Venezuela gold output slumps, state co seeks bailout

By: Reuters

18th May 2011

Updated 25 minutes ago

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CARACAS - Production at Venezuela's state-run gold miner plummeted last year and the company is seeking a government bailout of $70 million, in the latest example of trouble in the OPEC nation's public sector industry.

Socialist President Hugo Chavez has for years vowed to develop vast gold deposits in jungles south of the Orinoco river, but his plans to use Russian and Chinese capital to expand the industry have so far not come to much.

Luis Herrera, president of the Minerven gold miner, said 2010 output fell to 1,7 tonnes (60 000 ounces) -- well short of a hoped-for annual target of 4 tonnes (141 000 ounces).

"We are talking to the Central Bank to activate operations because with both private and public banks it has been difficult to get hold of financing," he said in comments printed in a government newspaper on Wednesday.

Minerven's current output is between 100 kilos and 200 kilos a month, Herrera said, compared with record monthly output of between 300 and 400 kilos.

"The process of sorting the plants has affected gold production, which has fallen by half," he told the Correo del Orinoco paper.

Two government-run aluminum smelters are also facing severe production problems, while consumers have complained of a lack of cement and steel rods for construction after Chavez nationalized a steel works and several cement plants.

State oil company PDVSA has also seen a drop in production. The oil industry's share of GDP shrank 1,8 percent in the first quarter, a decline analysts blame on lack of investment, transfer of resources away from state oil company PDVSA and the ostracizing of private capital under Chavez.

Russian-Canadian company Rusoro is the only other large-scale gold miner operating in the country and last year produced 100 000 ounces.

A vast and long-troubled project called Las Cristinas is currently in limbo after the government canceled a development license with Canadian company Crystallex in February.

In the meantime, thousands of illegal wild cat miners using high-powered hoses and mercury are tearing up pristine jungles and polluting rivers in southern Venezuela to take advantage of record world gold prices. The army estimates illegal miners extracted up to 10 tonnes (350 000 ounces) of gold last year.

Herrera said Minerven was also seeking a $300 million loan to expand production to 8 tonnes (280 000 ounces). He said an unnamed Chinese company is interested in building a plant to process the metal.