What changed in this filing

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Item 2. Management’s Discussion and Analysis

2010-11-09 compared with 2010-08-11 · 337 added, 118 removed, 77 unchanged (86% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated August 11, 2010 is intended to assist in understanding and assessing our results of operations and financial condition.

The expense categories shown in the consolidated statements of operations were revised as of the end of 2009 to better present the current operations of the Company.

As a result the expense categories for the three and six month periods ended June 30, 2009 have been revised to be comparative with the presentation of the three and six month periods ended June 30, 2010.

The revisions had no effect on previously reported results of operations.

Gold Reserve, an exploration stage company, is engaged in the business of acquiring, exploring and developing mining projects.

From 1992 to 2009 we focused substantially all of our management and financial resources on the development of the Brisas gold and copper project located in the Kilometre 88 mining district of the State of Bolivar in south-eastern Venezuela (which we refer to as the “Brisas Project” or “Brisas”).

The Brisas Project is one of the largest undeveloped gold/copper deposits in the world, containing estimated ore reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper.

In March 2007, the Venezuelan Ministry of Environment (“MinAmb”) issued the Authorization for the Affectation of Natural Resources for the Construction of Infrastructure and Services Phase of the Brisas Project (the “Authorization to Affect”).

The Authorization to Affect was issued to the Company based on the extensive work the Company had completed on the development of the Brisas Project including the 2003 and updated 2005 Brisas operating plan approved by the Venezuelan Ministry of Mines (“MIBAM”), and the July 2005 Brisas Environmental and Social Impact Study for the Exploitation and Processing of Gold and Copper Ore (“Estudio de Impacto Ambiental y Sociocultural” or “ESIA”), as supplemented in January 2007, approved by the MinAmb.

With the Authorization to Affect, the Company in May 2007 raised (net of expenses) $177.5 million for the Brisas Project comprised of $103.5 million of 5.50% senior subordinated convertible notes (“convertible notes”) and $74 million of common shares.

Thereafter we commenced significant pre-construction efforts including awarding contracts for site preparation and construction camp facilities and placing equipment orders totaling approximately $125.3 million.

In April 2008, the MinAmb revoked the March 2007 Authorization to Affect without prior notification.

After the Company’s Board of Directors unanimously rejected an August 2008 unsolicited offer by Rusoro Mining Ltd.

(“Rusoro”) to complete a business combination by issuing two shares of Rusoro for each share of Gold Reserve, Rusoro with the assistance of Endeavour Financial International Corporation (“Endeavour”) in mid December 2008 launched a hostile takeover of the Company.

Rusoro was primarily focused on its mining activities in Venezuela and Endeavour had been the Company’s financial advisor from 2004 until shortly after the commencement of the hostile offer.

The Company filed an action in the Ontario Superior Court of Justice (“Ontario Court”) seeking an injunction restraining Rusoro and Endeavour from proceeding with the unsolicited offer, significant monetary damages, and various other items.

The Ontario Court granted an interlocutory injunction in February 2009 restraining Rusoro from proceeding with any hostile takeover until the conclusion and disposition at trial of the action commenced by the Company.

As a result Rusoro withdrew its takeover offer and both Rusoro and Endeavour requested permission to appeal the injunction which was subsequently denied in April 2009.

Rusoro filed a counterclaim against the Company for, among other things, damages of Cdn $102.5 million allegedly arising from the Company’s successful motion for an interlocutory injunction and Endeavour filed a $0.5 million counter claim against the Company relating to the lost opportunity to earn a success fee from the successful completion of the Rusoro offer.

Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of

Operations, dated November 9, 2010 is intended to assist in understanding and

assessing our results of operations and financial condition.

categories shown in the consolidated statements of operations were revised as

of the end of 2009 to better present the current operations of the Company.

a result the expense categories for the three and nine month periods ended September

30, 2009 have been revised to be comparative with the presentation of the three

and nine month periods ended September 30, 2010.

The revisions had no effect on

previously reported results of operations.

Reserve, an exploration stage company, is engaged in the business of acquiring,

exploring and developing mining projects.

From 1992 to 2009 we focused

substantially all of our management and financial resources on the development

of the Brisas gold and copper project located in the Kilometre 88 mining

district of the State of Bolivar in south-eastern Venezuela (which we refer to

as the “Brisas Project” or “Brisas”).

The Brisas Project is one of the largest

undeveloped gold/copper deposits in the world, containing estimated ore

reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper.

