Gold Reserve bid just first step, Rusoro CEO says

Rusoro Mining's C$120 million ($101 million) bid for Gold Reserve (GRZ) is the "starting point" of what could be a consolidation of Canadian-operated gold assets in Venezuela, the company's president said on Wednesday.

"The bid will succeed," Rusoro's George Salamis said of the 3-for-1 share offer, which has received stiff opposition and even a legal challenge from Gold Reserve, which has been struggling to get permits to mine its 10 million ounce Brisas concession in the Kilometer 88 area of Venezuela.

Gold Reserve's shares have more than tripled since the offer was unveiled in
December, but its closing price of C$1.45 on Wednesday lags the C$2.13 a share
Rusoro bid by a wide margin.

Salamis said he expects the gap to close as the deal deadline nears, and suggested Rusoro may eventually set its sights on the rich Las Cristinas concession, which sits next to Las Brisas, and which Canada's Crystallex International (KRY) has been struggling to develop. "That is one ore body. The government has always sort of made noise to the effect that they want to give out one permit for it, not two. They want to see one large mine built, not two," he said in an interview. "Gold Reserve is our starting point. What happens next on the other side of the fence remains to be seen."

MASSIVE GOLD DEPOSIT

What's on the other side of the fence from Las Brisas is 17 million ounces of gold that Crystallex has been struggling to get permission to mine for years. Fears that President Hugo Chavez could seize the projects were reignited last April, when a Venezuelan official said permission to mine in the region would be denied, yanking Crystallex' stock down 40 percent and pulling Gold Reserve down by 35 percent.

The companies said in July they were making progress in getting Venezuela to reconsider its positions. But in November, Reuters reported that Venezuela had agreed to take over both Las Cristinas and Las Brisas and hand them over to Rusoro, which has close ties to the Chavez government through its main shareholder, Russia's Vladimir Agapov.

Salamis denied Rusoro has a deal with Venezuela on the concessions, but said the government has suggested Rusoro would be a good fit in the area. "They have come to us in the past and said you guys have a track record, maybe it makes sense to look at the Kilometer 88 district as the next step," he said.

Analyst Catherine Gignac of Wellington West said the lack of clarity over Venezuela's intentions for the deposits may prompt some Gold Reserve shareholders to balk at tendering their shares to the deal. "The bottom line is (Rusoro) is being very clear, and they want to work with the government to take control of all the gold mining operations," she said.

Gold Reserve has said the Rusoro bid undervalues the Brisas asset. It has filed an injunction with an Ontario court to stop the deal and hired forensic accountant Al Rosen to look through Rusoro's books. Rosen has issued a report criticizing Rusoro's financial disclosures and related-party transactions. Rusoro's bid follows a non-binding 2-for-1 share offer made during the summer.