Venezuelan State Gold Miner Seeks Funds To Boost Output

DOW JONES NEWSWIRES

CARACAS -(Dow Jones)- CVG Minerven, Venezuela's state-run gold miner, is asking the government for 300 million bolivars ($70 million) to boost production after a significant decline in output last year.

The request is the latest sign of the country's struggling mining industry that has been hit by low investment, worker strikes and illegal smuggling of the South American country's vast supply of precious metals.

Luis Herrera, president of Minerven, said the funds are needed in the short term just to bring annual gold production back to its target of 4 metric tons after the company produced only 1.7 tons last year. Minerven would need around $ 300 million to upgrade its facilities and bring output to 8 tons a year, Herrera said.

"We are in conversations with the Central Bank of Venezuela to activate the operations because it has been difficult to get financing through private and public banks," he said in comments published by state-run newspaper Correo del Orinoco.

Earlier this month, President Hugo Chavez said during a televised address that he would soon establish a new law using powers granted to him last year to make gold "a highly strategic resource for the country."

He added that the country needs a "national" entity for gold, much like state oil monopoly Petroleos de Venezuela, or PDVSA. The South American country boasts one of the highest reserves of gold in the region, nearly 360 metric tons according to some estimates.

As much as 70% of the central bank's foreign reserves are held in the metal. But, despite the vast resources, critics say that years of insufficient investment and red tape from the government have limited extraction of the precious metal.

Officials have said that nearly 11 tons of gold leaves the country annually as contraband through illegal mining, a practice that the state has said it wants to crack down on.

Herrera said a Chinese firm is interested in building a $9 million refining facility in the country but didn't identify it.

Late last month, Venezuela tapped into a joint development fund it has with China to secure $403 million in financing for its state-run aluminum producer Alcasa after the company was hit with cashflow and operational problems. Other mining ventures have also been halted in recent days as workers at another state mining concern, Corporacion Venezolana de Guayana, blocked access to several facilities as part of a strike. The workers are looking to reclaim unpaid wages and are demanding a change in the company's board of directors, local media reported.

Under Chavez's self-styled "21st century socialist revolution," the Venezuelan state has nationalized many key economic sectors and has also turned over mining concessions made to foreign companies.

Most recently in February, Canada's Crystallex International Corp. (KRY) had its contract to develop the Las Cristinas gold fields terminated.

The company is now seeking arbitration and is looking to get nearly $3.8 billion in compensation from the Venezuelan government. In August, the government allowed gold miners to export up to half of their product, softening an earlier law that required companies to sell 70% of their product domestically and export only 30%.

But pressure from Russian firm Rusoro Mining Ltd.(RML.V) convinced the government to relax the rules.

-Kejal Vyas, Dow Jones Newswires; 58-414-249-6821; kejal.vyas@dowjones.com