March 2007, the Venezuelan Ministry of Environment (“MinAmb”) issued the

Authorization for the Affectation of Natural Resources for the Construction of

Infrastructure and Services Phase of the Brisas Project (the “Authorization to

Authorization to Affect was issued to the Company based on the extensive work

the Company had completed on the development of the Brisas Project including

the 2003 and updated 2005 Brisas operating plan approved by the Venezuelan

Ministry of Mines (“MIBAM”), and the July 2005 Brisas Environmental and Social

Impact Study for the Exploitation and Processing of Gold and Copper Ore

(“Estudio de Impacto Ambiental y Sociocultural” or “ESIA”), as

supplemented in January 2007, approved by the MinAmb.

the Authorization to Affect, the Company in May 2007 raised (net of expenses)

$177.5 million for the Brisas Project comprised of $103.5 million of 5.50%

senior subordinated convertible notes (“convertible notes”) and $74 million of

common shares.

Thereafter we commenced significant pre-construction efforts

including awarding contracts for site preparation and construction camp

facilities and placing equipment orders totaling approximately $125.3 million.

April 2008, the MinAmb revoked the March 2007 Authorization to Affect without

prior notification.

the Company’s Board of Directors unanimously rejected an August 2008

unsolicited offer by Rusoro Mining Ltd.

(“Rusoro”) to complete a business

combination by issuing two shares of Rusoro for each share of Gold Reserve, Rusoro

with the assistance of Endeavour Financial International Corporation

(“Endeavour”) in mid December 2008 launched a hostile takeover of the Company.

Rusoro was primarily focused on its mining activities in Venezuela and Endeavour had been the Company’s financial advisor from 2004 until shortly after the

commencement of the hostile offer.

The Company filed an action in the Ontario

Superior Court of Justice (“Ontario Court”) seeking an injunction restraining

Rusoro and Endeavour from proceeding with the unsolicited offer, significant

monetary damages, and various other items.

The Ontario Court granted an

interlocutory injunction in February 2009 restraining Rusoro from proceeding

with any hostile takeover until the conclusion and disposition at trial of the

action commenced by the Company.

As a result Rusoro withdrew its takeover offer

and both Rusoro and Endeavour requested permission to appeal the injunction which

was subsequently denied in April 2009.

Rusoro filed a counterclaim against the

Company for, among other things, damages of Cdn $102.5 million allegedly arising

from the Company’s successful motion for an interlocutory injunction and

Endeavour filed a $0.5 million counter claim against the Company relating to

the lost opportunity to earn a success fee from the successful completion of

the Rusoro offer.

(See Part II- Other Information- Item 1.

Legal Proceedings- Litigation).

In April 2009 the Company notified the Venezuelan government of the existence of a dispute under the Agreement between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (“Canada – Venezuela Treaty”).

In May 2009 the Venezuelan government denied the extension of the Brisas Alluvial Concession and the El Pauji Concession which had been properly requested by the Company pursuant to Article 25 of the Venezuelan mining law, in October 2007 and January 2008, respectively.

MIBAM did not respond to our request for the extensions during the requisite 6 month time period as outlined in Article 25.

Accordingly, the extensions were automatically granted pursuant to the mining law.

After being unsuccessful in our efforts to meet with government officials to resolve the investment dispute, on October 21, 2009 the Company filed a Request for Arbitration under the Additional Facility Rules of ICSID, against the Bolivarian Republic of Venezuela.

Venezuelan government personnel subsequently arrived at the Brisas Project camp site on October 26, 2009, claimed ownership of the Brisas Alluvial Concession, seized assets, expelled our personnel and took physical possession of the property.

Subsequently, on November 4, 2009, the Venezuelan government notified the Company through the issuance of an Administrative Act, dated October 20, 2009, of its intent to cancel the Company’s underlying Brisas hard rock concession and the government formally notified the Company of its cancelation in June, 2010.

In November 2009 our Request for Arbitration was registered by ICSID (Gold Reserve Inc.

Legal Proceedings-

April 2009 the Company notified the Venezuelan government of the existence of a

dispute under the Agreement between the Government of Canada and the Government

of the Republic of Venezuela for the Promotion and Protection of Investments (“Canada – Venezuela Treaty”).

In May 2009 the Venezuelan government denied the extension of

the Brisas Alluvial Concession and the El Pauji Concession which had been

properly requested by the Company pursuant to Article 25 of the Venezuelan

mining law, in October 2007 and January 2008, respectively.

MIBAM did not

respond to our request for the extensions during the requisite 6 month time

period as outlined in Article 25.

Accordingly, the extensions were

automatically granted pursuant to the mining law.

