From the Editor - Gold Reserve Wins the Battle, but Rusoro Will Get the Gold

Steve Fiscor
- With the help of a Canadian court Gold Reserve was able to fend off a hostile takeover from Rusoro Mining during February. Gold Reserve is a Canadian mining company, which holds the rights to the Brisas gold/copper project in Venezuela (10 million oz of gold and 1.4 billion lb of copper). Rusoro is also a Canadian gold miner that operates the Choco 10 and Isidora mines. It is controlled by Vladimir Agapov and his son, Andre Agapov— Russian mining entrepreneurs who have close ties with the Venezuelan government.

During December, Rusoro launched a $108 million takeover bid for Gold Reserve and the two companies were sparring in the courts until a Canadian judge granted an injunction because of apparent conflicts of interest and confidentiality violations by financial adviser, Endeavour Financial. Endeavour advised both mining companies at one point in time. The judge banned Endeavour from having any role in a future hostile takeover bid for Gold Reserve. The company served as Gold Reserve’s adviser for more than four years, earning $1.2 million in fees, according to Canadian law firm Fasken Martineau, which represented Gold Reserve in the February 18 decision in the Ontario Superior Court of Justice. After the Court’s decision, Rusoro withdrew its hostile offer.

Even though Rusoro claims that Endeavour passed no confidential information to them, the situation looked bad. In his ruling, the judge said that Endeavour knowingly acted against the interests of Gold Reserve in a material way and Rusoro, in effect, bought the assurance and advantage of using Gold Reserve’s trusted financial adviser, and its possession of relevant confidential information, in substitution for its own due diligence. According to Fasken Martineau, companies involved in hostile takeovers must be carefully attuned to potential conflicts.

During the second quarter of 2008, the Venezuelan government began taking actions that, at the time, could best be described as confusing regarding gold mining permits. Gold Reserve and Crystallex International, which has the 17-million-oz Las Cristinas gold development project bordering Brisas, have been trying to permit the properties. Seeing the writing on the wall, Hecla Mining, which was Venezuela’s largest gold miner, sold the Isidora mine and La Camorra mill to Rusoro. Rusoro had experience in the region. It had acquired the Choco 10 mine from Gold Fields in December 2007.

Venezuelan President Hugo Chavez recently won re-election and he is not going anywhere until at least 2012. He and his populist regime have made resource nationalization a priority. He also recently announced a gold mining partnership between Rusoro and the government-owned Venezuelan Guayana Corp. gold mining subsidiary, CVG-Minerven.

Andre Agapov attributes Rusoro’s success to working hand-in-hand with Venzuelan regulators and maintaining steady, open lines of communication. He said that the contacts that have been forged between the Venezuelan and Russian governments are more tenable and productive than anything the Canadian mining companies have been able to achieve. In the last year, Rusoro has successfully advanced the permitting process for two new gold mining operations in Venezuela.

Opening a mine in Venezuela is obviously not for the faint of heart. Add to the mix, a hostile takeover and one can easily see why Gold Reserve would celebrate the Court’s decision. Even though they thwarted the hostile takeover, one has to wonder: To what end? As a mining company, Gold Reserve’s true value is not how many ounces it holds in reserves, but their ability to permit and mine the gold deposit. For the time being, it looks as though Gold Reserve won the battle, but Rusoro will get the gold.

Steve Fiscor, Editor-in-Chief, E&MJ

As featured in Womp 2009 Vol 02 -