The Investment Doctor's article on Gold Reserve appears to be suffering from a serious illness. He states that he "prefers hard material facts" and yet this article is suffering from a serious lack of those same facts.

First and foremost he has stated that the arbitration claim is for $5 billion. When the original illegal expropriation was made there was a requirement to give notice to Venezuela with a minimum 6 month waiting period before a claim could be filed. At the time of notice the indication of $5 billion was an undiscounted figure, as the preparation of a formal claim and the engagement of various independent experts had not been made. If The Investment Doctor is a "full time investor" then he should spend some time reading the whole story about a company from their filings with the SEC and OSC or even peruse the company website to see that the claim is for $1.928 billion with interest which since the filing in late 2009 would amount to several hundred million dollars depending on the interest rate granted by the ISCID tribunal in an award. Superficial analysis usually makes such mistakes. The basis of any mine is its reserves and if The Investment Doctor had read the 43-101 he would have known that the reserves were 10.2 million ounces of gold and 1.4 billion pounds of copper, but what another million ounces of gold and a couple hundred million pounds of copper? The numbers quoted were for a previous 43-101. What is curious however is that The Investment Doctor used the higher capital figure from the 2008 43-101 but the reserves from the 2005 43-101, which means he had to have read the latest 43-101 so one wonders why quote the old 43-101 on reserves since they are the main foundation of any financial analysis of a mine.

Where he is getting his facts on the ISCID is beyond me since the process is confidential to the parties except for the procedural steps. He would know that the jurisdictional,merits and valuations in written submissions have been completed and the final hearing was held in February of 2012 Since then the Tribunal has been deliberating on the ruling since and asking post hearing questions to assist them in their deliberations. While it is impossible to predict when the tribunal will rule it is clear that this process is much much closer to the end than the beginning.

In the actual financial analysis The investment Doctor makes a critical error in analysis. He chooses to inflate costs but does not inflate the revenues by the same amount. A professional analyst either keeps revenues and costs static or inflates both, with the former being the preferred method of analysis. The discount rate is another way to essentially make the conclusion what you would want it to be. What he fails to reveal in the case of an ICSID claim is that the value is based on is the fair market value on the day preceding the illegal expropriation. That is defined by what a willing knowledgable buyer would pay a willing knowledgable seller on the day preceding the illegal expropriation without regard to expropriation risk. (The discount rate being a critical piece of the analysis) And while you are entitled to your opinion - seriously? a 20% operating cost increase since 2005 when the cost was last detailed in the 2008 43-101 and at todays copper price (Doctor's prescription) would have yielded a negative operating costs in 2008 with the copper credit. However if you inflate the gold and copper prices by an equal 20% then I would say your number would end up being greater than the company's original claim

The investment Doctor is also falling into the trap that the company is claiming loss of investment and lost profits, which would be wrong. The company is claiming the fair market value of the asset illegally expropriated. A similar analogy would be a piece of property bought 20 years ago for say $50,000 dollars and then built a $200,000 house on it and now the government wants to expropriate it for a highway. That is a governments right but fair compensation is owed. One would not expect that a government to say well you only invested $250,000 so here's a good return on that investment of say $500,000 for a 100% profit over 20 years. A successful claim would be for the current value of the asset which after twenty years may have risen to well over $2 million. This is similar to what Gold Reserve is claiming under the Canada-Venezuela Bilateral Investment Treaty under the auspices of the World Banks International Center for the Settlement of Investment Disputes (ICSID) .

Some other details: The Investment Doctor assumes $40 million for G&A and sustaining capex. That would be $720 million over the 18 + year mine life when the 2008 43-101 places the sustaining capital at $269 million and the Minesite G&A is already included in the operating cash cost as per convention. Corporate G&A would not enter into the value of the mine nor the claim. While current prices are interesting it is the value at the time of expropriation. However, tribunals at their discretion may consider the value of the asset at the time of the award, however typically it is at the time of the expropriation.

One also notes the reference to fuel costs in the justification of the 20% inflation assumption for costs. If The Investment Doctor knew anything about Venezuela he would know that they have the lowest fuel costs in the world at under 15 cents a gallon (yes that's right 15 cents a gallon - in fact at the free market rate for the currency the price of gas is about 2 cents a gallon for those with access to dollars) and due to the collapse of the Venezuela currency over that past number of years in US dollar terms. In fact, the cost of energy has actually gone down from the 43-101 assumption and in any event is such a small part of costs as to be literally insignificant. That is in stark contrast to energy cost being the most significant cost at your average mine. Every country is different and every mine is different putting generalized assumptions into a model is how opportunities are lost and bad investments are made.

I will not comment on the current financial statements as they speak for themselves. But it does require noting that the company refinanced $103 million of debt in 2012 which was a year of very difficult financial markets and this was done with the full support of the companies shareholders especially the very large ones. We also raised a small amount of working capital in September of this year in a market that was very unfriendly to mining companies. I would point out that the debt that is due in June 2014 is a convertible debt.

I will leave it up to the shareholders to decide if they would like to have The Investment Doctor making the decisions at the company at this time. I can tell you that the company will be aggressively prosecuting the arbitration until its conclusion. At the risk of stating the obvious the primary asset of the company IS the arbitration and based on my conversations with literally hundreds of shareholders they also recognize that very clearly and based on those conversation it is why they own shares in the company.

Gold Reserve has been dedicated to minimizing dilution to the shareholders for over 30 years and we are not about to change now. Any investment is about the corporate value PER SHARE and as large shareholders as well, management takes that responsibility very seriously and I believe the record speaks for itself. I do wonder as an investor and an analyst what motivates people to spend so much time writing such articles (and getting much of it wrong) unless they are talking their book or is an investment banker trying to goad management into making an acquisition of someone else's dogs and doing a financing to pay for it with the accompanying fees. Unfortunately everyone has an agenda.

I will take this opportunity to wish all of our shareholders a happy and prosperous new year.

Doug Belanger
President
Gold Reserve Inc.