After being unsuccessful in

our efforts to meet with government officials to resolve the investment

dispute, on October 21, 2009 the Company filed a Request for Arbitration under

the Additional Facility Rules of the International Centre for Settlement of

Investment Disputes (ICSID), against the Bolivarian Republic of Venezuela.

government personnel subsequently arrived at the Brisas Project camp site on

October 26, 2009, claimed ownership of the Brisas Alluvial Concession, seized

assets, expelled our personnel and took physical possession of the property.

Subsequently, on November 4, 2009, the Venezuelan government notified the

Company through the issuance of an Administrative Act, dated October 20, 2009,

of its intent to cancel the Company’s underlying Brisas hard rock concession

and the government formally notified the Company of its cancelation in June, 2010.

In November 2009 our Request for Arbitration was

registered by ICSID (Gold Reserve Inc.

Bolivarian Republic of Venezuela (ICSID Case No.

ARB(AF)/09/1)).

The Company is seeking compensation in the arbitration for all of the loss and damage resulting from Venezuela’s wrongful conduct which includes the full market value of the legal rights to develop the Brisas Project.

Our current arbitration efforts consist of assisting technical, legal, and financial experts, and developing and filing our initial pleadings, the filing of which is expected to occur in September 2010.

The information contained in this Quarterly Report on Form 10-Q relating to Brisas and Choco 5 is presented for informational and historical purposes and should not be construed as an indication of our expectations regarding the future development and operation of these properties or the outcome of the arbitration proceedings.

As a result of the expropriation of the Brisas Project by the Venezuelan government, in 2009 we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets.

Also, we no longer report mineral reserves for Brisas, and we have discontinued our activities relating to the Brisas and Choco 5 properties.

Since acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300 million on the project including equipment, financial, legal and engineering costs incurred in support of our Venezuelan operations and the write-down of previously capitalized costs associated with our Venezuelan operations.

We have no commercial production at this time and, as a result, we have not recorded revenue or cash flows from mining operations and continue to experience losses from operations, a trend we expect to continue unless and until the investment dispute regarding Brisas is resolved favorably to the Company and/or we acquire directly or indirectly other mining projects.

Historically we have financed the Company’s operations through the issuance of common stock, other equity securities and convertible debt.

The Company has only one operating segment, the exploration and development of mineral properties.

is seeking compensation in the arbitration for all of the loss and damage

resulting from Venezuela’s wrongful conduct which includes the full

market value of the legal rights to develop the Brisas Project.

Tribunal held its first session with the parties on April 23, 2010 during which

time several procedural matters were agreed to, including the time schedule for

the Arbitration.

In compliance with that schedule, we filed our initial written

submission, known as the Memorial, on September 24, 2010 claiming US$1.928

billion compensation for all of the loss and damage resulting from Venezuela’s wrongful conduct, which includes the full market value of the legal

rights to develop the Brisas Project.

The Respondent is required to file

its reply to the Company’s Memorial by March 7, 2011.

Thereafter, further

written submissions are scheduled to be made prior to the oral hearings, which

are scheduled to commence on December 5, 2011.

a precondition to bringing an arbitration claim under the Canada-Venezuela

Treaty the Company waived its right to commence or continue before

Venezuelan courts or tribunals with other legal or administrative challenges to

the conduct that forms the basis of this ICSID claim, including the

revocation of the Authorization to Affect and the denial of the extension

of the Brisas Alluvial and El Pauji Concessions.

2009 we recorded a $150.7 million non-cash write-off of the carrying value of

the expropriated assets including an adjustment for the estimated net

realizable value of certain processing and related equipment purchased for the

Brisas Project of approximately $14.5 million.

The realizable value of the

remaining processing and related equipment may be different than management’s

current estimate.

information contained in this Quarterly Report on Form 10-Q relating to Brisas

and Choco 5 is presented for informational and historical purposes and should

not be construed as an indication of our expectations regarding the future

development and operation of these properties or the outcome of the arbitration

As a result of the expropriation of the Brisas Project by the

Venezuelan government, in 2009 we recorded a $150.7 million non-cash write-off

of the carrying value of the expropriated assets.

Also, we no longer report

mineral reserves for Brisas, and we have discontinued our activities relating

to the Brisas and Choco 5 properties.

acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300

million on the project including equipment, financial, legal and engineering

costs incurred in support of our Venezuelan operations and the write-down of

previously capitalized costs associated with our Venezuelan operations.

have no commercial production at this time and, as a result, we have not

recorded revenue or cash flows from mining operations and continue to

experience losses from operations, a trend we expect to continue unless and

until the investment dispute regarding Brisas is resolved favorably to the

Company and/or we acquire directly or indirectly other mining projects.

Historically we have financed the Company’s operations through the issuance of

common stock, other equity securities and convertible debt.

