Big increase in Q2 gold output and fall in costs for Rusoro

Russian-owned and controlled, but Canadian quoted, Venezuelan gold miner Rusoro reports strong progress on its gold mining and exploration operations

Author: Lawrence Williams
Posted: Tuesday , 25 Aug 2009

LONDON -

Controversial Venezuelan gold miner, Rusoro Mining, has reported good Q2 operating results with a sharp increase in gold production, and a big fall in costs, compared with a year earlier and is well on target to its predicted 170,000 - 190,000 gold ounces this year. It is very much the success story in Venezuelan gold mining, while most other foreign companies working there have run into major problems leading them to sell out to Rusoro, or hang on in the hope a change in political leadership (seen as unlikely at present) will lead to a reversal of the stumbling blocks being put in their way.

Why controversial? Rusoro is basically a Russian run, and part-owned, junior gold miner, rapidly moving towards mid-tier status. The management is in the hands of the Agapov family, which controls around 16.5%, but South Africa's Gold Fields owns 28% resulting from the sale of its Choco 10 mine, Rusoro's main producing asset at the moment, but which is taking a passive role in management. The company sprang from virtually nowhere in 2007 with the flotation of Rusoro in Toronto out of the Agapov family company, Grupo Agapov. The Agapovs had previously been active in Venezuela for five years and had built up strong local connections.

Rusoro's strength has lain in its ties with the Chavez government in Venezuela where Russian ownership is seen as a positive, while North America and other western countries seem to drum up negative vibes. Gold Fields was one of the first to recognise that perhaps it would continue to face difficulties operating there, hence the transfer of ownership of Choco 10 to Rusoro. Hecla of the U.S. also found operating in Venezuela under the current political regime extremely difficult and ended up cutting its losses and selling its Isidora and La Camorra operations to a Rusoro run jv with a stae mining company..

The jewels in the crown of the highly prospective Venezuelan gold belt though remain Crystallex' Las Cristinas deposit and Gold Reserve's Las Brisas project, both major gold deposits in their own right, but with so many difficulties being put in their way by the Venezuelan government through withdrawals of permits, and delays in granting environmental clearances, and pressure being put on them to also sell to Rusoro, these may not be able to hold out a great deal longer, although neither is prepared to give up without a struggle. International arbitration may be a likely step here and major court action. Earlier this year Rusoro proposed a merger with Gold Reserve, but this foundered on largely on legal grounds and strong opposition from U.S. headquartered Gold Reserve.

But, returning to Rusoro, the company has been able to take advantage of the political difficulties being put in the way of other operating and would-be gold miners - difficulties that sometimes appear to have been stage-managed by Venezuelan government interests. The company has the two operating mines and ten exploration projects (including development and exploration around the mines) which range from early stage to advanced/development stage gold projects. Choco 10 and Isidora produced 100,000 ounces and 11,000 ounces of gold in 2008, respectively, through the Choco 10 Mill. Rusoro owns and operates the Choco mill facility and has a 95% ownership in the Choco 10 Mine. Production from the Isidora Mine is subject to a 50/50 joint venture with the Venezualan government . The Choco 10 operations are currently the subject of studies which are evaluating the possibility of a significant staged expansion to more than double production from the region.

Overall the Company has a significant land position in all of the major gold mining districts in Bolivar State, Venezuela. The region boasts first class geology and gold potential within an identical setting to some of the world's largest mining districts including Ashanti in West Africa and Kirkland Lake in Canada. Rusoro has developed and accumulated resources of more than 7.0 million ounces of gold in the measured and indicated category and more than 7.0 million ounces in the inferred category. The company continues to have multiple drill rigs active on its projects throughout 2009. The drilling is designed to expand and upgrade Rusoro's current resources and 43-101 compliant resource updates will be released through the year.

The real target for Rusoro and the Venezuelan government though is likely to be the Las Cristinas property on Venezuela's fabled kilometre 88, thought to be Latin America's biggest gold deposit, and currently controlled by Canada's Crystallex. This has proved to be an ill-fated gold deposit and should probably one-day be the subject of a major novel or feature film. Crystallex itself inherited the project in controversial circumstances, but prior to that the history is intriguing.

Apparently the concession was given to the co-pilot of the plane which discovered the Angel Falls by a grateful Venezuelan government in the 1930s. In the 1980s the pilot's widow, Dot Lemon, who lived in the U.S. was almost certainly swindled out of her inheritance in some sharp legal and financial practices and some believe she cursed the mine's future owners on her deathbed as virtually every company involved with it since has run into huge financial, political or legal difficulties over it ever since.

The Chavez government has been making life as difficult as possible for Crystallex, perhaps in the hope the Toronto-based company will eventually give up and go away, but this seems unlikely given that it is thought to be sitting on billions of dollars in gold!

During the second quarter, Rusoro's 95%-owned Choco Mine produced 40,739 ounces of gold at a cash cost per ounce sold of $313 as compared to 25,062 ounces and a cash cost of $652 per ounce sold, reported in Q2, 2008. Cash costs were less than forecast due mainly to lower overall costs and a much higher grade of ore processed, as well as enhanced recoveries due to the installation of a new kiln and carbon recovery system. The Company's guidance for 2009 remains at 135,000 ounces of gold production at the Choco Mine operations, while the cash cost per ounce guidance for 2009 has been reduced to $375 per oz Au.

The 50% owned Isidora Mine produced 7,784 ounces (net to the Rusoro) at a cash cost per ounce sold of $369. The Company continues to forecast 70,000 ounces of gold production at Isidora for 2009 (35,000 net to the Company) with an adjusted cash cost guidance of $350 per ounce, up from the originally forecast $290 due to an increase in the payroll costs at the mine site as a result of a new union agreement and increases in social and community costs during the first half of the year.

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=88024&sn=Detail