Mr Chavez’s promised takeover of Venezuela’s gold mining sector

For some years now President Hugo Chavez in Venezuela has been raising the spectre of nationalizing the country’s gold industry. The reasons he has given have had to do with both the country’s economy and with the environment. Venezuela, according to the World Gold Council is the fifteenth largest gold producer in the world with reserves totalling in excess of 350 tons and in recent years the relationship between the authorities in Caracas and the privately-run gold mining operations, mostly those operated by foreign mining companies, has been, for the most part, an uneasy one.

The move towards the promised takeover of gold mining by the state has been an incremental one characterized in recent years by a series of occurrences. In 2008 the authorities stunned the mining industry by denying permission to the Crystallex Corporation, a Toronto-based outfit to pursue gold mining operations at the country’s Las Cristinas mine, one of the largest gold deposits in Latin America. The decision was reportedly based on long-standing issues relating to the rights of indigenous peoples and the potential impact of the mining operation on the environmental health of the Imataca Forest Reserve in the south eastern Bolivar state where the mine is located.

The pretext for the move against Crystallex is believed to have been triggered by the company’s earlier forcible eviction of local small miners from the Las Cristinas area and the seizure of their equipment  Thereafter, President Chavez instituted major changes to Venezuela’s mining policy, announcing that the country would no longer grant private mining concessions to foreign companies. The same year the National Assembly in Caracas passed legislation that required companies owning idle mines to become minority partners in mixed enterprises with the state.

Since then the country’s Environment Ministry has reportedly brought several large mining operations under closer official scrutiny and has been exercising greater care in the approval of mining permits by foreign firms. Official scrutiny of mining operations apart, the Venezuelan government has also instituted legislation that requires privately-run gold mining operations to sell at least sixty per cent of mined gold to the state, a move which has reportedly intensified the smuggling of gold out of the country. Last year, Venezuela’s officially recorded gold production reportedly declined by around 50 per cent.

As is the case in Guyana the sustained increase in the price of gold continues to attract more overseas investor interest and higher levels of small miner activity in mining regions, giving rise to levels of environmental lawlessness which would appear to be, at least part, of the motive for Mr. Chavez’s threatened state takeover of the gold mining industry. That apart, the Venezuelan authorities are apparently being pushed by pressures relating to the manner in which gold-mining activities are impacting on the rights of the indigenous peoples.

It is against the backdrop of this succession of events that Mr. Chavez announced last week that his government has embarked on what now appears to be its final push for a takeover of the country’s gold industry, a development which, sooner rather than later, is bound to elicit a response from the privately-owned gold-mining operations in the country. In fact, reports have already surfaced regarding expressions of concern that the promised state takeover legislation will be preceded by an earlier state appropriation of existing operations.

All of this could, of course, have implications for Guyana where some of the issues confronting the mining sector in Venezuela are also present and while a state takeover would be unthinkable there are indications that the government is seeking to bring the mining sector under at least greater official supervision through the Guyana Geology and Mines Commission.

The other point that should be made has to do with whether or not any closing of the door to foreign investment in the gold-mining industry in Venezuela will not shift more investor attention to the gold-mining sector here and how the government responds to such interest were it to materialize.

Gold will remain on Guyana’s economic radar as long the price continues to climb and on the basis of the available evidence there has been an increase in both the level of small and medium scale local mining operations as well as external investor interest in exploration activities. It is just possible, however, that we might be able to learn from the experience of Venezuela where President Chavez has declared that the gold mining sector is controlled by the “mafias” and where concerns over environmental degradation have become acute enough to trigger an official response. Put differently, it is perhaps worth bearing in mind that while gold is presently positioned to bring significant benefits to the Guyana economy it can, if not operated against the backdrop of rules that strike a balance between its benefits and its possible pitfalls, turn out to be a poisoned chalice.

Around the Web