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Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America

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Message: Statement of Beneficial Ownership · Schedule 13G...
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Kryer, it is unusual, over time I have been posting the purchases for GRZ that West Face has been doing with them. In that time they have accumulated some 11M shares and 19% ownership of GRZ. On 11/4/09 WFC included in one of their 13G filings for GRZ this letter to the GRZ board, after reading this letter you have to wonder why they are now picking up KRY shares:

To the Board of Directos of Gold Reserve Inc.
West Face Capital Inc. is the beneficial owner of 6.5 million shares and $10.220 million face value of convertible debentures of Gold Reserve (“GRZ”). As a significant holder of GRZ securities, West Face Capital would like to express its views concerning the manner in which the directors of Gold Reserve fulfill their duties to the company and its security holders in the circumstances facing GRZ today. As described below, in circumstances where GRZ has one key asset, being a litigation claim against Government of Venezuela, West Face Capital believes that it is incumbent upon the directors of GRZ to take the necessary and appropriate actions to increase shareholder and other stakeholder value by, among other things: (a) preserving its cash and avoiding transactions that may dilute shareholder value; (b) creating a more optimal capital structure through debt repurchases; and (c) carrying out an auction process open to all bidders aimed at maximizing value.

Preserve Cash/Equipment/Avoid Dilution

In order to avoid diluting GRZ shareholder value, West Face Capital believes that GRZ should immediately cease any negotiations to use its cash and equipment to buy a new development project or merge with a company that has the same effect. These kinds of potentially dilutive transactions should be avoided, at least until such time as a formal auction and sale process has concluded. West Face Capital believes that any new development project could lead to increased financial risk or further shareholder dilution as the upcoming June 2012 convertible debenture refinancing could be put into question.


Debt Repurchase

Currently, GRZ has a capital structure that is not optimal with cash earning almost zero interest while the debt is being paid 5½%. Given that the debentures are trading at a discount to par value, GRZ also has the ability to reduce debt at an effective yield in excess of 15% (to the 2012 put date). Any such purchases below par value will be incremental to the net asset value of GRZ common shares. West Face urges the company to be more proactive and aggressive in creating a more optimal, cost effective capital structure. This can be done by GRZ repurchasing convertible debentures in tranches, and should be started immediately, before and/or during an auction sale process.

Auction Sale Process

In the circumstances facing GRZ, West Face Capital believes that GRZ should allow its shareholders to decide the future course of the company by conducting a formal auction and sale process and allowing its shareholders to accept or reject the proposal made by the highest bidder.

West Face Capital believes GRZ’s core assets of equipment, drilling and engineering data, as well as the Las Brisas arbitration litigation claim, have significant value and that a third party may be willing to pay a substantial premium to current market value for these assets, preferably with cash or highly liquid equity. It is West Face Capital’s view that the implied value the market is attaching to this litigation asset is de minimis.

In order to maximize value for GRZ and its security holders, West Face Capital believes that the auction and sale process should be open to all participants that are willing to table a formal bid. Among other things, this process should also provide the Government of Venezuela with the opportunity to settle their legal obligations to GRZ by making a cash offer to the company. West Face Capital believes shareholders should be given the opportunity to vote on any proposals that may emerge. If no settlement or takeover offer emerges that is acceptable to shareholders, then GRZ should be fully able to proceed with its current arbitration litigation plan.

West Face Capital is grateful for the opportunity to express its views as a significant security holder of GRZ. It is motivated only by a desire to maximize the value of its investment in GRZ. It looks forward to working with the board of directors of GRZ to achieve that result.

West Face Capital
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