The Company has

only one operating segment, the exploration and development of mineral

We prepare our consolidated financial statements in U.S.

dollars in accordance with accounting principles generally accepted in Canada (see Note 18 to the Consolidated Financial Statements- Differences between Canadian and U.S.

The Company’s historical results of operations and current financial position are a result of the Company’s efforts, since 1992, to develop the Brisas Project into an operating mine and more specifically, our decision, subsequent to the issuance of the Authorization to Affect (the authorization to begin construction of the Brisas Project), to issue convertible notes and common shares, place orders to acquire equipment, and to continue the development of Brisas.

Likewise our October 2009 Request for Arbitration under the Additional Facility Rules of ICSID will shape the future financial position and results of operations of the Company.

We expect the arbitration process to last approximately three years, consume substantial management time and cost an estimated $5 million to $8 million, excluding the time and funds necessary to collect on any award.

Our primary objective is to manage the arbitration effort in cooperation with arbitration counsel and various experts, to minimize costs and accelerate its completion, to the extent possible.

Substantially all of the key management personnel have been employed by the Company for over 15 years with a single focus of developing the Brisas Project.

These individuals possess valuable historical knowledge related to the Brisas Project which is important to the successful execution of our arbitration efforts.

In addition to the management of our arbitration claim, we continue to explore efforts to facilitate a settlement of our dispute with the Venezuelan government, liquidate Brisas Project assets and evaluate other mining opportunities for a direct or indirect participation.

The timing of our involvement in any new mining opportunity if any, and the amounts that may be required cannot be determined at this time and are subject to available cash, sale of equipment originally slated for the Brisas Project and/or future financings, if any.

Upon the sale of Brisas Project assets or successful settlement of our dispute with the Venezuelan Government, it is the intent of Management to explore efforts to redeem all or a portion of the outstanding convertible notes.

These efforts could include a public offer to reacquire all or a portion of the notes or a more limited “Dutch auction” or individual private transactions.

The time and extent of any plan will be influenced by, among other things, terms of the indenture, regulatory issues, market conditions and available cash.

Investors are urged to read our filings with U.S.

and Canadian securities regulatory agencies, which can be viewed on-line at www.sec.gov, www.sedar.com or at the Company’s website, www.goldreserveinc.com which also includes the Company’s corporate governance policies.

Additionally, you can request a copy of any of these documents directly from us.

Financial Overview

Cautionary Statement Regarding Forward-Looking Statements

The information presented or incorporated by reference in this Quarterly Report on Form 10-Q contains both historical information and forward-looking statements (within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Securities Act (Ontario)) that may state our intentions, hopes, beliefs, expectations or predictions for the future.

In this report, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by us at this time, are inherently subject to significant business, economic and competitive uncertainties and contingencies.

We caution that such forward-looking statements involve known and unknown risks, uncertainties and other risks that may cause our actual financial results, performance, or achievements of the Company to be materially different from our estimated future results, performance, or achievements expressed or implied by those forward-looking statements.

These forward-looking statements involve risks and uncertainties, as well as assumptions that may never materialize, prove incorrect or materialize other than as currently contemplated which could cause our results to differ materially from those expressed or implied by such forward-looking statements.

The words “believe,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “may,” “could” and other similar expressions that are predictions of or indicate future events and future trends which do not relate to historical matters, identify forward-looking statements.

Any such forward-looking statements are not intended to give any assurances as to future results.

Numerous factors could cause actual results to differ materially from those in the forward-looking statements.

Due to risks and uncertainties, including the risks and uncertainties identified in our Annual Report on Form 10-K- “Part I- Item 1A.

Risk Factors”, actual results may differ materially from current expectations.

Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation:

· the outcome of our arbitration under the Additional Facility Rules of the International Centre for Settlement of Investment Disputes of the World Bank, in Washington D.C.

to determine compensation claimed by us resulting from our claims against the Venezuelan government and its agents and agencies;

· corruption and uncertain legal enforcement;

accordance with accounting principles generally accepted in Canada (see Note 18 to the Consolidated Financial Statements- Differences between Canadian

Company’s historical results of operations and current financial position are a

result of the Company’s efforts, since 1992, to develop the Brisas Project into

an operating mine and more specifically, our decision, subsequent to the

issuance of the Authorization to Affect (the authorization to begin

construction of the Brisas Project), to issue convertible notes and common

shares, place orders to acquire equipment, and to continue the development of

Likewise our October 2009 Request for Arbitration under the Additional

Facility Rules of ICSID will shape the future financial position and results of

operations of the Company.

We expect the arbitration process to last approximately

three years, consume substantial management time and cost an estimated $8

million to $10 million, excluding the time and funds necessary to collect on

primary objective is to manage the arbitration effort in cooperation with arbitration

counsel and various experts, to minimize costs and accelerate its completion,

to the extent possible.

