Tuesday, 16 December 2014

Gold Reserve Inc

MIAMI -- Gold Reserve Inc., which won a $740.3 million judgment against Venezuela from the World Bank's International Centre for Settlement of Investment Disputes (ICSID) in Paris in September, has filed a petition to recognize the award in the United States before the US District Court for the District of Columbia.

"The petition for confirmation is a summary proceeding brought under the United Nations Convention for the Recognition and Enforcement of Foreign Arbitral Awards (June 10, 1958), 21 U.S.T. 2517, 330 U.N.T.S. 38 (the “New York Convention”) and Chapter 2 of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 201 et seq.," Gold Reserve said in a statement.

Once the Award is confirmed by the US court, it will be executable in the United States as if it were a judgment of a U.S. court. 

"The Company remains firmly committed to the enforcement and collection of the Award including accrued interest in full and will continue to vigorously pursue all available remedies accordingly in every jurisdiction where it perceives that it can draw a benefit that will bring it closer to a definitive resolution of this matter," said Gold Reserve. "In the meantime, the Award accrues interest at the rate of Libor plus 2% per annum until satisfaction of the Award."

Gold Reserve had been seeking a confirmation of the ICSID award from a court in Paris, but Venezuela filed submissions opposing the Company’s request for exequatur and requesting a stay of execution pending the determination of its application for annulment of the Award, which it has not filed yet. At a Paris Court of Appeal hearing on November 27, 2014, the Court approved the Company’s request to postpone the hearing until January 8, 2015 to allow the Company to reply to Venezuela's response. The Company plans to file its reply to Venezuela’s response in two weeks allowing Venezuela sufficient time to respond prior to the January 8, 2015 hearing.

On November 26, the Company filed a petition to confirm the Award in the District of Columbia. The petition now needs to be served on Venezuela who will respond in writing with any arguments it believes it has against the petition for confirmation. Thereafter, the Company will be entitled to respond to these arguments, should it deem it necessary. The Court may set a hearing to resolve any questions regarding the petition but this is not required.

Under the New York Convention, the confirming court is not entitled to review the merits of the decision but simply to verify that the arbitral award meets the requirements of the Convention, and that no exception to the Convention’s rule of recognition and enforcement is present. Accordingly, an arbitral award, such as the Award, must be confirmed, unless the award debtor who opposes the confirmation, satisfies the confirming court, by adducing sufficient proof, that:

  • The parties to the arbitration agreement were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
  • The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
  • The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration; or
  • The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
  • The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
Confirmation of an arbitral award such as the Award, may also be refused under the New York Convention if the confirming court finds that:
  • The subject matter of the difference is not capable of settlement by arbitration under the law of the United States; or
  • The confirmation of the award would be contrary to the public policy of the United States.
Both Venezuela and Gold Reserve have filed for "Revision" of the Award at ICSID. After receiving written submissions by the parties in reply to each other’s request for correction of the Award, the arbitral tribunal informed the parties that it did not foresee any further steps in the procedure. Despite Venezuela’s subsequent requests for an opportunity to respond to the Company’s submissions and for an oral hearing (both of which have been objected to by the Company), we are confident that the arbitral tribunal will render a decision shortly.

"In late October, Venezuela filed a petition before the French Court of Appeal declaring its intent to have the Award set aside or annulled," said Gold Reserve. "As the ICSID arbitration was conducted under the arbitration rules of ICSID’s Additional Facility and was sited in France, the courts in France and not ICSID have jurisdiction to rule on such a petition. A petition to have an award set aside is only available in very limited circumstances, intended primarily for cases in which the petitioner claims the arbitral tribunal exceeded its powers or denied the parties due process in the arbitration. This procedure does not permit a review on the merits of the Award. To date, Venezuela has not set out its grounds to seek annulment." 

The World Bank's arbitration tribunal, the International Centre for Settlement of Investment Disputes (ICSID), found that Venezuela must pay Gold Reserve Inc. $740.3 million in September.

The Award represents $713 million for the fair market value of the Brisas Project, $22.3 million for interest on the Award since April 2008 based on the US Treasury Bill rate compounded annually and $5 million for reimbursement of legal and technical costs, according to the Company. Payment of the Award is due and payable immediately with any unpaid amounts accruing interest at Libor plus 2% per annum.

