Experts: Government seeking control over mining - Venezuela

By Harvey Beltrán Business News Americas

The recent measure announced by Venezuela's government to stop awarding environmental permits for mining projects is "to a certain degree, a way of ensuring more direct control over mining," lawyer Marianna Almeida told BNamericas.

Related content

• Companies / Entities

  Gold Reserve Inc.

  Crystallex International Corporation

• Keywords

  Government/Regulations

  Environment/Social issues

Almeida, a specialist in mining issues and partner at Colombian-Venezuelan firm Incolven, said the state no longer wants to act as the mere legal authority that controls mining but also hopes to act as the operator, "and I think it is taking steps to reach that point," she said.

In April, Venezuela's environment ministry (MinAmb) refused the necessary permit to affect natural resources for Crystallex International (TSX, AMEX: KRY) at its Las Cristinas gold project. The ministry also withdrew the license held by US miner Gold Reserve (TSX, AMEX: GRZ) at its Brisas project adjacent to Las Cristinas.

MinAmb also confirmed that it will not award additional permits for gold, diamond or open pit coal mining in the Imataca forest reserve. The announcement caused Crystallex shares to dip 16% on Thursday (May 15) and another 6% by midday on Friday.

A local sector analyst who asked to not be named agreed with Almeida, saying the announcements are a manifestation of 21st century socialism, which means: "Step aside so I can move in. And if you don't, I will remove you," the analyst said.

Venezuela's President Hugo Chávez does not believe in private or transnational companies and aims for complete control of the sector, according to the analyst. "And now the Chinese have lent him US$4.5bn so he can take control of companies like [Mexican cement giant] Cemex and [steelmaker] Sidor, and he is thinking about taking away the areas from all of the transnational companies," the analyst said.

However, other sources in the sector that spoke with BNamericas believe that MinAmb's decision stemmed independently of the ministry and does not correspond to any government plan to take over the mines or the projects.

"Chávez has not indicated what general policy will govern the mining sector. If it were a government plan, he would announce decisions about permits himself," said one source. "Since the ministry [MinAmb] doesn't have a line to follow, it does what it wants and the consequences are harmful."

PROSPECTS

Almeida believes the future of mining in Venezuela looks uncertain. Considering that other mining countries are enjoying an important and fruitful period, Venezuela will not benefit from or take advantage of the opportunity in the least, she said.

"At no other time have mineral prices looked like they do now, and at no other time have we seen the opportunity to develop mining with an environmental and orderly focus like we are seeing now," she said.

Other sources say that sector prospects "look grim."

"Right now, nobody will be able to develop projects because they don't have permits and because they are not going to be able to find financing," said another source.

The government's policymaking is focused on issues that are far from mining "because it is preoccupied with going to war with Colombia or about regional elections," added one of the sources interviewed by BNamericas.

"In fact, all of these nationalizations have nothing to do with a macro policy on the government's part. They are part of an electoral zeal to make good with laborers. The Sidor union was given one of the most expensive collective contracts in the world," the source said.

On May 12, Crystallex announced it filed a legal rebuttal to MinAmb's decision. The head of the ministry's permits office has 15 working days from that date to issue a formal response.

If the permits office does not respond, Crystallex will have the right to make a direct appeal to the environment ministry, which will then have 90 days to issue a conclusion, according to the company.