Substantially all of the key management personnel have

been employed by the Company for over 15 years with a single focus of

developing the Brisas Project.

These individuals possess valuable historical

knowledge related to the Brisas Project which is important to the successful

execution of our arbitration efforts.

addition to the management of our arbitration claim, we continue to explore

efforts to facilitate a resolution of our dispute with the Venezuelan

government, liquidate Brisas Project assets and evaluate other mining

opportunities for a direct or indirect participation.

the second and third quarters of 2010, management of the Company met several

times with working committees of MIBAM to discuss our investment dispute and

the government’s objective regarding the Brisas Project.

In October 2010,

the Venezuelan Attorney General’s office and MIBAM requested a meeting with the

Company to explore possible resolutions.

Management believes that this

meeting was positive primarily from the standpoint of attendance by the

Attorney General’s office and key members of MIBAM.

While a general framework

for proceeding with settlement talks was considered and the overall tone was

constructive, there can be no assurance that a resolution to this investment

dispute can be concluded as an alternative to completing the arbitration

timing of our involvement in any new mining opportunity if any, and the amounts

that may be required cannot be determined at this time and are subject to

available cash, sale of equipment originally slated for the Brisas Project

and/or future financings, if any.

Upon the sale of Brisas Project assets or successful

settlement of our dispute with the Venezuelan Government, it is the intent of Management

to explore efforts to redeem all or a portion of the outstanding convertible

These efforts could include a public offer to reacquire all or a portion

of the notes or a more limited “Dutch auction” or individual private

transactions.

The time and extent of any plan will be influenced by, among

other things, terms of the indenture, regulatory issues, market conditions and

available cash.

are urged to read our filings with U.S.

and Canadian securities regulatory

agencies, which can be viewed on-line at www.sec.gov, www.sedar.com or at the

Company’s website, www.goldreserveinc.com

which also includes the Company’s corporate governance policies.

Additionally,

you can request a copy of any of these documents directly from us.

Statement Regarding Forward-Looking Statements

information presented or incorporated by reference in this Quarterly Report on

Form 10-Q contains both historical information and forward-looking statements

(within the meaning of Section 27A of the Securities Act, Section 21E of the

Exchange Act and the Securities Act (Ontario)) that may state our intentions,

hopes, beliefs, expectations or predictions for the future.

In this report,

forward-looking statements are necessarily based upon a number of estimates and

assumptions that, while considered reasonable by us at this time, are

inherently subject to significant business, economic and competitive

uncertainties and contingencies.

We caution that such forward-looking

statements involve known and unknown risks, uncertainties and other risks that

may cause our actual financial results, performance, or achievements of the

Company to be materially different from our estimated future results,

performance, or achievements expressed or implied by those forward-looking

forward-looking statements involve risks and uncertainties, as well as assumptions

that may never materialize, prove incorrect or materialize other than as

currently contemplated which could cause our results to differ materially from

those expressed or implied by such forward-looking statements.

“believe,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “may,” “could”

and other similar expressions that are predictions of or indicate future events

and future trends which do not relate to historical matters, identify

forward-looking statements.

Any such forward-looking statements are not

intended to give any assurances as to future results.

Numerous factors could

cause actual results to differ materially from those in the forward-looking

Due to risks and uncertainties, including the risks and uncertainties

identified in our Annual Report on Form 10-K- “Part I- Item 1A.

Risk Factors”,

actual results may differ materially from current expectations.

factors could cause actual results to differ materially from those in the

forward-looking statements, including without limitation:

the outcome of our arbitration

under the Additional Facility Rules of the International Centre for Settlement

of Investment Disputes of the World Bank, in Washington D.C.

compensation claimed by us resulting from our claims against the Venezuelan

government and its agents and agencies;

the realizable value of the

remaining processing and related equipment may be different than management’s

current estimate

corruption and uncertain legal

political and social instability;

requests for improper payments;

· competition with companies that are not subject to or do not follow Canadian and U.S.

competition with companies that are

not subject to or do not follow Canadian and U.S.

laws and regulations;

· regulatory, political and economic risks associated with Venezuela including changes in laws and legal regimes;

· the result or outcome of the litigation regarding the enjoined hostile takeover bid for us;

· impact of currency, metal prices and metal production volatility;

· our dependence upon the abilities and continued participation of certain key employees;

· the value of our 5.50% senior subordinated convertible notes due on June 15, 2022 and potential volatility of our Class A common shares (also referred to herein as Common Shares), including potential dilution as a result of the conversion of the convertible notes into our common shares by either us or the holder;

· the prospects for exploration and development of other mining projects by us;

· and risks normally incident to the exploration, development and operation of mining properties.