After the issuance of the Award, Gold Reserve sent a demand letter to Venezuela. Shortly thereafter, representatives from Venezuela and the Company met to discuss the satisfaction of the Award. No agreement was reached. 

"At this point in time, Venezuela’s petition appears to be purely dilatory and the Company is confident that it is without merit and will be rejected accordingly," says Gold Reserve. "The timing of the proceedings will be determined by the French Court of Appeal. Since Venezuela has only filed a notice to set aside the Award at this time the Company does not have any further information regarding their intentions. The existence of the petition does not affect the finality of the Award nor its enforceability." 

Accordingly, Gold Reserve has pursued its strategy to collect on its Award and has filed a petition before the French Court of Appeal to obtain an order of exequatur for the recognition and enforcement of the Award. 
As is permitted by Article 56 of the arbitration rules of ICSID’s Additional Facility, both parties have filed requests for the arbitral tribunal to correct what each party has identified as “clerical, arithmetical or similar errors” in the Award. Article 56 of ICSID Additional Facility arbitration rules does not permit reconsideration by the tribunal of any aspect of its award and does not permit correction to an error of judgment. Rather, it permits the tribunal to correct inadvertent arithmetic or typographical errors. While the Company has identified what it considers to be an inadvertent arithmetic error that warrants an increase in the Award, Venezuela has identified what it contends are significant inadvertent arithmetic errors that it argues supports a reduction of the Award. The arbitral tribunal will consider the parties’ requests and advise whether it concludes that any correction is warranted. 

"The Company remains firmly committed to the enforcement and collection of the Award including accrued interest in full and will vigorously pursue all available remedies accordingly," said Gold Reserve. 

According to Gold Reserve, the company expended approximately US$300 million developing the Brisas project to the construction stage prior to its termination by Venezuela. 

Gold Reserve says it plans to distribute a substantial majority of any proceeds received to its shareholders, "in the most efficient manner possible," subject to the need to retain funds for operating and arbitration related expenses, corporate income taxes and other obligations, such as repayment of convertible notes (if not otherwise converted).

As of September 22, Gold Reserve has 76.1 million Class A common shares issued and outstanding and holds approximately $8.8 million in cash. On a fully diluted basis, assuming all warrants, options and convertible notes are converted to common shares, the Company would have approximately 93.5 million Class A common shares issued and outstanding and would hold approximately $18.8 million in cash. This amount excludes any potential sale of the Brisas project technical and engineering work product and approximately $19 million of related equipment held for sale.

“The board of directors, management and employees of the Company are pleased that the Tribunal was unanimous in deciding all phases of the Award in favor of the Company. We feel vindicated by the Tribuns clear conclusion that the Venezuelan government acted unlawfully in terminating the Brisas Project in direct violation of the BIT," said Gold Reserve President Doug Belanger at the time. "We are gratified to know that all of our hard work prior to the unlawful termination of the project and subsequently in the execution of our claim against the Venezuelan government has been rewarded."

Some analysts have noted that Venezuela has been rushing to sell assets in the United States, like its multi-billion dollar Citgo and Chalmette refineries, to avoid potential preliminary actions or leins on them that could result from the Gold Reserve case or the other 27 cases pending against Venezuela at ICSID. 

Awaiting its judgment from ICSID, ConocoPhillips moved last week in the Texas courts to block Venezuela from removing any proceeds from the sale of its CITGO refineries, which have a value of between $5-10 billion.

At the time of the judgment, Russ Dallen, an international lawyer and banker at Caracas Capital Markets who follows the Venezuela litigation, predicted to the Latin American Herald Tribune that Venezuela would file for annulment. "The annulment tactic was used successfully by Argentina -- which actually won some of the annulment procedures -- but it is unlikely to assist Venezuela in avoiding preliminary injunctions or leins against their assets," said Dallen. "Short of dollars, Caracas has been using delaying tactics in all its cases, and launching the annulment procedure could allow Venezuela to delay final payment of the award for another 1 to 2 years -- or maybe even avoid it all together if they win."

