Mining Firms Hit Again by Chavez Threat

Mining Firms Hit Again by Chavez Threat

Companies with Venezuelan assets slide

By WENDY STUECK

Friday, September 23, 2005 Page B4

 VANCOUVER -- Mining companies with assets in Venezuela were bludgeoned on the market again yesterday after President Hugo Chavez said he would cancel all mining licences and stop issuing new ones to foreign companies.

"I want to tell the country I've decided, after looking at this and that, to cancel all mining concessions. We're not giving more concessions to trans-nationals," he said.

The comments, made in a speech late Wednesday, followed statements by Mr. Chavez earlier in the week that he would yank concessions from mining companies that allowed their properties to sit idle or that broke environmental or other regulations.

Toronto-based Crystallex International Corp., which is developing the big Las Cristinas gold deposit in Venezuela, insisted for the third consecutive day that its project remains on track, emphasizing that Venezuela already owns the project and that Crystallex has a contract to operate it.

And so far, at least, Mr. Chavez has said nothing about revoking or renegotiating contracts that are in good standing, Crystallex chief executive officer Todd Bruce said yesterday. "Nobody has said anything to us about renegotiating contracts," Mr. Bruce said. "The government has indicated that while it is clearly changing the industry and that it will hold people accountable for being in compliance, it will honour existing contracts with reputable companies that are performing properly."

Investors, however, appeared spooked, driving Crystallex shares down by 25.9 per cent to a close of $1.60 on the Toronto Stock Exchange. Shares in Toronto-based Bolivar Gold Corp., which began production at its Choco 10 gold mine in Venezuela last month, also tumbled, falling 15.4 per cent in Toronto to close at $2.20. Gold Reserve Inc., which is headquartered in Spokane, Wash., and has development properties in Venezuela, fell by 23.6 per cent to $2.49 on the Toronto exchange.

Mr. Chavez's comments, and the market reaction, are part of a bigger picture that involves Venezuela's attempts to develop a modern mining industry in a country where thousands of peasant miners scrape out a living by mining gold deposits.

In an updated feasibility study on Las Cristinas, filed in August, engineering firm SNC-Lavalin said artisanal or small-scale mining is considered the most economically important activity in the area.

Mr. Bruce said agreements with small-scale miners are part of Crystallex's operating contract for the mine. There are now about 200 such miners legally on the site, he said, working in half-a-dozen groups. But large numbers of illegal miners, many from neighbouring Brazil and Guyana, have at times flooded on to the site.

Some of the changes Mr. Chavez is talking about appear to be aimed at foreign investors who acquire concessions and then allow them to sit idle, creating an inviting opportunity for illegal miners that operate without even basic health or environmental safeguards.

Crystallex has spent millions on Las Cristinas, which has an estimated capital cost of $293-million.

Saturday, September 24, 2005