow information

-500

cash investing and financing transactions (Note 16)

2008

$

543 (16,482)

96 5,620461 1,926

174 238233 -

1,289 -(1,488) 6,440

(3,079) (2,139)

604 -

33 (4,397)

(2,532) (501)

135 -

3,422 (7,656)

(1,914) (2,975)

(717) (4,592)

3,113 2,288

2,172 7,394

6,812 (10,439)

64,636 -(4,394) -

- (522)- 354

60,242 (168)

(2,804) (7,290)

44) (2,534)

(3,999) -

(7,347) (9,824)

(343) (121)

59,364 (20,552)2,245 31,352

61,609 10,800

12,933 10,800

48,676 -

61,609 10,800

- -500 -

RUSORO MINING LTD.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2009(Expressed in thousands of USunaudited

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1. NATURE OF OPERATIONS

These interim unaudited consolidated financial statements have been prepared in accordance with

Canadian Generally Accepted A

follow the same accounting policies and methods of application as the audited consolidated financial

statements of the Company for the year ended December 31, 2008

These interim unaudited consolidated financial statements do not include all the information and note

disclosure required by the generally accepted accounting principles for annual financial statements and

therefore should be read in conjunction with the most recent annual audited consolidated financial

statements.

In the opinion of management, all adjustments (including normal recurring adjustments) necessary to

present fairly the financial position

(loss) income and cash flows for all periods presented have been made. The interim results are not

necessarily indicative of results for a full year.

Rusoro Mining Ltd. (“the Company”) was incorporated under the la

on March 1, 2000. The principal business activities of the Company are the acquisition, exploration,

development and operations of gold mineral properties in Venezuela.

The Venezuelan subsidiaries of the Company hav

development and exploitation of alluvial and vein gold. The concessions have been granted by the

Venezuelan Ministry of Mines and Basic Industries (“MIBAM”) or by Corporación Venezolana de Guayana

(“CVG”), maturing in 20 to 25 years, with some concessions extendable for two additional subsequent

periods of 10 years each.

The Company currently holds interest in two producing gold mines in Venezuela. It holds a 95%

ownership interest in the Choco mine (“the C

a 50% ownership interest in the Isidora mine (“the Isidora Mine”) which was acquired on December 23,

2008. The Company operates the Isidora Mine under a joint venture agreement with the Venezuelan

government. The Company also holds various other exploration properties in different stages of

exploration and development in Venezuela and a single exploration property in Honduras.

2. CHANGE IN ACCOUNTING

Accounting Policies Implemented Effective

Goodwill and Intangible Assets

Section 3064, Goodwill and Intangible Assets

Intangible Assets provides guidance on the recognition of intangible assets in accor

definition of an asset and the criteria for asset recognition as well as clarifying the application of the

concept of matching revenues and expenses, whether these assets are separately acquired or internally

developed. Section 1000 – Financ

this new standard. The adoption of Section 3064 did not result in a material impact on the Company’s

consolidated balance sheet or consolidated

CONSOLIDATED FINANCIAL STATEMENTS

thousands of US Dollars, except where noted) –

NATURE OF OPERATIONS AND BASIS OF PRESENTATION


Accounting Principles (“GAAP”) for interim financial information and they


statements of the Company for the year ended December 31, 2008 except as discussed in Note 2.



e read in conjunction with the most recent annual audited consolidated financial


present fairly the financial position as at March 31, 2009 and the results of operations

and cash flows for all periods presented have been made. The interim results are not

necessarily indicative of results for a full year.

Rusoro Mining Ltd. (“the Company”) was incorporated under the laws of the Province of British Columbia

2000. The principal business activities of the Company are the acquisition, exploration,

development and operations of gold mineral properties in Venezuela.

The Venezuelan subsidiaries of the Company have received mining concessions for the exploration,



maturing in 20 to 25 years, with some concessions extendable for two additional subsequent


ownership interest in the Choco mine (“the Choco Mine”) which was acquired on November 30, 2007


. The Company operates the Isidora Mine under a joint venture agreement with the Venezuelan

ernment. The Company also holds various other exploration properties in different stages of


ACCOUNTING POLICIES

Accounting Policies Implemented Effective January 1, 2009

Goodwill and Intangible Assets

Goodwill and Intangible Assets, which replaces Section 3062,

provides guidance on the recognition of intangible assets in accor



Financial Statement Concepts was also amended to provide consistency with

is new standard. The adoption of Section 3064 did not result in a material impact on the Company’s

consolidated statement of operations.

AND BASIS OF PRESENTATION


for interim financial information and they


except as discussed in Note 2.



e read in conjunction with the most recent annual audited consolidated financial


the results of operations, comprehensive

and cash flows for all periods presented have been made. The interim results are not

ws of the Province of British Columbia

2000. The principal business activities of the Company are the acquisition, exploration,

e received mining concessions for the exploration,



maturing in 20 to 25 years, with some concessions extendable for two additional subsequent


n November 30, 2007 and


. The Company operates the Isidora Mine under a joint venture agreement with the Venezuelan

ernment. The Company also holds various other exploration properties in different stages of


Section 3062, Goodwill and Other

provides guidance on the recognition of intangible assets in accordance with the



ial Statement Concepts was also amended to provide consistency with

is new standard. The adoption of Section 3064 did not result in a material impact on the Company’s

RUSORO MINING LTD.NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTSMARCH 31, 2009(Expressed in thousands of USunaudited

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Accounting Policies to be Implemented Effective January 1, 2011

Business Combinations

In December 2008, the CICA issued Section 1582

1581 Business Combinations.

business combination, which are aligned with International Financial Reporting Standard

business combinations. The Section applies prospectively to business combinations for which the

acquisition date is on or after the beginning of the first annual reporting period beginning on or after

January 1, 2011. Early adoption is permitted.

adopting this standard will have on the

International Financial Reporting Standards

The Accounting Standards Board of the CICA announced that

will be replaced with IFRS for fiscal years beginning on or after

IFRS for fiscal years beginning on or after January 1, 2009

Implementing IFRS will have an impact on accounting, financial

processes. It may also have an

clauses, long-term employee compensation plans

Company develops its IFRS implementation plan, it will have to include measures to provide extensi

training to key finance personnel, to review contracts and agreements and to increase the level of

awareness and knowledge amongst management, the Board of Directors and Audit Committee.

Additional resources may be engaged to ensure the timely conversio

the transition to IFRS cannot be reasonably estimated at this time.

