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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

SECOND DECLARATION OF ABBY COHEN SMUTNY

EXHIBIT 24

In the Matter of an Arbitration Under the Additional Facility Rules of the
International Centre for the Settlement of Investment Disputes

CASE No. ARB (AF)/09/01

Between

GOLD RESERVE INC.,
Claimant,

v.

THE BOLIVARIAN REPUBLIC OF VENEZUELA,
Respondent

EXPERT REPORT OF
BRENT C. KACZMAREK, CFA

NAVIGANT CONSULTING, INC.
1801 K STREET NW, SUITE 500
WASHINGTON, DC 20006
24 SEPTEMBER 2010

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Venezuela revoked Claimant’s Authorization to Affect Natural Resources for Phase I of construction for the Brisas Property. Accordingly, we have been asked to determine the fair market value of the Brisas Project as of 14 April 2008 under the assumption that the Authorization to Affect would not have been revoked, but rather that the Brisas Project would have been granted all permissions to proceed. Additionally, we have been asked to determine the fair market value of the rights to develop the Choco 5 Property as of 14 April 2008 as well and to bring both valuations to present value at an appropriate interest rate.

4. In the process of preparing this report we have relied upon publicly available documents as well as documents requested from and provided by Claimant. Some of the documents I have received in this matter were originally prepared in Spanish. I do not speak or write in Spanish. Therefore, where necessary, I have relied upon translations of these documents provided by Counsel and by members of my team who are fluent in Spanish. The list of documents we have relied upon in preparing this report is provided as Appendix 2 to this report.

5. In the preparation of this report we have consulted with Roscoe Postle Associates Inc. (“RPA”). RPA is a subsidiary of the Scott Wilson Group plc, a global design and engineering consultancy. RPA provides geological and mining consulting expertise worldwide. We have relied upon RPA for certain technical and mining industry matters in preparing this report.

6. I, Brent C. Kaczmarek, am a Managing Director in the Washington, DC office of Navigant Consulting, Inc. I have been retained as a financial, valuation, and damages expert in more than 50 international arbitrations including more than 40 investor-state arbitrations. In my role as a financial expert in these investor-state arbitrations, I have provided opinions for both investors and states. I hold the designation of Chartered Financial Analyst, a globally recognized designation held by professionals demonstrating competence in the investment valuation and decision-making process. I received this designation in 1998 from the Association for Investment Management and Research (now CFA Institute), the governing body of charter-holders. There are charter-holders and charter-holder candidates residing in more than 160 countries worldwide. My curriculum vitae is included as Appendix 1 to this report.

II. Executive Summary

7. Claimant’s losses are equivalent to the value of the Brisas Project and the Choco 5 Property as of 14 April 2008 plus interest from that date to compensate Claimant for the time value and opportunity cost of money. We measured the value of the Brisas Project under the fair market value standard utilizing three standard valuation approaches: 1) the Discounted Cash Flow (“DCF”) Approach, 2) the Comparable Publicly Traded Company Approach, and 3) the Comparable Transaction Approach. Based on our three

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valuation approaches, we determined that the fair market value of the Brisas Project as of 14 April 2008 was US$ 1.668 billion as detailed in Table 1 below.

Table 1 – Weighting of Valuation Approaches and Valuation Conclusion for the Brisas Project

8. As Table 1 above reveals, our three valuation approaches result in a reasonably consistent range of values. We have weighted each valuation approach based upon our qualitative assessment of the robustness of the data available to implement each approach. We have placed the highest weight on the DCF Approach because this approach was based upon robust financial projections specifically for the Brisas Project prepared on a contemporaneous basis for regulatory filing and bankable feasibility purposes. The Comparable Publicly Traded Company Approach was weighted the second highest due to the consistency of the valuation multiples observed from our list of comparable companies. The Comparable Transaction Approach was weighted the least due to the wider range of valuation multiples observed from our list of acquired comparable gold mining companies.

9. We did not measure the value of the Choco 5 Property utilizing these same three valuation approaches because the Choco 5 Property is an exploration property without any defined reserves or resources. The values of exploration properties are typically measured via the Comparable Transaction Approach. However, we were unable to identify any transactions that would help us to reliably implement this approach. Accordingly, we have measured Claimant’s loss with regard to the Choco 5 Property as the sum of the amounts Claimant spent to acquire and develop it (i.e., the “Cost Approach”). The Cost Approach does not result in a value consistent with the fair market value standard. In this context, the Cost Approach results in a conservative estimate of value for the Choco 5 Property. The Cost Approach yields a value of US$ 1,421,000 for the Choco 5 Property.

