Venezuelan Ministry of the Environment Puts Breaks on Gold Mining Permits

Mérida, May 2, 2008 (venezuelanalysis.com)– Toronto-based Crystallex Corporation announced Wednesday that the Venezuelan Ministry of the Environment denied a key gold mining permit for the company’s operation of the Las Cristinas mine, one of the largest gold deposits in Latin America.

The same day, Spokane, Washington-Based Gold Reserve Inc. reported that the ministry also plans to rescind an environmental and social impact approval, which had been granted to the company in March 2007, for the neighboring Las Brisas gold and copper mine.  

According to statements released by both companies, the ministry based its decision on issues regarding the indigenous peoples, the small miners, and the environmental health of the Imataca Forest Reserve in Venezuela`s mineral-rich southeastern Bolívar state where the mines are located.

Crystallex stocks plunged nearly 50% in Toronto following Wednesday’s news. They had already suffered a 26-day decline due to investor speculations on the ministry’s position, according to the Toronto Star. Gold Reserve’s stocks dropped 24%.

Despite investor attitudes, the president of Gold Reserve, Doug Belanger, said “the company has not been formally notified of this decision and is working with various government officials to solve this matter.”

“We are prepared to protect our rights to Brisas through the Venezuelan legal system and, if necessary, other avenues,” Belanger stated on behalf of the company’s board of directors.

Crystallex is also “committed to defending its rights in the Las Cristinas project and intends to respond to this matter vigorously,” the company statement prepared by company spokesperson Richard Marshall affirmed.

The Las Cristinas project is owned by Venezuela’s state mining corporation, the Venezuelan Corporation of Guayana (CVG), and has been contracted to Crystallex since 2002. Before Wednesday, environmental impact studies, bonds, and tax permits had been approved for the mine, and the company was awaiting the final nod of permission from the ministry.

Likewise, the impact study for the Las Brisas mine had been approved in March 2007 after Gold Reserve promised social investments in the region, and the area had been confirmed to be open for mining in 2004, according to the company.   

The ministry’s denial “appears to be in conflict” with the previous trend toward approval, and “seems to suggest a complete policy change in position relating to this region,” Crystallex said Wednesday.

Responding to the ministry’s justification for its decision, Gold Reserve’s president said “there are no small miners on Brisas and any environmental disturbances result from activities prior to the Company acquiring the property,” which occurred in 1992.

Gold Reserve’s 2006 report confirms that there were small-scale miners working in the area before the company’s arrival.

In 2005, local miners denounced being forcibly evicted from their workplaces and having their equipment seized by Crystallex, which referred to them as “invaders.” Miners who attempted to organize meetings and protest the evictions reported having been violently repressed by the security forces that guarded Crystallex facilities, and demanded that the government throw the transnational company out of the country.

Since then, Venezuelan President Hugo Chávez has made significant changes to Venezuela’s mining policy. In 2005, he initiated what he called “a big turnaround” by announcing that Venezuela would no longer grant private mining concessions to national or foreign companies, but instead would favor state-run Social Production Units (UPS) and small-scale mining cooperatives.

In 2006, the National Assembly unanimously voted to reform the mining law to force companies with idle mines to become minority partners in mixed enterprises with the state. This came shortly after 600,000 hectares (1.5 million acres) of mining land were handed over to local cooperatives and UPSs, according to venezuelanalysis.com.   

Later that year, the Minister of the Environment Jacqueline Farías made a sweeping statement that coal mines were “unnecessary” for national development. This attitude was echoed by President Chávez in May 2007, when he declared, “between the forests and coal, I’ll keep the forests,” although the policy was never concretized.     

It is unclear what these trends in government mining policy imply for the Las Cristinas and Las Brisas mines, but Crystallex told investors Wednesday that the ministry “appears to be in opposition to all mineral mining in the Imataca region.”

Uncertainty has also been expressed by some market analysts. Catherine Gignac, an analyst from Wellington West Capital Markets, refrained from posting a stock rating and target price for Crystallex Wednesday, telling clients that “only speculation remains on the outcome for Crystallex in Venezuela.”   

The Las Cristinas mine is estimated to hold between 14 and 16 million ounces of gold and 323 million tons of ore in reserves. The Las Brisas property is estimated to contain 10.4 million ounces and 1.3 billion pounds of copper in 484.6 million tons of ore, according to a 2006 Gold Reserve Inc. report.   

The 3.8 million hectare (9.4 million acre) Imataca Forest has been a national reserve since 1963. Political corruption has led to its being conceded to mining and logging interests beyond sustainable levels for decades, including 12 concessions which opened up 50% of the forest to logging over the course of the 1980s, according to the Quechua Network.