Lack of Ownership Rights
Under the Venezuelan Mining Law of 1999 (“VML”), all mineral resources belong to the
Republic of Venezuela. In accordance with the VML, the Government of Venezuela has
reserved for itself the right to directly explore and exploit the Las Cristinas deposits and
has elected to do so through the CVG. See “Las Cristinas Project – Mine Operating
Contract” in the AIF. The Mine Operating Contract is an operating agreement and does
not transfer any property ownership rights or title rights to the gold produced to the
Company. Rather, the Company has been authorized to exploit the Las Cristinas
deposits for the CVG in accordance with the Mine Operating Contract.
The interests of the Company in the Las Cristinas deposits are contingent upon the
Company continuing to satisfy its obligations under the Mine Operating Contract.
Failure to do so could result in the CVG having the right to terminate the Mine Operating
Contract. In addition, the CVG is party to an agreement dated May 16, 2002 with the
Ministry of Mines (“MIBAM”). As the CVG’s rights thereunder are contingent upon the
CVG continuing to satisfy its obligations, while the Company has no reason to believe
the CVG is not performing its obligations thereunder, any failure to do so could result in
MIBAM having the right to terminate such agreement, thereby effectively terminating the
Mine Operating Contract. Furthermore, any failure by the CVG to assert its rights under
its agreement with MIBAM could have a material adverse effect on the Company’s
rights under the MOC. To date, no assertions of contractual breaches by the Company
have been received.