10. Accordingly, Claimant’s total loss is equivalent to the sum of the fair market value of the Brisas Project and the value of the Choco 5 Property as of 14 April 2008 (US$ 1,669,351,700) plus interest. We believe there are three appropriate rates of interest that the tribunal may consider awarding Claimant for the time value and opportunity cost of money: 1) Venezuela’s yield on US dollar denominated sovereign bonds, 2) the London Interbank Offer Rate (“LIBOR”) plus 4 percent, and 3) the US Prime Rate of interest plus 2 percent. In our view the most appropriate interest rate would be Venezuela’s yield on US

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value of all of a company’s assets is typically referred to as the “enterprise value” of the business. The value of an enterprise is determined by the cash flows produced by the assets of the business.

54. The enterprise value of a business will necessarily equal the sum of all investment interests in the business. Commonly, businesses are financed using debt and equity. Therefore, the enterprise value or market value of assets will be equal to the market value of the debt and equity. This relationship showing the equality of the market value of the assets to the combined value of the debt and equity interests in those assets is expressed in Figure 7 below.

Figure 7 – Fundamental Corporate Valuation Model

55. Determining what aspect of the business is to be valued, equity only or the enterprise value (equal to the debt plus the equity), will dictate how each valuation approach is implemented.

56. In the present case, Claimant (directly or indirectly) owned 100 percent of the legal rights that are defined above as the Brisas Project and the Choco 5 Property. Consequently, Claimant is entitled to 100 percent of the ownership benefits flowing from the Brisas Project and the Choco 5 Property. Therefore, in Figure 7 above, Claimant’s ownership is represented by the “Market Value of Assets (Enterprise Value)” which equates to the sum of the “Market Value of Debt” and the “Market Value of Equity.”

B. Accepted Methods for Determining the Fair Market Value of a Business or Income Generating Asset

57. There are three generally accepted methods of determining the fair market value of a business or an income generating asset: 1) the Discounted Cash Flow (“DCF”) Approach; 2) the Comparable Publicly Traded Company Approach, and 3) the Comparable Transaction Approach.⁷⁹ In some circumstances it is appropriate to consider the publicly traded value of the company itself (if it is publicly traded) or any arms-length transactions or offers made for the shares of the subject company itself. However, the trading value, transaction price, or offers made should only be relied upon so long as the market conditions were

⁷⁹ Note that we use the terms “business” and “company” interchangeably. Both business and company can also be applied to the Brisas Project as we use them. ↩

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similar at the time to the market conditions on the valuation date and the measures complained of by claimant do not negatively affect the observed price.

58. The most commonly implemented valuation methodology is the DCF approach. The DCF approach is popular, because it stems directly from the fundamental financial principle that the value of a company is equal to the future cash flows produced by the company, discounted to present value at a rate that reflects the risks of generating the future cash flow. However, other approaches should also be given consideration. Thus, the valuation practitioner should attempt to implement all three valuation approaches when it is feasible to do so. When the available data does not exist to perform one or more of the valuation methods, the valuation practitioner should identify the deficiencies and acknowledge that the approach could not be conducted in a manner that would yield a reliable result. We provide a brief overview of the three basic valuation approaches utilized under the fair market value standard.

a. The Discounted Cash Flow Approach

59. The DCF Approach is perhaps the most common and widely accepted valuation approach because it is a practical implementation of the theoretical financial concept that an income-producing asset’s value is equal to the present value of the future cash flows produced by the asset. In order to implement the DCF approach, the valuation practitioner first creates a projection of expected future performance of the business that is to be valued. Then, using the projected performance, the practitioner calculates the relevant cash flows, determines an appropriate discount rate, and discounts the future cash flows to present value.

60. In a DCF valuation the cash flows produced by the business is calculated after deducting all necessary expenses and taxes that must be paid in executing the business. Valuation practitioners typically refer to this cash flow measure as “free cash flow” as it represents the cash flow available to be paid to lenders or shareholders after all expenditures have been met. In the present case, Claimant holds 100 percent of the Brisas Project and the Choco 5 Property and is therefore entitled to 100 percent of the free cash flows these assets were expected to produce.

61. The discount rate represents the financial return that investors require in order to accept the risks of receiving the expected future free cash flow. Generally, as the risk of the cash flow stream increases so does the discount rate. The discount rate is adjusted, therefore, for various types of risk entailed in making a particular investment, such as the risk of investing in equity as compared to bonds, the risk of investing in a smaller company, risks associated with the particular industry, country, etc.

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overcome the risks of acquiring an exploration property, render these transactions as useless in establishing the fair market value of an acquired property let alone comparable properties.

209. Accordingly, we are not able to establish the fair market value of the Choco 5 Property. Instead, we have determined Claimant’s loss related to the Choco 5 Property by calculating the “wasted costs” associated with the Choco 5 Property investment. Claimant’s wasted costs are equal to the total amount spent to acquire and develop the investment. In order to calculate Claimant’s wasted costs in the Choco 5 Property, we reviewed the Claimant’s trial balance for G.R. Minerales El Choco, C.A as of 31 March 2008. The trial balance indicates Claimant has spent US$ 1,421,000 to acquire and develop the Choco 5 Property.²⁴⁹ This figure is consistent with the amount Claimant reported that it spent on the Choco 5 Property in the audited financials included in the 2007 Annual Report.²⁵⁰

VII. Total Damages

210. The total damages suffered by Claimant due to Respondent’s Measures is the fair market value of the Brisas Project as of 14 April 2008 plus the wasted costs in the Choco 5 Property as of 14 April 2008.

