Venezuela, Gold Reserve: partners?

Feb 26, 2016, 5:25 PM EST
Source: El Torazo Pampeano/flickr

The head of Venezuela's state oil company PDVSA, Eulogio del Pino, said on Thursday that a dispute with Canadian mining firm Gold Reserve had been "amicably resolved."  Caracas had revoked the firm's Las Brisas gold concession in 2009, spurring Gold Reserve to take file for international dispute arbitration. But on Wednesday the two sides agreed to settle their dispute by signing a MoU for $2 billion of joint gold development in the Orinoco belt.

The exact terms of the agreement were not published. But it includes the firm lending $2 billion to the cash-strapped Venezuelan government. This is quite a turnaround from the soured relations of the recent past. Just last year the International Center for the Settlement of Investment Disputes (ICSID) ruled in Gold Reserve’s favor, ordering Venezuela to pay $740 million. The country, whose economy is in a severe recession, did not do so. But the terms of this new joint venture must have been enticing enough for the firm to put another $5 billion of its own money on the line. There’s nothing like a prolonged slump in oil prices to get Venezuela to offer rosy investment terms.

Speaking of the ICSID dispute, Gold Reserve’s president Doug Belanger said, "We're in agreement to settle. We will be receiving a payment," although he didn’t specify exactly when or how much.

Perhaps the firm is gambling that with Caracas as an ally instead of an adversary, it can finally nab a piece of the rich mineral offerings of the Orinoco belt. The roughly 43,000 square mile “Mining Arc” in the country’s southeast is estimated to contain 4,136 tons of gold reserves (with the potential of 7,000 tons) and 33.79 million carats of diamonds. It also has 3.644 million tons of proven iron reserves, plus copper, bauxite, coltan, and other valuable minerals. According to del Pino, those gold reserves have a market value of around $280 billion, and could be developed for up to 70 years, "which guarantees a diversified source of hard currency" for the country's oil-dependent economy. "All the gold that's obtained must be sold to the Venezuelan Central Bank and will be converted into the nation's international reserves," he added.

Venezuelan President Nicolas Maduro issued a decree on Tuesday ordering the certification of reserves in the Orinoco mining belt. But Gold Reserve won’t be the only foreign miner to get in on the action – del Pino said MoUs were signed with Angola-based Endiama E.P., Namibia-based Namdeb and two Chinese companies - China Camc Engineering Co. Ltd. and Yankuang Group Co.

Still, Reserve Gold has been burned before by Venezuela, and it’s going up against high political risk, since the socialist Bolivarian regime remains in power. Then again, no risk, no reward.