Gold Reserve originally filed the case on November 9, 2009 and is claiming damages arising from violations of three provisions of the Canada-Venezuela bilateral investment treaty that resulted in the effective expropriation of Gold Reserve's sizable investments in the Brisas gold/copper project and the Choco 5 property.

Gold Reserve was originally seeking compensation corresponding to the restitution, or fair market value, of the rights to develop the Brisas Project and Choco 5, as of the date of the Tribunal's decision, saying that the fair market value of those rights in its Reply dated July 29, 2011, was approximately $2.1 billion. In its initial filing in 2009, the company estimated the value and damages from lost earnings at $5 billion. According to the filing, the company spent $300 million on the projects.

The President of the Tribunal is Piero Bernardini of Italy, with Pierre-Marie Dupuy of France and David A.R. Williams of New Zealand. Gold Reserve was represented by international law firm White & Case and Venezuela was represented by Foley Hoag.

According to a 2005 feasibility study, Gold Reserve estimated that the Brisas mine would cost $552 million to develop and yield 486,500 ounces of gold and 63 million pounds of copper a year over a 16 year life. Venezuela's People's Ministry for Planning said earlier this year that gold production had fallen 64.1% in the last year to 97 kilograms in February (see page 67 below).

After a rash of expropriations and nationalizations by Venezuela's firebrand former President Hugo Chavez, Venezuela has 27 cases pending against it at ICSID -- the most of any nation in the world. Faced with the cases, Chavez withdrew Venezuela from ICSID jurisdiction in 2012, but pending cases and new cases brought under bilateral investment treaties and contracts continue to give ICSID jurisdiction to settle the arbitrations.

Other companies with pending ICSID arbitrations against Venezuela include mining and smelting companies Anglo American, Rusoro Mining Ltd., Crystallex International Corporation, Highbury International and Tenaris SA; food industry companies Gruma, Polar, Longreef, Vestey, and Owens-Illinois Inc.; and oil industry companies Tidewater Inc., Williams Cos. Inc., Koch Industries Inc., and ConocoPhillips. 

In October, an ICSID arbitration panel awarded ExxonMobil $1.6 billion in its case against Venezuela for the 2007 expropriation of Exxon's investments in the Orinoco oil region. Venezuela filed a procedure for Revision last month which temporarily stayed the enforcement of the Exxon judgment. Last week, Chilean airport operator IDC and Swiss partner Flughafen Z├╝rich won a $34 million arbitration proceeding against Venezuela that was originally filed in June 2010 at ICSID over the expropriation of the airport concession on Margarita Island in Venezuela in 2005. 

ICSID is an autonomous international institution established in 1965 under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID or the Washington Convention) with over one hundred and forty member States. The primary purpose of ICSID is to provide facilities for conciliation and arbitration of international investment disputes.

Gold Reserve Inc. has a history in mining dating back to 1956 and was formed for the purpose of acquiring, exploring, and developing mining properties and placing them into production. The Company is incorporated under the laws of the Yukon Territory, Canada and is listed on the TSX Venture Exchange and the OTCQB Markets Exchange. 

In 1992, the Company acquired and began developing what is now known as the Brisas gold and copper project, located in the historic Km 88 mining district of the State of Bolivar in southeastern Venezuela (the "Brisas Project"). The Brisas deposit, which is one of the largest undeveloped gold/copper deposits in the world, contains ore reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper. From 1992 to 2009, the Company invested close to US $300 million in acquisition, land exploration, development, equipment, and engineering costs, which the Company believed developed the Brisas Project into a world class mining project.

Gold Reserves is a small company and was decimated by Venezuela's actions which left it with no real business or money since the expropriation of its assets and investment in Venezuela. According to the company's Annual Report, Gold Reserve had $3.3 million dollars and its Brisas Project related equipment (that it valued at $19 million) on hand at the end of 2013. The company had $37 million in convertible debt.

"The company has no revenue producing operations at this time and its working capital deficiency, cash burn rate and debt maturity schedule required that the company seek additional sources of funding to ensure the Company's ability to continue its activities in the normal course," Gold Reserve wrote in its 2013 Annual Report.

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