Table 19 – Summary of Damages as of 14 April 2008

211. To the damages summarized in the table above we apply interest from 14 April 2008 to compensate Claimant for the time value and opportunity cost of money. We believe it would be appropriate for the tribunal to consider three different commercial rates of interest when calculating the interest due to Claimant. We discuss each rate in turn.

²⁴⁹ The amount spent of US$ 1,421,000 is the gross PP&E for office equipment, vehicles, and property and mineral rights. See G.R. Minerales El Choco CA. Accounts and Currency Exchange Schedule. 31 March 2008. (C-920) Gold Reserve Inc., Annual Information Form, December 31, 2007, p. 4. (NAV-4) Note that Choco 5 began as a joint venture between Gold Reserve and Bolivar Gold in which they agreed to jointly explore Choco 5 and Choco 9. In October 2003 they agreed to: “amend the terms of their previously announced joint venture with respect to the Choco 5 and Choco 9 concessions in the El Callao gold district in Venezuela. Bolivar Gold has agreed to terminate its option to earn a 50% in Choco 5 and Gold Reserve has agreed to relinquish its 50% interest in Choco 9, such that Gold Reserve will retain its 100% interest in Choco 5 and Bolivar Gold will hold a 100% interest in Choco 9.” Gold Reserve Press Release, “Bolivar Gold and Gold Reserve Amend Terms of Choco 5 and Choco 9 Joint Venture,” October 14, 2003. (NAV-98) ↩

²⁵⁰ “Since acquiring the Choco 5 property in 2000, the Company has invested approximately $1.4 million on acquisition and exploration costs.” Gold Reserve Inc., Annual Information Form, December 31, 2007, p. 4. (NAV-4) ↩

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Discounted Cash Flow Analysis
Navigant DCF

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Appendix 4.A

Gold Reserve Inc. v. The Bolivarian Republic of Venezuela
Discounted Cash Flow Analysis
Notes to Navigant DCF

Sources and Notes:

[1] The DCF analysis relies on the March 2008 NI 43-101 Model. (C-193) Because of this, we have included the model as part of the appendix. Pages from the original model are labeled in the upper left corner with the following title: “Gold Reserve Inc. - Brisas Project”. In three sections of the original model, we made changes based on our assumptions. These sections are: “Economic Summary” (Appendix 4.F), “Revenue Schedule” (Appendix 4.G), and “Capital Cost Summary” (Appendix 4.H). We highlighted the cells we adjusted in green. In addition to the three sections referenced above, we also include two sections that we directly reference in our discounted cash flow analysis. These sections are: “Operating Costs Summary” (Appendix 4.I) and “Royalty/Tax Schedule” (Appendix 4.J).

[2] Futures prices from Bloomberg as of 14 April 2008. (NAV-32, NAV-39, and NAV-103) For years where there are more than two futures contract prices available we used the average of the prices for the period. For years where there were less than three futures contracts prices we used the average price from the prior year’s December contract and the current year’s December contract. The price used after the last year of available futures contracts is the price of the last futures contract available. The prices reflected are used as inputs in the revenue schedule page of the March 2008 43-101 model.

[3] Participation charges are not included in our inflation adjustment as these charges are based on the nominal metal prices and therefore reflect the impact of inflation.

[4] All operating costs are adjusted by the assumed inflation rate at this summary level except for exploitation taxes and offsite treatment participation charges. Exploitation taxes are a function of net revenue and therefore reflect the futures price assumption. Conservatively, we have not adjusted for inflation for some elements of net revenue that would reduce exploitation taxes, such as refining charges. Offsite treatment participation charges are a function of the prices of gold and copper and therefore reflect the futures price assumption.

[5] Capital expenditures are increased by the assumed inflation rate on the “Capital Cost Summary” page. The adjustment is made on the “Capital Cost Summary” page and not on “Navigant DCF” page such that the impact of inflation affects to the assumed depreciation. Note the Capital Expenditures do not include capitalized pre-production costs as these are included on separate lines.

[6] Cash flows begin in Q2 2008. All cash flows prior to Q2 2008 are considered sunk costs for purposes of our DCF analysis.

[7] Costs reflect prices as of Q4 2007 according to the March 2008 NI 43-101 Report, pp. 22.11. (C-194)

[8] Costs in the March 2008 43-101 model are assumed to be as of 31 December 2007 per the 31 March 2008 NI 43-101 Report. (C-194) Therefore, the inflation factor begins on that day. The annual inflation rate is calculated as the difference between 20-year U.S. Treasury Bonds (NAV-40) and 20-Year treasury U.S. inflation protected securities or “TIPS” average for April 2008. (NAV-104)