The Company is engaged in a process that it believes could bring a prudent and timely solution/resolution to the Las Cristinas Dispute without the International Arbitration process.

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This morning I had a chance to talk to a good corporate lawyer friend. Without mentioning KRY, Venezuela or the situation at hand, I asked for a legal definition of three words:

Prudent = "avoids risks and uncertainties"

Solution = "to solve a problem"

Resolution = "a satisfactory end to a legal dispute"

Given what we know - that Venezuela has a political problem granting the final permits to KRY and GRZ and that they have a preference to work with the Russians I will do my best to build a case for a takeover offer by Polyus of Russia.

What process solves Las Cristinas in an expediant manner that can be used as a template or blueprint to deal with Gold Reserve and in a manner that does not cost Venezuela a cent? What process does not require repetitive environment and mine plans that can take advantage of milling equipment to bring jobs and prosperity to Bolivar State?

The answer is Polyus. It is Russian, well-connected, and has the finanical clout to takeover both GRZ and KRY and at a time when the BIT between Venezuela and Russia is in place. In the same manner that Polyus initially made a bid of 50.1 % for Kazakh Gold I believe a similar approach or process is underway now. The process referred to is the due diligence and negotiation of side deals with Venezuela. Included within the side deals is an exemption to the Central Bank gold sales rule and a side agreement on the permit. I believe Venezuela has given KRY the green light to negotiate the deal and this would explain the silence while the process is concluded. The non-disclosure agreement is in place and once KRY reaches an agreement acceptable to the Board then Polyus will come forward with a formal offer to KRY at which time a Trading Halt kicks in with a Press Release from KRY. The deal would I think be worked along the same lines as Kazakh Gold (a stock swap and cash component).

I think Fung and the Board understand the risks of arbitration and have come to the conclusion that the best way to assign value is to sell out.

Look for Polyus to make an offer. What the amount would be is tough to guess however in looking at the average exec. stock option packages I would think something in the region of USD 2.00 - USD 3 of total marketable value would not be unreasonable.

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And a quote from FINAM:

Jan 27. Polyus Gold has worked out a short list of five potentially appealing assets, said the company’s CEO Evgeny Ivanov. “We have a short list of five positions which does not guarantee that talks will yield any results” – Ivanov noted and went on to say that these assets are located in Russia and CIS. According to him, the company is also eyeing one of the world’s largest gold deposits, Las Cristinas in Venezuela “from the standpoint of its scale of business”. “We are closely monitoring how the situation unfolds. However, the legal status (of the project) is opaque. The risks for us are too high to join in the project as a public company” – said Ivanov.

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