Once again the Venezuelan government is rattling its sabre at foreign mining companies. Mining minister Victor Alvarez said on Jan. 24 that the state would take over gold and diamond properties from foreign owners who fail to develop them.
Alvarez said companies who use mineral property ownership merely to speculate on the market are the targets. His government is prepared to expropriate their claims. The claims would either be turned over to small-scale operators or developed by the government. The state-owned National Mining Corp. was recently created to operate repatriated properties.
The industry must take the threat seriously. Venezuelan president Hugo Chavez has already taken over "under-utilized" farms, business and real estate and redistributed their assets. The threat of expropriation has forced foreign oil companies to submit to greater state control, higher taxes and larger royalty payments. A review of all mining claims is nearing completion, during which time no new contracts are being issued. When the review is complete, the government will begin dealing with the oldest idled or abandoned properties.
Chavez defends this policy as a means of weakening the grip of foreign interests and the ruling elite on the country. Moreover, reform of the mining industry will provide more jobs for his countrymen.
The prospect of losing a property into which it has sunk millions of dollars, is sending shivers down the collective spine of the mining community. Several Canadian companies may be affected.
Toronto-based BOLIVAR GOLD holds a 95% interest in the Choco 10 mine that reached commercial production in August 2005. It also holds a 99.8% interest in two other nearby prospective properties.
CADRE RESOURCES of Vancouver completed a pre-feasibility study on its Caroni River placer gold and diamond property in 2002. The company applied a year ago for permission to conduct a bankable feasibility study, and says the government's proposed changes will have little impact on its project.
CRYSTALLEX INTERNATIONAL of Toronto has gold properties in Venezuela. It holds 100% of the Tomi mine, which it acquired in 2000. The company also has an indirect 51% interest in the Lo Increible operation, including the La Victoria mine, which has been suspended. The company's Las Cristinas project has been directly targeted by President Chavez, and the situation sent Crystallex stock into a nosedive late last year. The company tried to reassure shareholders by reminding them that the property is owned by the state and Crystallex is the contracted developer. Proven and probable resources top 333 million tonnes containing more than 12 million oz of gold. Commercial production is expected before the end of this year. Crystallex's rights to the adjacent Albino property, where it was planning an underground mine, were terminated by the government in February 2005.
Vancouver's VANESSA VENTURES also claimed the rights to the Las Cristinas property. Vanessa's lengthy court challenge to Crystallex's development rights continues.
Other companies hold gold prospects that are in the early stages of investigation. Vancouver's MENA RESOURCES has interests in five properties. Toronto's PGM VENTURES has one, as does ZARUMA RESOURCES, also of Toronto.
Venezuela's Bolivar state, where so many of the promising deposits are found, is nothing if not tempting. From great deposits come great mines. But the political risk is also great.