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Venezuela approves Canadian company to operate country's biggest gold mine
By Laura Bobak
Canadian Press - CP
TORONTO
Petroleumworld.com 03 29 07
Gold Reserve Inc. (TSX:GRZ) says Venezuela's approval of the Brisas project - the country's biggest gold mine - is a "major milestone" that signals the government is open to working with international mining companies.Gold Reserve Inc. gained nearly 50 per cent in heavy trading Wednesday, closing at $7.66 on the Toronto Stock Exchange, after the gold and copper project got the government's go-ahead for construction and environmental approval.
"This is a clear indication Venezuela is open for business," said Doug Belanger, president of Gold Reserve. "This approval is a major milestone."
The Brisas project has a projected cost of US$640 million, not including the US$100 million already spent since the deposit was acquired in 1992. The mine is expected to have a life of 20 to 25 years.
Belanger said construction is to begin right way on the project. He said it would be the biggest gold mining operation in the history of the country, which is governed by socialist president Hugo Chavez.
After the hard-left politician vowed to nationalize oil companies earlier this year, stocks in some Canadian companies with properties in Venezuela tumbled as some speculated the trend would spread to mining.
Gold Reserve's positive news boosted shares in Crystallex International Corp. (TSX:KRY), another Canadian mining company developing a major gold project in the South American country. Crystallex saw its shares close up about 28 per cent to $4.50 on the TSX on Wednesday.
Gold stocks were also helped Wednesday by higher bullion prices, as investors sought a safe haven from uncertainty in the Persian Gulf region and the prospect of "uncomfortably high" inflation in the United States, in the words of Federal Reserve chairman Ben Bernanke.
Meanwhile, Gordon Thompson, the president and CEO of Crystallex, said his company is in the final stages of environmental permitting for its Las Cristinas project and "looks forward to the timely conclusion of the permitting process."
"The awarding of the Brisas environmental permit is a clear signal that Venezuela is fulfilling its promise to advance mining projects," Thompson said.
Jim Coleman, Gold Reserve's chairman of the board, agreed the approval is good news for mining companies working in Venezuela.
"Anybody who has projects in Venezuela would be delighted," Coleman said. "There were people who wondered if this was ever going to happen ... it was a long process and we stayed with it," Coleman said.
Gold Reserve's mineral deposit has an estimated 10.4 million ounces of gold and 1.3 billion pounds of copper. The company has about US$23 million cash and no debt, and plans to finance the project with a combination of debt and equity. It has 42.6 million shares outstanding.
The Brisas project is good news for Canadian companies looking to do business in socialist Venezuela, one of the riskiest jurisdictions in Latin America, says Robert Wisner, an international arbitration lawyer at Appleton and Associates.
"What it certainly signals is that the door is not completely closed to foreign investors in Venezuela," Wisner said. "There are real political risks of operating in Venezuela but, at the same time, there are rewards for those companies willing to take those risks and do the homework to protect themselves."
Wisner said Canadian companies have an advantage over U.S. companies since Canada has an investment protection treaty with Venezuela that guarantees compensation in events such as expropriation.
Last month, the Venezuelan government announced it would take majority control of foreign-run oil projects in the Orinoco River basin by May 1. Chavez said foreign oil companies could leave the country or negotiate joint ventures as minority partners.
In the case of Gold Reserve, the company has promised to spend several million dollars to create social programs in health and education, that will benefit the area in southeastern Venezuela.
Belanger said the project meets the so-called "Equator Principles" - which consist of very high standards of operating practices in the social and environmental realms.
The project will create 2,000 construction jobs, with an estimated spinoff effect of 10,000 jobs indirectly created during construction, the company said. About 1,000 full-time jobs will be created when the mine is operating, and up to 5,000 jobs would be created indirectly from that.
Catherine Gignac, an analyst with Wellington West, has said Venezuela is not likely to nationalize its gold deposits. She said worries over the privatization of gold assets in Venzuela were overblown, since mining in that nation and in neighbouring countries like Ecuador is an emerging industry.
"There's no logical reason why the government would ever want to nationalize this gold industry - it's just too small," she said earlier this year. "The reality is that the profits and the taxes and the royalties are paid to the government, and that's part of the mining law. But the profit margins are very small for mining and the size of the industry is very small."
Canadian Press - CP 29 03 07
Copyright© 2007 Canadian Press - CP. All Rights Reserved.
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