[miningmx.com] -- GOLD Fields’ decision to restructure its exposure to Venezuela last October is starting to look very smart, given what’s now taking place in that country.

Not only did the group recover US$150m in cash but also retained a significant stake in the one gold mining company that may actually benefit from the mayhem being caused by Venezuelan President Hugo Chavez.

Gold Fields’ management was initially unconcerned about Chavez’s firebrand style of political rhetoric when it bought the Choco 10 mine for $330m late in 2005. Its view changed radically when Chavez began ruling the country through presidential decree and set about nationalising various sectors, starting with the oil producers.

Gold Fields sold Choco 10 to Toronto-listed Rusoro Mining for $532m, of which it received $150m in cash, $30m in convertible debt and the balance in Rusoro stock, giving Gold Fields a 38% stake in the company. Rusoro seems to be the one gold mining company that Chavez can live with, unlike North American operators Crystallex and Gold Reserve Inc, which both hit a brick wall on 30 April with regard to their respective Venezuelan gold projects.

That was when Venezuela’s Ministry of the Environment (MinAmb) refused to grant the final environmental permit needed for Crystallex to start building a mine on its Las Cristinas project. The same day MinAmb informed Gold Reserve it intended rescinding the permit it had granted it in March last year to begin building a mine on its Brisas project.

Las Cristinas sits adjacent to Brisas and both projects are part of the same orebody. Both are among the largest, undeveloped gold deposits known worldwide. Reserves at Las Cristinas are estimated at 16,9m oz, while Brisas contains an estimated 9,2m oz of gold and 1,2bn pounds of copper.

Reasons given for the decision by MinAmb include environmental concerns and the likely impact of the developments on surrounding indigenous peoples. Mining industry sources with experience in Venezuela confirm the Brisas/Las Cristinas developments are situated in an environmentally sensitive zone close to major rivers and wetlands.

However, some observers say the real reason for the Venezuela government’s action lies in Chavez’s desire to consolidate the country’s gold mining industry under one operator, in which the state will hold a large – preferably controlling – stake. Which is where it could get interesting for Rusoro.

The reason is that Russian interests control Rusoro and Russia is the one country that even Chavez would be reluctant to antagonise, as it supplies Venezuela with its arms.

It’s significant that the labour troubles Gold Fields had experienced at Choco 10 disappeared when Rusoro took over. Rusoro also rapidly secured various permits required for the continued operation and expansion of the mine, including a permit for additional water supply that Gold Fields had been battling to obtain.

Following the developments at Brisas and Las Cristinas, Rusoro immediately issued a statement confirming its “good standing with government agencies in Venezuela”.

Both Crystallex and Gold Reserve are now vowing to defend their interests through the Venezuelan and international legal systems. If that’s the route eventually followed, it will be a long and complex process that could effectively “sterilise” both potential mines for years.

Though it’s unclear what will happen next, mining industry sources indicate there are two particular areas to watch. The first concerns a possible combination of the Brisas and Las Cristinas projects, which would greatly reduce the overall environmental impact of both developments. Sources suggest that MinAmb has always wanted the two mines to be combined.

The second concerns Rusoro. Suggestion being made by one source is that Rusoro might be the vehicle used – in conjunction with state mining company CVG – to eventually bring about a consolidation Venezuela’s gold industry.

But another reckons that seems unlikely, given Rusoro’s junior status and the huge amounts of capital needed to develop both projects.

“You can’t link Rusoro and what’s happened at Brisas/Las Cristinas,” an analyst says. A counter suggestion is that Rusoro and CVG somehow involve another mining major. There’s an obvious candidate – Gold Fields – although it would be a brave move to increase exposure to Venezuela given the hugely negative investor backlash to recent developments.

One mining industry executive comments: “If Chavez can shaft the oil majors what chance does any mining company have?”

However, newly appointed Gold Fields CEO Nick Holland is keeping his options open. He confirms Gold Fields still has its 38% stake in Rusoro and states the group’s intention is to realise value from it. The options include participating in Rusoro’s strategy. “We have no intention of disposing of the Rusoro stake at this stage,” Holland says.