Investors are cautioned not to put undue reliance on forward-looking statements, and investors should not infer that there has been no change in our affairs since the date of this report that would warrant any modification of any forward-looking statement made in this document, other documents filed periodically with securities regulators or documents presented on our website.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this notice.

We disclaim any intent or obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of assumptions or factors, whether as a result of new information, future events or otherwise, subject to our disclosure obligations under applicable rules promulgated by the U.S.

regulatory, political and economic

risks associated with Venezuela including changes in laws and legal regimes;

the result or outcome of the

litigation regarding the enjoined hostile takeover bid for us;

impact of currency, metal prices

and metal production volatility;

our dependence upon the abilities

and continued participation of certain key employees;

the value of our 5.50% senior

subordinated convertible notes due on June 15, 2022 and potential volatility of

our Class A common shares (also referred to herein as “Common Shares”),

including potential dilution as a result of the conversion of the convertible

notes into our common shares by either us or the holder;

the prospects for exploration and

development of other mining projects by us;

and risks normally incident to the

exploration, development and operation of mining properties.

are cautioned not to put undue reliance on forward-looking statements, and

investors should not infer that there has been no change in our affairs since

the date of this report that would warrant any modification of any

forward-looking statement made in this document, other documents filed

periodically with securities regulators or documents presented on our website.

All subsequent written and oral forward-looking statements attributable to us

or persons acting on our behalf are expressly qualified in their entirety by

We disclaim any intent or obligation to update publicly or

otherwise revise any forward-looking statements or the foregoing list of

assumptions or factors, whether as a result of new information, future events

or otherwise, subject to our disclosure obligations under applicable rules

promulgated by the U.S.

Securities and Exchange Commission (the “SEC”).

Liquidity and Capital Resources

At June 30, 2010 our total financial resources, which included cash and cash equivalents, restricted cash and marketable securities, were approximately $79.8 million compared to $81.2 million at December 31, 2009.

The Companys cash and investments are held primarily in US dollar denominated accounts.

June 30, 2010

Liquidity and

Capital Resources

At September 30, 2010 our total financial resources,

which included cash and cash equivalents, restricted cash and marketable

securities, were approximately $76.5 million compared to $81.2 million at

December 31, 2009.

The Company’s cash and investments are held primarily in US

dollar denominated accounts.

September 30, 2010

December 31, 2009

Cash and cash equivalents

3 unchanged sentences

$ (4,737,289)

Cash and cash equivalents decreased approximately $1.7 million from December 31, 2009.

This decrease was primarily due to cash used in operating activities of approximately $10.3 million more fully described below and net purchase of marketable securities of $0.2 million, partially offset by proceeds from the sale of equipment of approximately $8.9 million.

Restricted cash decreased by approximately $0.5 million as a result of purchases of equipment relating to our previous purchase commitments for the Brisas Project.

As of August 11, 2010 we held approximately $78 million in cash, restricted cash and marketable securities.

Our financial resources decreased approximately $4.7 million from December 31, 2009.

This decrease was primarily due to cash used in operating activities of approximately $14.3 million more fully described below and net purchases of marketable securities of $0.2 million, partially offset by proceeds from the sale of equipment of approximately $8.9 million.

Restricted cash decreased by approximately $0.5 million as a result of payments for purchases of equipment relating to our previous purchase commitments for the Brisas Project.

As of November 9, 2010 we held approximately $75 million in cash, restricted cash and marketable securities.

The primary future obligation of the Company is the 5.50% senior subordinated notes which may be settled in cash or common shares in the event the holder chooses a one-time option to put the notes back to the Company for repurchase on June 15, 2012 (see Note 16 to the consolidated financial statements).

2 unchanged sentences

Operating Activities

Cash flow used by operating activities for the three and six month periods ended June 30, 2010 was approximately $6.3 and $10.3 million, which was an increase over the same periods in 2009 of approximately $2.9 and $0.6 million, respectively.

Cash flow used by operating activities for the three and nine month periods ended September 30, 2010 was approximately $3.9 and $14.3 million, which was an increase over the same periods in 2009 of approximately $0.8 and $1.5 million, respectively.

Investing Activities

Overall investing activities during the three and six months ended June 30, 2010 and 2009 decreased by $19.8 million and $26.8 million, respectively.

