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Venezuela offers Russians big gold projects

By Brian Ellsworth

CARACAS (Reuters) - Venezuela plans to build mines at its largest gold deposits with Russian help, the mining minister said on Thursday, apparently killing a years-long bid by two Canadian companies to develop the projects.

The decision reflects leftist President Hugo Chavez efforts to boost ties with Russia, increase state control over a key sector and speed up stalled mining development as tumbling crude prices threaten to crimp the OPEC nation's finances.

An accord will be signed on Friday with Russian-owned Rusoro (RML.V: Quote, Profile, Research, Stock Buzz) to operate the Las Cristinas and Brisas projects with Venezuela, mining minister Rodolfo Sanz told a Russian government delegation during a presentation observed by Reuters. Rusoro's share price soared after the news.

Las Cristinas, one of Latin America's largest gold projects, is currently operated by Canada's Crystallex (KRY.TO: Quote, Profile, Research, Stock Buzz), which waited in vain for years for an environmental license to start mining.

Nearby Brisas is operated by Gold Reserve (GRZ.TO: Quote, Profile, Research, Stock Buzz), which has a concession for the mainly gold project but was also waiting for environmental permits.

While it appeared that Sanz will replace Crystallex and Gold Reserve with Rusoro, he did not mention their names.

He said the memorandum would not mention Las Cristinas and Brisas by name for legal reasons but assured the Russians they would have access to the projects.

"You can be sure that those will be the deposits," he told the delegation.

"We have to rescind our relationship with a company that has been working in the zone," Sanz also said, apparently in reference to Crystallex. "We have a legal problem there."

Approached after the presentation by Reuters, Sanz said Rusoro's involvement in Las Cristinas had not yet been decided.

The statements came a day after Venezuela, which frequently warns against building reserves in U.S. dollars, said it wanted to recover control over its gold to boost its gold reserves as a shield from global financial crisis.

Chavez in recent years has wrested control from the private sector of the oil, electricity and telecom industries.

Rusoro's stock jumped by as much as 38 percent to C$0.65 following Thursday's news, while shares of Crystallex edged down. Gold Reserve shares were up slightly.

A Crystallex spokesman told Reuters that Venezuelan officials have said the project remains on track. A Rusoro spokesman did not comment on the situation but said CEO George Salamis was on his way to Venezuela.

Gold Reserve did not respond to requests for comment.

HUGE GOLD MINE

"I doubt (Crystallex) will roll over and say this is the end of it, but this is confirmation of what I always thought was going to be the ultimate end game," said Barry Allan, analyst at Research Capital in Toronto.

Allan is one of several analysts who dropped coverage of Crystallex this year due to frustration over the permitting of Las Cristinas.

Bringing Rusoro into the project adds a new twist to a decades-long saga over the development of the massive Las Cristinas reserves, which have passed through the hands of three other mining companies since the 1990s.

Chavez offered Las Cristinas to Crystallex in 2002, prompting another Canadian mining company called Vannessa Ventures to file an international arbitration suit on the grounds it had the rights to operate the mine.

Vancouver-based Rusoro currently operates the Choco 10 and Isidora Mines, and processes the ore through the Choco Mill facility, according to the company's website.

Idaho-based Hecla Mining Company (HL.N: Quote, Profile, Research, Stock Buzz) in June said it sold its Venezuela subsidiaries to Rusoro at a sizable loss.

(Additional reporting by Deisy Buitrago in Caracas and Cameron French in Toronto; Editing by Marguerita Choy)

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