Newmont, Placer Say New Rule Will Hurt Venezuela Mine Prospects

Newmont, Placer Say New Rule Will Hurt Venezuela Mine Prospects

Bloomberg

September 30 2005

Newmont Mining Corp., Placer Dome Inc. and Goldcorp Inc., three of the world's top gold producers, say Venezuela's plan to cancel mining rights for some companies will make future investments in the country unlikely.

"We've stayed away from Venezuela, purposely I will say, because of the difficulty of trying to get titles of any kind in that country,'' said Pierre Lassonde, president of Denver-based Newmont, the world's largest gold producer. "This makes it that much harder for this industry to grow in the future.''

Venezuelan President Hugo Chavez said Sept. 20 he would cancel some unused mining rights and create a state-owned agency to exploit the nation's gold and mineral reserves. Chavez, who slashed Venezuela's oil output to boost prices when he took office in 1999, this week threatened to oust private oil companies that don't pay back taxes.

"Chavez scares the crap out of me,'' said Jonathan Goodman, 43, chief executive of Toronto-based Dundee Precious Metals Inc., which is building gold mines in Bulgaria.

Shares of companies active in Venezuela, the fifth-largest gold producer in South America, plunged after Chavez's announcement. Toronto-based Crystallex International Corp., which is trying to develop the Las Cristinas mine in Bolivar, plunged 45 percent since Sept. 19. Gold Reserve Inc. is down 38 percent and Bolivar Gold Corp. has dropped 11 percent.

Chavez said mining companies have deceived the government by making promises to receive concessions and then failed to fulfill those agreements by developing the projects. Venezuela wants to spur development of its gold reserves at a time when prices are up 15 percent in the past year and reached a 17-year high of $479 on Sept. 22.

Revoking Contracts

"All concessions and contracts, without exception, are being submitted to a review,'' Heavy Industries and Mining Minister Victor Alvarez said in a Sept. 27 television interview. Those that can't justify inactivity, "will expire or be rescinded,'' he said.

For mining executives, the shift in Venezuela is in sharp contrast to the welcome many companies received from Venezuela and other governments in Latin America during the 1990s.

A surge of investment in the region led to a jump in production to 411 metric tons last year from 286.3 tons in 1995, according to London-based GFMS Ltd., a precious metals research company. In South Africa, the world's top gold producer, output fell to 342.7 tons from 522.4 tons during the same period.

Shutting Down

"The whole continent of South America opened up for exploration and there were a lot of new discoveries,'' Newmont's Lassonde said in a Sept. 26 interview. "Today, it's just the opposite. Some of these continents are starting to shut down.''

Venezuela's gold output has lagged growth in the rest of Latin America, growing to 20.5 tons last year from 17.1 tons in 1995, according to GFMS.

"Certainly there's some geological opportunities there, but at this point we think the politics is too uncertain,'' said Ian Telfer, chief executive of Toronto-based Goldcorp, owner of Canada's biggest gold mine. "They will get it resolved, but at this point we're just sitting back.''

Vancouver-based Placer Dome, the former owner of Crystallex's Las Cristinas project in Venezuela, left the country five years ago.

"We left there because we didn't think Venezuela was a good place to be,'' Chief Executive Peter Tomsett said in a Sept. 27 interview in Denver.

Nationalization Unlikely

"You have to look at Latin America on a country by country basis,'' Tomsett said. "As a whole, some parts of Latin America are difficult places to operate. At the same time, we're just about to commit $1.3 billion to the Dominican Republic. So we think that is a good place to operate.''

Some analysts don't expect a wholesale nationalization of Venezuela's mining industry.

"There will probably be a shift from concessions to operating agreements, giving the government more control,'' said Patrick Esteruelas, an analyst at New York-based Eurasia Group. "The government may take over concessions from smaller companies, companies that aren't working on the fields.''

Hecla Mining Co. went into Venezuela in 1999 and is now the country's largest gold producer, said Phillips Baker, chief executive of the Coeur D'Alene Mines Inc., Idaho-based gold and silver producer.

Operate Properties

"When you boil it all down, what the government is looking for is companies to come in and operate their properties,'' Baker said. "And that's what we've been doing since we've been there. We've very comfortable being there.''

Crystallex Chief Executive Todd Bruce said Chavez's decision won't affect his company's Las Cristinas project.

"Absolutely nothing we've seen or experienced or been advised would reflect a fundamental problem of getting the permit'' to start production at Las Cristinas, Bruce said in a Sept. 26 interview in Denver.

When Chavez was speaking about companies that haven't developed their properties, "he was talking about Placer Dome,'' Bruce said. "It had nothing to do with us. Since we've had the project since September 2002, we have advanced it tremendously.''

Crystallex has spent $90 million on Las Cristinas, and has contracts to spend another $160 million on "long lead'' items such as ball mills and crushers. "We have been extremely active and are ready to go obviously the minute we get this final permit,'' he said.

Chavez is "absolutely committed to addressing one of the most fundamental dilemmas in Venezuela, in fact much of the developing world, and that is the issue of underlying poverty of a very substantial portion of the population in a country that is very rich, rich in natural resources,'' Bruce said.