These changes are primarily comprised of a reduction in cash used for the purchase of equity and debt marketable securities of $9.9 million and $10.1 million, respectively (See Notes 5 and 6 to the consolidated financial statements);

reduction in purchase of property, plant and equipment of approximately $2.8 million and $5.3 million, respectively;

proceeds from the sale of equipment of $5.0 million and $8.9 million, respectively;

changes in restricted cash of $0.7 million and $0.3 million, respectively (see Note 13 to the consolidated financial statements);

and changes due to the change in classification of interest paid on convertible debt from investing activities to operating activities of approximately $2.8 million and $2.8 million, respectively.

Net purchases of marketable securities

Cash provided by investing activities during the three months ended September 30, 2010 decreased by $4.8 million from the comparable period in 2009.

This decrease was primarily due to a decrease in net proceeds from marketable securities and equipment transactions of $1.8 million and $2.9 million, respectively.

Cash provided by investing activities during the nine months ended September 30, 2010 increased by $22.1 million from the comparative periods in 2009.

This change is primarily due to a decrease in net cash used in marketable securities transactions of $8.3 million, an increase in net proceeds from equipment transactions of $10.9 million and a decrease in interest paid on convertible notes of $2.8 million (See Notes 5, 6 and 13 to the consolidated financial statements).

Net proceeds (purchases) of marketable securities

$ (1,832,836)

12 unchanged sentences

Contractual Obligations

The following table sets forth information on the Companys material contractual obligation payments for the periods indicated as of June 30, 2010:

The following table sets forth information on the Companys material contractual obligation payments for the periods indicated as of September 30, 2010:

Payments due by Period

11 unchanged sentences

Beginning on June 16, 2012, the Company may, at its option, redeem all or part of the notes for cash at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.

As of June 30, 2010, $1,151,000 face value of convertible notes have been settled in cash or repurchased by the Company at a total cost of $451,000.

As of September 30, 2010, $1,151,000 face value of convertible notes have been settled in cash or repurchased by the Company at a total cost of $451,000.

The amounts shown above include the interest and principal payments due based on the estimate that the term of the notes will end on June 15, 2012.

1 unchanged sentence

2 The Company originally placed orders totaling $125.3 million for the fabrication of processing equipment, mobile equipment and other mining equipment and related engineering.

As of June 30, 2010, the Company had equipment orders totaling $61.7 million and has made payments on these orders of $52.7 million.

As of September 30, 2010, the Company had equipment orders totaling $61.7 million and has made payments on these orders of $52.7 million.

Results of Operations

Summary Results of Operations

Consolidated net loss for the three and six months ended June 30, 2010 was approximately $4.7 million and $9.7 million, an increase of approximately $3.9 million and $5.2 million, respectively.

As more fully discussed below, the change in net loss for the three and six months ended June 30, 2010 was the product of a decrease in other income of approximately $1.5 and $1.8 million, respectively and an increase in expenses of approximately $2.5 and $3.4 million, respectively.

$ (1,452,092)

Consolidated net loss for the three and nine months ended September 30, 2010 was approximately $6.9 million and $16.6 million, an increase of approximately $1.4 million and $6.6 million, respectively over the comparable periods in 2009.

As more fully discussed below, the change in net loss for the three and nine months ended September 30, 2010 was due to a decrease in other income of approximately $0.3 and $2.1 million, respectively and an increase in expenses of approximately $1.0 million and $4.5 million, respectively.

$ (2,124,403)

3 unchanged sentences

$ (1,366,963)

$(16,641,840)

$ (10,062,636)

$ (6,579,204)

As noted above we have no commercial production at this time and as a result, other income is often variable from period to period due to one-time or otherwise atypical sources of income such as gains on disposition of marketable securities, extinguishment of debt and sale of equipment.

During the three months ended June 30, 2010, the decrease in other income was primarily attributed to a reduction in gain on disposition of marketable securities of approximately $1.9 million, partially offset by gain on sale of equipment of $0.3 million.

During the six months ended June 30, 2010, the decrease in other income is primarily attributed to a reduction in gain on extinguishment of debt of approximately $0.6 million, due to the absence of any re-purchases of the Companys convertible notes, reduction in gain on disposition of marketable securities of approximately $1.7 million, partially offset by gain on sale of equipment of $0.4 million.

During the three months ended September 30, 2010, the decrease in other income was primarily attributed to a reduction in gain on disposition of marketable securities of approximately $0.2 million, and an increase in foreign currency loss of $0.1 million.

During the nine months ended September 30, 2010, the decrease in other income is primarily attributed to a reduction in gain on extinguishment of debt of approximately $0.6 million, due to the absence of any re-purchases of the Companys convertible notes, reduction in gain on disposition of marketable securities of approximately $2.0 million, partially offset by a gain on sale of equipment of $0.4 million and an increase in foreign currency gain of $0.1 million.

