Venezuela Mining Report 2009 available from Research and Markets (EUR€ 440.00)
Venezuela Mining Report 2009
Business Monitor International, July 2009, Pages: 46
The Venezuela Mining Report provides industry professionals and strategists, corporate analysts, mining associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Venezuela's mining industry
The Venezuelan government has continued to nationalise companies across the extractive sector through 2008-09, with the gold mining and iron production sectors particularly affected. The operating environment in Venezuela for international companies focused on the extractive industries has also continued to deteriorate, with government policies serving to drive out foreign miners and investment.
President Chavez’s administration has moved – unofficially – to assert its control over the gold mining sector, in part threatening expropriations of major deposits and in part facilitating takeovers by favoured partner, Rusoro Mining. Announcements by the president and the Mining Ministry have fuelled fears that the state will take over Venezuela’s major undeveloped gold deposits Las Cristinas and Las Brisas or at least share responsibility for their operation with Canada-listed, but Russian-funded, Rusoro. Canada-listed Crystallex and US-based Gold Reserve, the companies with operating licenses for the sites, have been repeatedly denied authorisation to develop them, and in late 2008 Rusoro launched a hostile takeover bid for Gold Reserve, which was blocked by a Canadian court. Both firms have claimed that the government’s actions violate the terms of certain investment treaties between Canada and Venezuela. In addition, a subsidiary of the Corporación Venezolana de Guayana (CVG), the state-owned regional minerals conglomerate, took control of Crystallex’s Revemin mill, forcing the company to stop output at the two gold mines it served.
Rusoro Mining further extended its control over the gold mining sector in June 2008, when it acquired the in-country assets of Hecla Mining Company for some US$20mn and US$5mn worth of Rusoro shares. And in December 2008, Rusoro announced that it also hoped to begin producing gold at its Increible-6 site in Q209. A preliminary study at the company’s nearby Choco 10 mine, which it acquired in late 2007, suggested that – if expansion plans are completed in time to launch in 2012 – production levels could put it among the top 25 gold mines in the world. Meanwhile, the Finance Ministry ordered that 70% of domestically produced gold must be sold in Venezuela, 60% of which must first be offered to the Central Bank, up from 20% previously.
President Chavez ordered the nationalisation of several iron companies in May 2009, including one which is majority owned by Japanese investors. The nationalisation will affect Comsigua, Orinoco Iron, Venprecar and Matesi, as well as the transnational Tenaris. Also in May, Ternium’s remaining 10% stake in nationalised steel producer Sidor was transferred to the Venezuelan government. The country’s largest steel producer, which produced 4.5mn tonnes in 2007, was nationalised by presidential decree in May 2008 and, after a year-long dispute, reports suggested that CVG had agreed to pay some US$2bn in compensation.
In Venezuela Mining Report 2009, we predict that the nation’s mining industry will remain a small, and somewhat unchanging, part of the economy through 2013, although it could experience some contraction in the near-term. In world terms, Venezuela is a major player in the energy industry. However, it is relatively unimportant as a supplier of non-fuel minerals.
Venezuela’s mining/minerals sector is not important relative to exports, GDP or total employment. Venezuela is certainly not the only country in Latin America where government policy and rhetoric have served to discourage the participation of major multi-national companies in the mining and other sectors. However, the Venezuelan government under President Chavez has appeared particularly, and increasingly, hostile to inwards foreign investment, as the president seeks to assert state control over all natural resources. In addition to this, related decisions are often fuelled by political or social concerns, rather than commercial considerations.
As a result, major multinationals are thin on the ground, both in the energy and non-fuel mineral sectors. Key state corporations include the aforementioned CVG, with its 15 operating subsidiaries, and energy giant Petróleos de Venezuela SA (PDVSA). CVG is charged with the economic and social development of much of eastern Venezuela, but several of its subsidiaries have reportedly been struggling to pay off debts to their suppliers of late. Steelmaker Sivensa is the only significant Venezuela-listed company and a number of junior miners from Canada are slowly turning away from the sector. Increased cooperation with Russia across the board has further increased potential for companies such as Rusoro.
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