3. RECEIVABLES

VAT receivable (a)

Trade receivables (b)

Receivable from mining contractor (c)

Other receivables (d)

Receivables from related companies (Note 1

Total receivables

Non-current VAT receivable (e)

Non-current receivable from mining contractor (f)

Receivables - non-current

Current receivables

a) VAT receivable relates to value

b) Trade receivables relate to the sale

c) Receivable from mining contractor

d) Other receivables consists of GST receivable, sundry receivables and employee advances.

e) Non-current VAT receivable relates to VAT receivable that management estimates will not be recovered for at

least twelve months from the balance sheet date

f) Non-current receivable from mining contractor

management estimates will not be



Policies to be Implemented Effective January 1, 2011

the CICA issued Section 1582 Business Combinations which will replace section

This section establishes revised standards for the accounting for a

are aligned with International Financial Reporting Standard

The Section applies prospectively to business combinations for which the

r after the beginning of the first annual reporting period beginning on or after

Early adoption is permitted. The Company has not yet determined what the impact of

adopting this standard will have on the consolidated financial statements.

International Financial Reporting Standards

The Accounting Standards Board of the CICA announced that GAAP for publicly accountable enterprises

for fiscal years beginning on or after January 1, 2011.

IFRS for fiscal years beginning on or after January 1, 2009, may also be permitted.

Implementing IFRS will have an impact on accounting, financial reporting, and supporting IT systems and

processes. It may also have an impact on taxes, contractual commitments involving GAAP based

term employee compensation plans, and performance metrics. Accordingly, when the

Company develops its IFRS implementation plan, it will have to include measures to provide extensi



Additional resources may be engaged to ensure the timely conversion to IFRS.

the transition to IFRS cannot be reasonably estimated at this time.

March 31, 2009

$

7,844

4,004

contractor (c) 2,485

3,146

Receivables from related companies (Note 14) 197

17,676

(6,654)

current receivable from mining contractor (f) (1,457)

(8,111)

9,565

alue added tax paid in Venezuela that is recoverable from the requisite authorities.

Trade receivables relate to the sale of gold.

Receivable from mining contractor relates to the sale of mining-fleet spare-part inventories.

Other receivables consists of GST receivable, sundry receivables and employee advances.

relates to VAT receivable that management estimates will not be recovered for at

least twelve months from the balance sheet date.

eceivable from mining contractor relates to the sale of mining-fleet spare

mates will not be collected for at least twelve months from the balance sheet date.

which will replace section

tandards for the accounting for a

are aligned with International Financial Reporting Standards (“IFRS”) on

The Section applies prospectively to business combinations for which the

r after the beginning of the first annual reporting period beginning on or after

The Company has not yet determined what the impact of

for publicly accountable enterprises

January 1, 2011. Early conversion to

may also be permitted.

and supporting IT systems and

impact on taxes, contractual commitments involving GAAP based

and performance metrics. Accordingly, when the

Company develops its IFRS implementation plan, it will have to include measures to provide extensive



n to IFRS. The financial impact to

December 31, 2008

$

8,124

2,413

2,324

2,793

51

15,705

(5,163)

(1,453)

(6,616)

9,089

recoverable from the requisite authorities.

part inventories.

Other receivables consists of GST receivable, sundry receivables and employee advances.

relates to VAT receivable that management estimates will not be recovered for at

spare-part inventories that

for at least twelve months from the balance sheet date.


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4. INVENTORIES

Gold bars

Gold in circuit

Gold – stockpile

Materials and supplies

5. PREPAID EXPENSES AND DEPOSITS

Prepaid expenses (a)

Deposits (b)

a) Included in prepaid expenses at March 31, 2009 is $6,594 (December 31, 2008: $7,431) related to advances to

suppliers for goods and services to be provided at a later date.

b) Deposits include amounts paid in advance for equipment destined for the Company’s sand security deposits for office leases (Note 14).

6. PROPERTY, PLANT AND EQUIPMENT

Mining properties

Facilities

Machinery

Furniture and equipment

Vehicles

Leasehold improvements

Construction in progress



March 31, 2009$

3,154

1,859

3,591

2,894

11,498

PREPAID EXPENSES AND DEPOSITS

March 31, 2009

$

8,329

99

8,428

Included in prepaid expenses at March 31, 2009 is $6,594 (December 31, 2008: $7,431) related to advances to

suppliers for goods and services to be provided at a later date.

Deposits include amounts paid in advance for equipment destined for the Company’s sand security deposits for office leases (Note 14).

PLANT AND EQUIPMENT

March 31, 2009$

Cost

AccumulatedAmortizationand Depletion

547,490 (5,025)

93,648 (13,781)

17,143 (4,760)

7,953 (3,272)

2,604 (1,042)

100 (16)

6,215 -

675,153 (27,896)

December 31, 2008$

4,682

4,571

3,634

3,711

16,598

December 31, 2008

$

8,979

84

9,063

Included in prepaid expenses at March 31, 2009 is $6,594 (December 31, 2008: $7,431) related to advances to

Deposits include amounts paid in advance for equipment destined for the Company’s subsidiaries in Venezuela

Net Book Value

542,465

79,867

12,383

4,681

1,562

84

6,215

647,257


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Mining properties

Facilities

Machinery

Furniture and equipment

Vehicles

Leasehold improvements

Construction in progress

On November 30, 2007, the Company acquired all the

Netherlands Services BV. The main asset acquired was the Choco

in which the Company acquired a 95% interest.

interest in a joint venture whose main asset is the Isi

Included in property, plant and equipment

mines, mineral properties and corporate head office

Mining Properties

Depletable$

NonDepletable(*)

Choco Mine 50,399 463,348

Isidora Mine 1,845 26,873

Other Venezuelanproperties -

Corporate headoffice -

52,244 490,221

(*) Carrying value of mining properties

Construction in Progress

Construction in progress relates to upgrades to the Choco

Choco mine. Upon completion, such costs

useful life.



December 31, 2008$

Cost

AccumulatedAmortizationand Depletion

608,245 (4,470)

104,894 (13,172)

12,853 (2,407)

8,255 (3,048)

2,812 (972)

100 (12)

8,860 -

746,019 (24,081)

On November 30, 2007, the Company acquired all the Venezuelan assets and liabilities of G

The main asset acquired was the Choco Mine, located in the El Callao district,

in which the Company acquired a 95% interest. On December 23, 2008, the Company acquired a 50%

interest in a joint venture whose main asset is the Isidora Mine, located in the El Callao district.

property, plant and equipment is the net book value associated with the Company’s operating

, mineral properties and corporate head office as follows:

Mining Properties Property, Plant andEquipment (excluding

mining properties)$

March 31, 2009$

Non-Depletable(*)

$Total

$

463,348 513,747 90,182 603,929

26,873 28,718 8,814 37,532

- - 5,487 5,487

- - 309 309

490,221 542,465 104,792 647,257

(*) Carrying value of mining properties attributed to mineral resources other than proven and probable reserves

Construction in progress relates to upgrades to the Choco Mine mill and tailing dams being built at the

on completion, such costs net of residual value will be amortized over their estimated

Net Book Value

603,775

91,722

10,446

5,207

1,840

88

8,860

721,938

s and liabilities of Gold Fields

ine, located in the El Callao district,

the Company acquired a 50%

El Callao district.

is the net book value associated with the Company’s operating

March 31, 2009 December 31, 2008$

603,929 672,935

37,532 42,900

5,487 5,775

309 328

647,257 721,938

and probable reserves.

ine mill and tailing dams being built at the

will be amortized over their estimated


9 | P a g e

7. MINERAL PROPERTIES

SanRafael

El Placer

Emiliaand

Emilia II

Balance,December 31, 2007 16,970 3,431

Acquisition ofpropertiesin Hecla-VenezuelaAcquisition -

Transfer of mineralproperties -

Asset retirementobligation -

Exploration anddevelopment costs 8,967 1,128

Impairment ofmineral properties -

Foreign exchange loss -

Balance,December 31, 2008 25,937 4,

Exploration anddevelopment costs 1,258

Impairment of mineralproperties -

Foreign exchange loss -

BalanceMarch 31, 2009 27,195 4,638

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable

Accrued liabilities

Accrual for termination benefits

Due to related parties (Note 14)

Current portion of asset retirement obligation

9. NOTE PAYABLE

On February 20, 2009, the Company issued a promissory note to an officer and dire

for $500 (Note 14) related to the

promissory note is unsecured, non

and the officer/director. On May 19, 2009, the Company repaid the note payable of $500



MINERAL PROPERTIES

Emiliaand

Emilia II Ceiba IIValle

HondoIncreible

6 Yuruan Minoro El Callao

3,431 1,160 20,658 55,464 407 13,500

- - - - - -

- - - - - -

- - - 623 - -

1,128 - 2,508 5,854 3,432 38

- - - - - (13,538)

- - - - - -

4,559 1,160 23,166 61,941 3,839 -

79 - 83 952 88 -

- - - - - -

- - - - - - (15,291)

4,638 1,160 23,249 62,893 3,927 -

BLE AND ACCRUED LIABILITIES

March 31, 2009$

13,356

16,529

1,921

443

Current portion of asset retirement obligation 190

32,439

Company issued a promissory note to an officer and dire

related to the purchase of a plant for the treatment of diamonds

non-interest bearing and is repayable at a time agreeable to the Company

On May 19, 2009, the Company repaid the note payable of $500

El CallaoOther

Properties Total

152,994 5,407 269,991

- 2,385 2,385

- (329) (329)

- - 623

- 698 22,625

(3,700) (2,019) (19,257)

(71) (83) (154)

149,223 6,059 275,884

- 76 2,536

- (174) (174)

(15,291) (236) (15,527)

133,932 5,725 262,719

December 31, 2008$

13,722

17,328

1,828

1,398

175

34,451

Company issued a promissory note to an officer and director of the Company

purchase of a plant for the treatment of diamonds (Note 23(a)). The

greeable to the Company

On May 19, 2009, the Company repaid the note payable of $500 (Note 23(d))


10 | P a g e

10. CONVERTIBLE LOAN

On June 10, 2008, the Company entered into a loan agreement with a syndicate of priva

borrow $80,000 (“the Loan”) to fund the

Holdings B.V. (“the Hecla-Venezuela Acquisition

and El Callao Gold Mining Company de Venezuela, SCS from Hecla Min

general corporate purposes. The Loan has a two

per annum, payable semi-annually and is secured by share pledges over the Company’s principal assets

including the Choco Mine (Note

but excluding the Isidora Mine (Note 6

The lenders have the option, at any time and at their sole discret

outstanding principal of the Loan to common shares of the Company at a conversion price

31, 2009 of $1.07 per common share (subject to adjustment depending on future equity financings and

other transactions entered into by the Company). In addition, the Company has granted to the lenders

pro-rata participation in any future equity offerings for the term of the Loan. The Loan may be repaid by

the Company at any time subject to the Company providing the lenders

the outstanding principal in full plus an amount equal to the interest that would have been accrued if the

loan was held for the original two

For accounting purposes, the Loan contains both a liability component

the lender’s conversion option to shares, which have been separately presented on the consolidated

balance sheet. The Company has allocated the $80

equity components by establishing the fair value of the liability component

allocating the remaining balance

liability component was determined by discounting the stream of futu

amounts at the estimated prevailing market rate of 15% for a debt instrument of

quality but without any share conversion option for the lenders.

Including the impact of the costs of issuan

an effective annual interest rate of 18.5%.

Convertible Loan

Principal of the Loan to be repaid in June 2010

Cost of issuance including financial advisory fees

Net proceeds

Equity component at the date of issuanceand at March 31, 2009:

The convertible loan is made up as follows:

Liability component at the date of issu

Accretion of interest

Convertible loan



CONVERTIBLE LOAN

On June 10, 2008, the Company entered into a loan agreement with a syndicate of priva

) to fund the acquisition of El Callao Gold Mining Ltd. and Drake

Venezuela Acquisition”) including their wholly-owned subsidiaries Minera Hecla

and El Callao Gold Mining Company de Venezuela, SCS from Hecla Mining Company (

general corporate purposes. The Loan has a two-year term, bears interest at a contractual rate of

annually and is secured by share pledges over the Company’s principal assets

ne (Note 6) and San Rafael El Placer and Increible 6 mineral properties (Note 7

(Note 6). The $80,000 principal portion of the loan is due in June of 2010.

The lenders have the option, at any time and at their sole discretion, to convert all or part of the

of the Loan to common shares of the Company at a conversion price

per common share (subject to adjustment depending on future equity financings and

tered into by the Company). In addition, the Company has granted to the lenders

rata participation in any future equity offerings for the term of the Loan. The Loan may be repaid by

the Company at any time subject to the Company providing the lenders with 30 days notice and repaying

in full plus an amount equal to the interest that would have been accrued if the

loan was held for the original two-year term.

For accounting purposes, the Loan contains both a liability component and an equity component, being


has allocated the $80,000 principal of the Loan to the individual liability and

by establishing the fair value of the liability component at the date of issue

balance of the net proceeds to the equity component.

liability component was determined by discounting the stream of future payments of interest and principal

amounts at the estimated prevailing market rate of 15% for a debt instrument of similar

any share conversion option for the lenders.

Including the impact of the costs of issuance, applying the effective interest rate method, the Loan bears

an effective annual interest rate of 18.5%.

$

Principal of the Loan to be repaid in June 2010 80,000

Cost of issuance including financial advisory fees (4,645)

75,355

Equity component at the date of issuance, at December 31, 2008,6,310

The convertible loan is made up as follows:

March 31, 2009$

component at the date of issuance 69,045

3,977

73,022

On June 10, 2008, the Company entered into a loan agreement with a syndicate of private lenders to

acquisition of El Callao Gold Mining Ltd. and Drake-Bering

owned subsidiaries Minera Hecla

ing Company (“Hecla”) and for

year term, bears interest at a contractual rate of 10%

annually and is secured by share pledges over the Company’s principal assets

neral properties (Note 7)

principal portion of the loan is due in June of 2010.

ion, to convert all or part of the

of the Loan to common shares of the Company at a conversion price as at March

per common share (subject to adjustment depending on future equity financings and

tered into by the Company). In addition, the Company has granted to the lenders

rata participation in any future equity offerings for the term of the Loan. The Loan may be repaid by

with 30 days notice and repaying

in full plus an amount equal to the interest that would have been accrued if the

and an equity component, being


oan to the individual liability and

at the date of issue and then

of the net proceeds to the equity component. The fair value of the

re payments of interest and principal

similar maturity and credit

ce, applying the effective interest rate method, the Loan bears

December 31, 2008$

69,045

2,688

71,733


11 | P a g e

11. SHARE CAPITAL

Authorized Share Capital of

Unlimited number of common shares

(a) Issued Capital

Balance, December 31, 2007

Issued pursuant to exercise of warrants

Fair value of warrants exercised

Hecla-Venezuela Acquisition (i)

Working Capital Adjustment (ii)


Shares issued to financial advisor

Shares issued in public offering (iv)

Share issue costs (iv)

Balance, March 31, 2009

i. On July 8, 2008, the Company issued 4,273,504 common shares with a fair value of $1.16 per share as part of

the Hecla-Venezuela Acquisition

ii. Hecla had the option to repay in cash or shares

purchase agreement for the Hecla

working capital purchased by the Company in the Hecla

Adjustment”). Hecla chose to repa

contractually agreed value.

iii. On February 11, 2009, the Company issued 5,733,677 common shares

financial advisor for advisory services related to theincluded in accounts payable and accrued liabilities at December 31, 2008

iv. On March 19, 2009, the Company issued 13

common share for gross proceeds of

proceeds was paid to the underwriter

(b) Stock Options

The Company has a stock option plan

under which the Company may grant options to acquire a maximum number of common shares equal to

up to 10% of the total issued and outstanding common shares of the Company

transferable and may have a term of up to 10 years from the date of issue

terms, conditions, and exercise price are determined by the board of directors at the time of grant.



Authorized Share Capital of the Company

Unlimited number of common shares without par value.

Number ofShares

386,835,106

Issued pursuant to exercise of warrants 347,059

-

4,273,504

(677,723)

390,777,946

to financial advisor (iii) 5,733,677

Shares issued in public offering (iv) 133,334,000

-

529,845,623

, 2008, the Company issued 4,273,504 common shares with a fair value of $1.16 per share as part of

enezuela Acquisition.

Hecla had the option to repay in cash or shares of the Company at a value agreed by the

purchase agreement for the Hecla-Venezuela Acquisition, the difference between the estimated and actual

working capital purchased by the Company in the Hecla-Venezuela Acquisition (

). Hecla chose to repay the Working Capital Adjustment of $780 in shares

On February 11, 2009, the Company issued 5,733,677 common shares with a fair value of $1,250

financial advisor for advisory services related to the Company’s unsolicited take-over bid (Note 13)included in accounts payable and accrued liabilities at December 31, 2008.

the Company issued 133,334,000 common shares at Canadian Dollars (“C$”)

oceeds of $64,636 (C$80,000). A cash commission equal to 6.0% of the gross

proceeds was paid to the underwriter and other fees related to the public offering were $516

The Company has a stock option plan available to its directors, officers, consultants and key employees


10% of the total issued and outstanding common shares of the Company

e and may have a term of up to 10 years from the date of issue. Amount of options, v

and exercise price are determined by the board of directors at the time of grant.

Amount$

669,252

354

770

4,960

(780)

674,556

1,250

64,636

(4,394)

736,048

, 2008, the Company issued 4,273,504 common shares with a fair value of $1.16 per share as part of

at a value agreed by the parties in the stock

Venezuela Acquisition, the difference between the estimated and actual

Venezuela Acquisition (“the Working Capital

in shares of the Company at the

with a fair value of $1,250 to its

over bid (Note 13) which was

Canadian Dollars (“C$”) 0.60 per

. A cash commission equal to 6.0% of the gross

to the public offering were $516.

its directors, officers, consultants and key employees


10% of the total issued and outstanding common shares of the Company. Options are non-

Amount of options, vesting

and exercise price are determined by the board of directors at the time of grant.


12 | P a g e

The following stock options were

Number of OptionsOutstanding

Number of OptionsExercisable

17,647 17,647

350,000 297

334,117 334,117

47,060 47,060

94,118 94,118

600,000 600,000

6,505,000 6,505,000

720,000 540

6,050,000 4,162,500

810,000 440,000

2,975,000 2,975,000

50,000 16,667

50,000 16,667

300,000 100,000

100,000 100,000

16,235,000 16,235,000

100,000 100,000

35,337,942 32,581,276

Stock option transactions are summarized as follows:

Outstanding, December 31, 2007

Issued

Expired


Outstanding, March 31, 2009

As at March 31, 2009, 32,581,276

$1.58.



The following stock options were outstanding at March 31, 2009:

Number of OptionsExercisable

Exercise Price$

ExpiryDate

17,647 0.85 C$ Oct 13, 2009

297,500 1.31 C$ Oct 28, 2009

334,117 1.05 C$ Dec 7, 2009

47,060 1.11 C$ Mar 7, 2011

94,118 1.70 C$ Apr 5, 2011

600,000 1.31 C$ Nov 6, 2016

6,505,000 3.00 US$ Nov 6, 2016

540,000 1.31 C$ Sept 10, 2017

4,162,500 2.12 C$ Sept 10,2017

440,000 1.31 C$ Oct 28, 2017

2,975,000 2.30 C$ Oct 28, 2017

16,667 1.31 C$ Jan 1, 2018

16,667 1.60 C$ Jan 1, 2018

100,000 1.65 C$ Jan 15, 2018

100,000 1.55 C$ Jan 24, 2018

16,235,000 1.31 C$ Jun 26, 2018

100,000 1.31 C$ Jul 20, 2018

2,581,276

Stock option transactions are summarized as follows:

Number ofOptions

18,541,178

16,835,000

(38,236)

35,337,942

35,337,942

32,581,276 stock options were exercisable at a weighted average exercise price of

Weighted AverageRemaining Contractual

Life (Years)

0.54

0.58

0.69

1.93

2.01

7.61

7.61

8.45

8.45

8.58

8.58

8.76

8.76

8.80

8.82

9.24

9.31

Weighted AverageExercise Price

$

2.62

1.30

0.83

1.61

1.58

average exercise price of


13 | P a g e

The total fair value of the options grante

Scholes option pricing model and resulted in the following

Assumptions

Dividend yield

Annualized volatility

Risk-free interest rate

Expected life (years)

Weighted average grant date fair value per option

The stock-based compensation included in the

months ended March 31, 2009

mineral expenditures during the three months ended March 31, 2009

(c) Warrants

Share purchase warrant transactions


Exercised


Outstanding, March 31, 2009

The following warrants were outstandi

Number of WarrantsOutstanding

5,833,336

9,216,793

93,750,000

108,800,129

(d) Contributed Surplus


Reclassification to common shares on exercise of warrants

Stock-based compensation


Stock-based compensation

Balance, March 31, 2009



of the options granted for the periods presented was estimated

and resulted in the following amounts:

2009

-

-

-

-

Weighted average grant date fair value per option -

based compensation included in the consolidated statement of operations during the

months ended March 31, 2009 was $461 (2008: $1,926). Stock-based compensation capitalized as

three months ended March 31, 2009 was $24 (200

Share purchase warrant transactions for the three months ended March 31, 2009

Number ofWarrants

109,147,188

(347,059)

108,800,129

108,800,129

The following warrants were outstanding as at March 31, 2009:

Exercise Price$

3.35 US$

5.25 C$

4.00 C$ November 30, 2012

Reclassification to common shares on exercise of warrants

estimated using the Black-

2008

0%

59% to 69%

3.81% to 3.94%

10

1.18

statement of operations during the three

based compensation capitalized as

(2008: $299).

9, were as follows:

Weighted AverageExercise Price

$

4.00

1.02

3.37

3.26

Expiry Date

November 7, 2011

March 4, 2012

November 30, 2012

Amount

$

91,823

(770)

23,754

114,807

485

115,292


14 | P a g e

12. ACCUMULATED OTHER COMPREHENSIVE

The components of accumulated other comprehensive

Unrealized foreign exchange (loss)self-sustaining foreign operations

13. GOLD RESERVE INC.

On December 15, 2008, the Company launched an unsolicited

Gold Reserve Inc. (“Gold Reserve

expired and because the conditions to the Company’s offer were not met, the Company did not take up

any securities under the offer. The Company recorded the costs related to the Gold Reserve Bid and t

resulting litigation (Note 19(b)(i)) as an expense


14. RELATED PARTY TRANSACTIONS

a) Included in receivables (Note

has significant influence of

interest bearing with no set terms of repayment.

b) Included in prepaid expenses and deposits

security deposit for an office lease entered into with a company

has significant influence.

c) Included in amounts capitalized as

related to the provision of technical services and rental of mining equipment from a company of which

a director of the Company has significant influence.

d) Included in amounts capitaliz

the provision of geological services and machinery rental

Company has significant influence.

e) Included in accounts payable and accrued liabilities

directors of the Company ha

director of the Company and

(December 31, 2008: $1,39

bearing.

f) Included in note payable (Note

of the Company.

g) Included in convertible loan

provision of legal services which were paid to a

partner.

h) Included in general and administrative

the Company’s office of representation in

Company has significant influence

i) Included in general and administrative

Caracas office from a company



ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The components of accumulated other comprehensive (loss) income are as follows:

March 31, 2009$

(loss) gain on translation of(40,921)

GOLD RESERVE INC.

On December 15, 2008, the Company launched an unsolicited take-over bid (“the Gold Reserve Bid

Gold Reserve”). On February 18, 2009, the Company’s offer for Gold Reserve


under the offer. The Company recorded the costs related to the Gold Reserve Bid and t

(b)(i)) as an expense for litigation and unsuccessful acquisition


RELATED PARTY TRANSACTIONS

Included in receivables (Note 3) are amounts owed from companies which a director of the Company

of $197 (December 31, 2008: $51). These amounts are unsecured, non

interest bearing with no set terms of repayment.

id expenses and deposits (Note 5) is $41 (December 31, 200

security deposit for an office lease entered into with a company of which a director of the Company

amounts capitalized as property, plant and equipment is $227 (December 31,

the provision of technical services and rental of mining equipment from a company of which


zed as mineral properties is $302 (December 31, 200

geological services and machinery rental from companies of


Included in accounts payable and accrued liabilities (Note 8) are amounts due to

of the Company have significant influence, to a company controlled by an officer and

and to a law firm of which a director of the Company is a partner

398). These amounts are unsecured, due on demand and non

(Note 9) is $500 (December 31, 2008: $Nil) owed to

Included in convertible loan is financing costs of $Nil (December 31, 200

provision of legal services which were paid to a law firm of which a director of the Company is a

general and administrative expenses is $103 (2008: $146) related

office of representation in Moscow, from a company of which a director of the


Included in general and administrative expenses is $28 (2008: $Nil) related to the rental of the

Caracas office from a company of which a director of the Company has significant influence.

INCOME

as follows:

December 31, 2008$

23,966

the Gold Reserve Bid”) for

). On February 18, 2009, the Company’s offer for Gold Reserve


under the offer. The Company recorded the costs related to the Gold Reserve Bid and the

unsuccessful acquisition in the

a director of the Company

These amounts are unsecured, non-

is $41 (December 31, 2008: $41) related to a

which a director of the Company

December 31, 2008: $Nil)

the provision of technical services and rental of mining equipment from a company of which

(December 31, 2008: $1,764) related to

of which a director of the

are amounts due to companies of which

, to a company controlled by an officer and

which a director of the Company is a partner of $443

These amounts are unsecured, due on demand and non-interest

) owed to an officer and director

(December 31, 2008: $97) related to the

which a director of the Company is a

related to the cost of running

, from a company of which a director of the

) related to the rental of the



15 | P a g e

j) Included in general and administrative

charged by a company of which a director of the Company has significant influence.

general and administrative expenses

included in share capital is share issuance costs of $22 (December 31, 2008: $Nil) related to the

provision of legal services for the shares issued in public

litigation and unsuccessful

services for the Gold Reserve Bid (Note

Company is a partner.

k) Included in general and administrative

services which have been supplied by a company which is

Related party transactions are recorded at

between the parties.

15. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to:

a) Provide an adequate return to shareholders;

b) Provide adequate and efficient funding for

c) Continue the development and exploration of its mineral properties;

d) Support any expansion plans;

e) Maintain a capital structure, which

In the management of capital, the Company includes

As at March 31, 2009, the Company had no bank indebtedness.

The Company is not subject to any externally imposed capital requirements and there has been no

change with respect to the overall capital risk management stra

March 31, 2009.

16. SUPPLEMENTARY DISCLOSURE OF NON

Non-cash investing and financing transactions

disclosed elsewhere include:


Accounts payable and accrued liabilitiesexpenditures

Amortization capitalized – Mineral properties

Stock-based compensation capitalized to mineral properties (Note 1

Shares issued to financial advisor (Note 11(a)(iii))



general and administrative expenses is $57 (2008: $115) related

a company of which a director of the Company has significant influence.

expenses is $20 (2008: $52) related to the provision of legal services

in share capital is share issuance costs of $22 (December 31, 2008: $Nil) related to the

provision of legal services for the shares issued in public offering (Note 11(a)(iv))

acquisition costs is $186 (2008: $Nil) related to the provision of legal

for the Gold Reserve Bid (Note 13) which were paid to a law firm of

general and administrative expenses is $Nil (2007: $365) related to

which have been supplied by a company which is controlled by a director

Related party transactions are recorded at the exchange amount which is the consideration agreed to

MANAGEMENT DISCLOSURES

es when managing capital are to:

Provide an adequate return to shareholders;

Provide adequate and efficient funding for operations;

Continue the development and exploration of its mineral properties;

Support any expansion plans; and

structure, which optimises the cost of capital at acceptable risk.

In the management of capital, the Company includes shareholders’ equity and convertible loan

, the Company had no bank indebtedness.


change with respect to the overall capital risk management strategy during the

SUPPLEMENTARY DISCLOSURE OF NON-CASH TRANSACTIONS

cash investing and financing transactions that have been excluded from the

Three MonthsEnded March 31,

2009

$

Accounts payable and accrued liabilities – Mineral property expenditures (557)

Accounts payable and accrued liabilities – Property, plant and equipment537

Mineral properties 265

based compensation capitalized to mineral properties (Note 11(b)) 24

Shares issued to financial advisor (Note 11(a)(iii)) 1,250

) related to consulting fees

a company of which a director of the Company has significant influence. Included in

related to the provision of legal services,

in share capital is share issuance costs of $22 (December 31, 2008: $Nil) related to the

offering (Note 11(a)(iv)) and included in

: $Nil) related to the provision of legal

of which a director of the

) related to the provision of travel

by a director of the Company.

the exchange amount which is the consideration agreed to

optimises the cost of capital at acceptable risk.

convertible loan.


tegy during the three months ended

CASH TRANSACTIONS

have been excluded from the cash flow and are not



2008

$

849

-

-

299

-


16 | P a g e

17. SEGMENTED DISCLOSURE

The Company has two distinct business

a) exploration and development

b) extraction, processing, and sale of gold ore.

In the three months ended March 31, 2009

had six principal customers (200

The customers with significant sales are as follows:

Customer A

Customer B

Customer C

Customer D

Customer E

Customer F

Mineral Explorationand Development

Three Months EndedMarch 31, 2009

Revenue

Mining operatingexpenses

Mining amortization

General andadministrative

Amortization

Interest on convertibleloan

Foreign exchange gain(loss)

Impairment of mineralproperties

Interest income

Litigation and unsuccessfulacquisition

Income tax expense


Net income (loss)



DISCLOSURE

business segments:

development of mineral properties

and sale of gold ore.

the three months ended March 31, 2009, all revenue was generated in Venezuela

(2008 – seven principal customers).

with significant sales are as follows:

Three Month EndedMarch 31, 2009

$

12,598

5,939

5,480

-

-

-


Three Months EndedMarch 31, 2009

Extraction,Processing and SaleThree Months Ended

March 31, 2009

Total ThreeMonths EndedMarch 31, 2009

$ $ $

- 30,160 30,160

- (18,369) (18,369)

- (4,381) (4,381)

(1,478) (1,268) (2,746)

(3) (12) (15)

- (3,267) (3,267)

1,343 206 1,549

(174) - (174)

- -

- (784) (784)

- (826) (826)

- (604) (604)

(312) 855 543

s generated in Venezuela and the Company

Three Month EndedMarch 31, 2008

$

-

-

-

5,665

2,005

1,264



$

30,160 11,688

(18,369) (7,932)

(4,381) (5,604)

(2,746) (6,930)

(15) (16)

(3,267) -

1,549 (7,425)

(174) (238)

- 124

(784) -

(826) (149)

(604) -

543 (16,482)


17 | P a g e

The Company’s geographic segment information is as follows:


as at March 31,

Canada

Current assets

Property, plant,and equipment

Venezuela

Current assets

Property, plant,and equipment

Mineral properties 26

Other long-termassets

272,

Honduras

Current assets

Total assets 28

Capital expenditures

18. JOINT VENTURE INTEREST

On July 4, 2008 the Company entered into an agreement (“the Mixed Enterprise Agreement”) with

MIBAM to create a mixed enterprise

Venrus C.A. (“Venrus C.A.”), a Venezuelan corporation was incorporated on December 23, 2008, and is

50% owned by the Company and 50% owned by Empresa de Produccion Social Minera Nacional, C.A

Venezuelan government entity)

venture under which the venturers are bound by the

The Company records its 50% proportionate share of assets, liabilities,

the joint venture.



The Company’s geographic segment information is as follows:


March 31, 2009

Extraction,Processing and Saleas at March 31, 2009

Totalas at March 31,

2009$ $ $

12,255 49,016 61,271

62 247 309

12,317 49,263 61,580

2,520 31,272 33,792

5,487 641,461 646,948

262,719 - 262,719

1,883 6,228 8,111

272,609 678,961 951,570

36 - 36

284,962 728,224 1,013,186

2,804 544 3,348

JOINT VENTURE INTEREST


MIBAM to create a mixed enterprise (joint venture). Pursuant to the Mixed Enterprise Agreement,


50% owned by the Company and 50% owned by Empresa de Produccion Social Minera Nacional, C.A

Venezuelan government entity). The Company conducts a portion of its business thr

under which the venturers are bound by the articles of incorporation and

proportionate share of assets, liabilities, revenues,

March 31,Total

as at December 31,2008

$

488

328

816

39,244

721,610

275,884

6,616

1,043,354

34

1,044,204

9,824


Pursuant to the Mixed Enterprise Agreement, Minera


50% owned by the Company and 50% owned by Empresa de Produccion Social Minera Nacional, C.A (a

n of its business through this joint

ncorporation and by-laws of Venrus C.A.

revenues, and operating costs of


18 | P a g e

The following details the Company’s share of its investment in

proportionately consolidated:

Assets

Current assets

Property, plant and equipment

Mineral properties

Liabilities

Current liabilities

Other long-term liabilities

Future income tax liability

Revenue

Expenses

Net (loss) income

Cash Flows

Operating activities

Investing activities

Financing activities

Increase in cash

19. COMMITMENTS AND

(a) Commitments

(i) At March 31, 2009, the Company

vehicles and machinery and to payments under contracts for community relations, security, computer

maintenance, consulting and other services

2009

2010

2011

2012

2013

2014 and Thereafter

(ii) As part of the Mixed Enterprise Agreement

social costs during a period of 18 months from entering

expensed as incurred. The total cost to be incurred has



The following details the Company’s share of its investment in the joint venture that has been

March 31, 2009

$

7,671

37,532

2,066

47,269

3,168

70

12,622

15,860

4,649

5,143

(494)

1,593

(622)

-

971

COMMITMENTS AND CONTINGENCIES

Company is committed to payments under operating leases for premises


maintenance, consulting and other services as follows:

Related Party$

Non-Related Party$

98 1,884

131 262

131 62

66 62

- 62

- 67

426 2,399

Mixed Enterprise Agreement (Note 18) the Company has committed to incur various

social costs during a period of 18 months from entering into the agreement. These social costs will be

The total cost to be incurred has been estimated as $400

joint venture that has been

December 31, 2008

$

8,500

42,900

2,301

53,701

2,945

71

15,364

18,380

338

180

158

-

-

-

-

is committed to payments under operating leases for premises,


Total$

1,982

393

193

128

62

67

2,825

ompany has committed to incur various

These social costs will be

by the Company.


19 | P a g e

(b) Contingencies

(i) Gold Reserve Lawsuit

Gold Reserve claims unquantified damages and punitive damages related to an alleged breach of

confidence and trespass related to Gold Reserve’s property in Venezuela. Also, on February 10, 200

Ontario Superior Court of Justice granted Gold Reserve’s injunction application by which the Company

and Endeavour Financial International Corporation were restrained from making any unsolicited takeover

bid for Gold Reserve. The Company denies the al

defense and counterclaim in respect of losses the Company has sustained as a result of the injunction’s

issuance. The outcome of this matter and estimate of potential damages is not determinable at t

and no amount has been accrued in these financial statements for this claim.

(ii) Other Matters

The Company is involved in various claims and litigation arising in the normal course of business. While

the outcome of these matters is uncertain and

resolved in the Company’s favor, the Company does not currently believe that the outcome of adverse

decisions in any pending or threatened proceedings related to these and other matters or any amount

which it may be required to pay by reason thereof would have a material impact on its financial position,

results of operations or cash flows.

20. FINANCIAL INSTRUMENTS

Cash and cash equivalents are classified as held

investments are classified as available

receivable) are classified as loans and receivables and measured at amortized cost

interest rate method. Accounts payable and

convertible loan are classified as other financial liabilities and measured at amortized cost using the

effective interest rate method.

Management reviewed all significant financial instruments held

material differences between fair value and carrying value existed as at

convertible loan which has a fair value of

financial instrument risks to which it is exposed

Where material, these risks are reviewed and monitored by manag

significant changes from the previous year as to how these risks are re

management. The type of risks

as follows:

Credit Risk

Management does not believe the Company is exposed

Management determines concentration by the percentage of receivables owed and cash

equivalents held by a single party.

The Company’s exposure to credit risk on its

maintaining these assets with high

corporations and government issuances in accordance with its investment policy

exposed to the credit risk of Venezuelan

operations. The Company limits its exposure to t

immediate needs of its Venezuelan subsidiaries. The Company minimizes the credit r

receivables (Note 3) by selling to customers wi




confidence and trespass related to Gold Reserve’s property in Venezuela. Also, on February 10, 200



The Company denies the allegations made against it and has served a statement of

and counterclaim in respect of losses the Company has sustained as a result of the injunction’s

The outcome of this matter and estimate of potential damages is not determinable at t

and no amount has been accrued in these financial statements for this claim.


the outcome of these matters is uncertain and there can be no assurance that such matters will be



h it may be required to pay by reason thereof would have a material impact on its financial position,

results of operations or cash flows.

FINANCIAL INSTRUMENTS

Cash and cash equivalents are classified as held-for-trading and measured at fair value. Short

investments are classified as available-for-sale and measured at fair value. Receivables (excluding VAT

receivable) are classified as loans and receivables and measured at amortized cost

. Accounts payable and accrued liabilities, note payable


Management reviewed all significant financial instruments held by the Company and determined that no

material differences between fair value and carrying value existed as at March

which has a fair value of $69,611. The Company thoroughly examines the various

ment risks to which it is exposed, and assesses the impact and likelihood of those risks.

Where material, these risks are reviewed and monitored by management. There have not been any

significant changes from the previous year as to how these risks are reviewed and monitored by

exposures and the way in which such exposure are

ve the Company is exposed to any significant concentration of credit risk

Management determines concentration by the percentage of receivables owed and cash

held by a single party.

The Company’s exposure to credit risk on its C$ and US Dollar cash and cash equivalents

with high-credit quality financial institutions and investing in highly rated

corporations and government issuances in accordance with its investment policy

the credit risk of Venezuelan banks, which hold cash for the Company’s

operations. The Company limits its exposure to this risk by maintaining cash balances to fund

immediate needs of its Venezuelan subsidiaries. The Company minimizes the credit r

) by selling to customers with strong credit histories.


confidence and trespass related to Gold Reserve’s property in Venezuela. Also, on February 10, 2009 the



legations made against it and has served a statement of

and counterclaim in respect of losses the Company has sustained as a result of the injunction’s

The outcome of this matter and estimate of potential damages is not determinable at this time


there can be no assurance that such matters will be



h it may be required to pay by reason thereof would have a material impact on its financial position,

trading and measured at fair value. Short-term

sale and measured at fair value. Receivables (excluding VAT

receivable) are classified as loans and receivables and measured at amortized cost using the effective

payable, other liabilities and


by the Company and determined that no

March 31, 2009, except for the

The Company thoroughly examines the various

and assesses the impact and likelihood of those risks.

There have not been any

viewed and monitored by

are managed is provided

to any significant concentration of credit risk.

Management determines concentration by the percentage of receivables owed and cash and cash

and cash equivalents is limited by

and investing in highly rated

corporations and government issuances in accordance with its investment policy. The Company is

hold cash for the Company’s Venezuelan

cash balances to fund only the

immediate needs of its Venezuelan subsidiaries. The Company minimizes the credit risk on trade


20 | P a g e

Liquidity Risk

Liquidity risk is the risk that the Company will be unable to meet its financial obligations

due. The Company manages liquidity risk by ensuring that it has sufficient cash, credit

financial resources available to meet its

The Company forecasts cash flows for a period of 12 months to identify financial requirements. These

requirements are met through a combination of cash flows from operations, credit facilities, disposition of

assets, and accessing capital markets.

and payments related to financial liabilities due as at

contractual undiscounted cash flows


Note payable

Other liabilities

Interest on convertible loan

Convertible loan

Market Risk

The significant market risk exposures to which the Company is exposed are interest rate risk

currency risk.

Interest Rate Risk

Interest rate risk is the risk that the

because of changes in market interest rates.

to changes in market interest rates as the interes

and the note payable is non-interest bearing

comfortable with its exposure given the relatively short term of its

note payable is non-interest bearing

decrease the fair value of convertible loan

the fair value of the convertible loan

Currency Risk

The Company is exposed to currency risk as a majority of its assets and liabilities are denominated in

foreign currencies. Changes in the applicable exchange rate may result in a decrease or increase in

foreign exchange gains or losses. The Company does not use derivative instruments to reduce its

exposure to foreign currency risk.

The Company follows the current rate method

approach, the assets and liabilities

rate at the consolidated balance sheet date with all foreign exchange

recorded as a component in accumulated

sheets. The translation adjustments are realized in the

is a reduction in the Company’s net investment in the respective foreign operations.



Liquidity risk is the risk that the Company will be unable to meet its financial obligations

. The Company manages liquidity risk by ensuring that it has sufficient cash, credit

financial resources available to meet its maturing obligations.


through a combination of cash flows from operations, credit facilities, disposition of

assets, and accessing capital markets. The table below provides a summary of the contractual obligations

and payments related to financial liabilities due as at March 31, 2009. The amount

contractual undiscounted cash flows.

2009$

2010-2011$

Accounts payable and accrued liabilities 32,439 -

500 -

- 823

8,000 4,000

- 80,000

40,939 84,823

The significant market risk exposures to which the Company is exposed are interest rate risk

Interest rate risk is the risk that the future cash flows and fair values of the Company will fluctuate

because of changes in market interest rates. The Company is not exposed to changes in cash flows due

to changes in market interest rates as the interest on the Company’s convertible loan

interest bearing. The Company monitors its exposure to interest rates and is

comfortable with its exposure given the relatively short term of its convertible loan

interest bearing. As at March 31, 2009, a 1% increase in interest rates would

convertible loan by $717 and a 1% decrease in interest rates would increase

le loan by $728.


hanges in the applicable exchange rate may result in a decrease or increase in

ins or losses. The Company does not use derivative instruments to reduce its

exposure to foreign currency risk.

follows the current rate method for accounting for its self-sustaining operations. Under this

the assets and liabilities acquired are translated according to the prevailing market exchange

balance sheet date with all foreign exchange translation adjustments

accumulated other comprehensive income in the consolidated ba

The translation adjustments are realized in the consolidated statements of operations when there


Liquidity risk is the risk that the Company will be unable to meet its financial obligations as they become

. The Company manages liquidity risk by ensuring that it has sufficient cash, credit facilities, and other


through a combination of cash flows from operations, credit facilities, disposition of

The table below provides a summary of the contractual obligations

The amounts disclosed are the

Total$

32,439

500

823

12,000

80,000

125,762

The significant market risk exposures to which the Company is exposed are interest rate risk and

of the Company will fluctuate

The Company is not exposed to changes in cash flows due

convertible loan is at a fixed rate

The Company monitors its exposure to interest rates and is

convertible loan and the fact that the

a 1% increase in interest rates would

and a 1% decrease in interest rates would increase


hanges in the applicable exchange rate may result in a decrease or increase in

ins or losses. The Company does not use derivative instruments to reduce its

sustaining operations. Under this

according to the prevailing market exchange

translation adjustments being

ncome in the consolidated balance

of operations when there



21 | P a g e

Substantially all of the change in the unrealized foreign

sustaining operations is related to the revaluation of the property, plant and equipment

and future income tax liability in the Company’s self

The Company’s Venezuelan operations and cash holdings are currently subject to currency and

exchange controls. These government

controls limit the Company’s ability to flow US

As at March 31, 2009, the Company holds cash of

Bolivar Fuerte’s (“BsF”).

Financial instruments that influence

currency fluctuations include BsF

VAT receivable), accounts payable and accrued liabilities

Company’s net earnings and other comprehensive income from these financial instruments due to

changes in the exchange rate between the Venezuelan

below:

Net earnings

Other comprehensive income

Net earnings

Other comprehensive income

21. ASSETS HELD FOR SALE

As at December 31, 2008, the Company has recorded certain machine

as assets held for sale. As at March 31, 2009 the

and equipment as management no longer believes the Company will receive government approval to sell

these assets. These assets are included in the extraction and processing segment in Note

22. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified



Substantially all of the change in the unrealized foreign exchange gain (loss) on translation of self

sustaining operations is related to the revaluation of the property, plant and equipment

and future income tax liability in the Company’s self-sustaining Venezuelan subsidiaries


government-imposed controls may adversely affect the Company as such

the Company’s ability to flow US Dollars out of the country.

, the Company holds cash of $3,818 (December 31, 2008: $

influence the Company’s net earnings or other comprehensive income due to

F and C$ denominated cash and cash equivalents

accounts payable and accrued liabilities and other liabilities


changes in the exchange rate between the Venezuelan BsF, C$, and the US

As at March 31, 2009

25% Increase in theBsF

$

793

(1,307)


10% Increase in theC$

$

340

-

ASSETS HELD FOR SALE

the Company has recorded certain machinery with a net book value of $2,771

March 31, 2009 the Company has reclassified this amount to property, plant

management no longer believes the Company will receive government approval to sell

These assets are included in the extraction and processing segment in Note

IVE FIGURES

Certain of the comparative figures have been reclassified to conform to the current period’s

s) on translation of self-

sustaining operations is related to the revaluation of the property, plant and equipment, mineral properties

sustaining Venezuelan subsidiaries and joint venture.


controls may adversely affect the Company as such

: $1,721) in Venezuelan

the Company’s net earnings or other comprehensive income due to

and cash equivalents, receivables (excluding

and other liabilities. The sensitivity of the


S Dollar are summarized


25% Decrease in theBsF

$

(635)

1,045


10% Decrease in theC$

$

(309)

-

ry with a net book value of $2,771

ompany has reclassified this amount to property, plant

management no longer believes the Company will receive government approval to sell

These assets are included in the extraction and processing segment in Note 17.

to conform to the current period’s presentation.


22 | P a g e

23. SUBSEQUENT EVENT

a) On April 15, 2009, the Company acquired a plant for the treatment of diamonds from an officer and

director of the Company for $2.0 million.

b) On April 24, 2009, the Company granted 15,980,000 stock options

directors, with an exercise price of C$0.60

stock options with exercise price

c) On April 30, 2009, the Central Bank of Venezuela

04-03") mandating that 70% of gold produced

market, of which 60% must be offered for sale to the CBV and 10% must be allocated to the domestic

processing industry. The remaining 30% of the gold produced in Venezuela can be exported or sold

to the CBV, at the option of the gold producer. Although Resolution No. 09

producers to offer the gold for sale to the CBV, it does not mandate the terms of such an offer. The

Company believes that there is uncertainty regarding

resolution of this nature would

formally and legally enacted, it could have a material impact on the Company however, any potential

impact cannot be quantified

d) On May 19, 2009, the Company repaid the note payable of $500 (Note 9).



SUBSEQUENT EVENTS

On April 15, 2009, the Company acquired a plant for the treatment of diamonds from an officer and

Company for $2.0 million. The purchase price was based on an independent valuation.

the Company granted 15,980,000 stock options to employees, consultants

with an exercise price of C$0.60 and amended the exercise price

stock options with exercise prices prior to amendment ranging from C$1.31 to

On April 30, 2009, the Central Bank of Venezuela (“CBV”) passed a resolution ("Resolution No. 09

03") mandating that 70% of gold produced in the country must be allocated to the domestic



tion of the gold producer. Although Resolution No. 09


that there is uncertainty regarding the validity of Resolution N

resolution of this nature would normally require an act of parliament. Should this resolution be


at this time.

On May 19, 2009, the Company repaid the note payable of $500 (Note 9).

On April 15, 2009, the Company acquired a plant for the treatment of diamonds from an officer and

based on an independent valuation.

to employees, consultants, and

amended the exercise price to C$0.60 of 3,610,000

to $3.00.

passed a resolution ("Resolution No. 09-

ntry must be allocated to the domestic



tion of the gold producer. Although Resolution No. 09-04-03 requires gold


the validity of Resolution No. 09-04-03 since a

Should this resolution be


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