Gain on extinguishment of debt

3 unchanged sentences

$ (2,124,403)

Overall the Companys expenditures during the three and six months ended June 30, 2010 are a function of the Companys efforts to reduce core operating expenses which are obscured by ongoing costs associated with our arbitration claim against the government of Venezuela, takeover defense costs associated with the 2008 Rusoro hostile takeover bid and interest expense on the convertible debt which as a result of the expropriation of the Brisas Project is no longer capitalized as a cost of the project.

During the three and six month periods ended June 30, 2010, core operating costs decreased by approximately $0.9 million and $1.8 million, respectively, primarily as a result of reductions related to both the number of personnel and compensation related items, fees associated with consultants, other discretionary costs and litigation costs.

These reductions were partially offset by costs associated with the storage, maintenance and insuring the remaining equipment originally purchased for the Brisas Project.

Overall the Companys expenditures during the three and nine months ended September 30, 2010 are a function of the Companys efforts to reduce core operating expenses which are obscured by ongoing costs associated with our arbitration claim against the government of Venezuela, equipment storage costs, takeover defense costs associated with the 2008 Rusoro hostile takeover bid and interest expense on the convertible debt which as a result of the expropriation of the Brisas Project is no longer capitalized as a cost of the project.

During the three and nine month periods ended September 30, 2010, core operating costs decreased by approximately $1.1 million $3.3 million, respectively, primarily as a result of reductions related to both the number of personnel and compensation related items, fees associated with consultants, other discretionary costs and litigation costs.

On a net basis, non-core operating costs, primarily costs associated with equipment storage, equipment sales, arbitration, takeover defense and interest on the convertible notes that is no longer capitalized, increased during the three and nine months ended September 30, 2010 by approximately $2.1 million and $7.7 million, respectively.

Overall, as a result of reductions in more readily controllable core operating costs, expenses increased by approximately $1.1 million and $4.5 million during the three and nine months ended September 30, 2010.

Corporate general and administrative

$ (1,157,198)

Venezuelan expenses

Equipment holding costs

Corporate communications

Legal and accounting

Equipment holding costs

Loss on sale of equipment

Takeover defense

Interest expense

Income tax benefit

Income tax (benefit) expense

Total Expenses for the Period

6 unchanged sentences

MGC Ventures .

The Chief Executive Officer, President, Vice President-Finance and Vice President-Administration of the Company are also officers and/or directors and shareholders of MGC Ventures.

The Company owned 12,062,953 common shares of MGC Ventures at June 30, 2010 and December 31, 2009 which represented 44% of its outstanding shares.

MGC Ventures owned 258,083 common shares of the Company at June 30, 2010 and December 31, 2009.

In addition, MGC Ventures owned 280,000 common shares of Great Basin at June 30, 2010 and December 31, 2009.

During the last three years, the Company sublet a portion of its office space to MGC Ventures for $6,000 per year.

Chief Executive Officer, President, Vice President-Finance and Vice

President-Administration of the Company are also officers and/or directors and

shareholders of MGC Ventures.

The Company owned 12,062,953 common shares of MGC

Ventures at September 30, 2010 and December 31, 2009 which represented 44% of

its outstanding shares.

MGC Ventures owned 258,083 common shares of the Company

at September 30, 2010 and December 31, 2009.

In addition, MGC Ventures owned 0

and 280,000 common shares of Great Basin at September 30, 2010 and December 31,

2009, respectively.

During the last three years, the Company sublet a portion

of its office space to MGC Ventures for $6,000 per year.

Great Basin .

The Chief Executive Officer, President, Vice President-Finance and Vice President-Administration of the Company are also officers and/or directors and shareholders of Great Basin.

The Company owned 15,661,595 common shares of Great Basin at June 30, 2010 and December 31, 2009, which represented 45% of its outstanding shares.

Great Basin owned 491,192 common shares of the Company at June 30, 2010 and December 31, 2009.

Great Basin also owned 170,800 common shares of MGC Ventures at June 30, 2010 and December 31, 2009.

During the last three years, the Company sublet a portion of its office space to Great Basin for $6,000 per year.

The Chief Executive Officer, President,

Vice President-Finance and Vice President-Administration of the Company are

also officers and/or directors and shareholders of Great Basin.

owned 15,661,595 common shares of Great Basin at September 30, 2010 and

December 31, 2009, which represented 45% of its outstanding shares.

Great Basin owned 491,192 common shares of the Company at September 30, 2010 and December

Great Basin also owned 0 and 170,800 common shares of MGC Ventures at

September 30, 2010 and December 31, 2009, respectively.

During the last three

years, the Company sublet a portion of its office space to Great Basin for

$6,000 per year.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis