Lack of Copper Rights
In addition to gold, the Las Cristinas deposits also contain very low levels of copper,
0.11% on average. Under the Mine Operating Contract, the Company is only entitled to
exploit the gold contained in the Las Cristinas deposits. Based on the feasibility studies
carried out by the Company and following discussions with the CVG, the Company has
determined that exploiting the copper contained in the Las Cristinas deposits would
detract from the economics of the Las Cristinas project. Furthermore, it may not be
technically viable to produce a marketable copper concentrate from the main Las
Cristinas deposit as the copper is too low grade. The Company does not need the right
to exploit the copper contained in the Las Cristinas deposits in order to exploit the gold
and does not currently intend to negotiate with the CVG for the right to exploit the
copper contained in the Las Cristinas deposits.
Although the Company does not believe that the MIBAM would do so, the MIBAM
retains the right to grant exploitation and other rights with respect to the copper
contained in the Las Cristinas deposits to the CVG or a third party. The Company has
been advised by its Venezuelan counsel that:
(a) if the MIBAM grants the right to exploit the copper contained in the Las Cristinas
deposits to the CVG, subject to fulfilling all necessary requirements of
Venezuelan law (including the additional grant by the MIBAM to the CVG of the
right to negotiate the exploitation of the copper with third parties), the CVG has
agreed under the terms of the Mine Operating Contract to negotiate the
exploitation of the copper with the Company; and
(b) if the MIBAM grants the right to exploit the copper contained in the Las Cristinas
deposits to a third party, the Company’s right under the Mine Operating Contract
to exploit the gold contained in the Las Cristinas deposits would, as a matter of
Venezuelan law, take precedence over the third party’s right to exploit the
copper.
If the MIBAM grants the right to exploit the copper contained in the Las Cristinas
deposits to the CVG, there is a risk as to whether the MIBAM will grant to the CVG the
additional right to negotiate the exploitation of the copper with third parties or whether
the Company will be able to negotiate an agreement with respect to the exploitation of
the copper with the CVG. Also, if the MIBAM grants the right to exploit the copper
contained in the Las Cristinas deposits to a third party, or if the MIBAM grants the right
to exploit the copper contained in the Las Cristinas deposits to the CVG and the CVG
grants the right to exploit the copper to a third party, there can be no assurance that the
Company will be successful under Venezuelan law in asserting that its right to exploit
the gold contained in the Las Cristinas deposits takes precedence over the third party’s
right to exploit the copper.