Venezuela Halts Mining in Forest Preserve, but Renews Permit Discussions

Mérida, June 26, 2008 (venezuelanalysis.com)– Despite the Venezuelan Environment Ministry’s proclamation of sweeping restrictions on mining in southeastern Venezuela’s Imataca Forest, Toronto-based Crystallex and Spokane, Washington-based Gold Reserve, Inc. have told investors that the ministry might grant them permits to open new gold mines in the Imataca if the companies promise social investments and environmental reparations.

According to company statements released Tuesday, Crystallex and Gold Reserve met with a group of Environment Ministry officials who informed the companies of “the decision taken by the government to reconsider the permitting process for both projects, subject to meeting certain criteria.”

The ministry had denied key environmental permits to both companies in late April, citing environmental concerns and protests from indigenous groups in the region.

Now, if the companies invest in social projects in the region where the mines are located, “mitigate the impact” of their projects, repair environmental damage caused by illegal miners in the region, and improve “remediation” plans for when mine life expires, the permit denial might be reversed, the companies said Tuesday.

Crystallex said it obtained minutes which reveal that the Ministry of Basic Industries and Mining (MIBAM) “confirmed support for Crystallex” in a June 4th meeting with the Economic Development Commission of the Venezuelan National Assembly (AN).

According to Crystallex, the minutes also reveal that the commission sought to resolve the “lack of coordination between the various government branches” that has affected the issuance of permits, and recognized that Crystallex has complied with all other legal requirements thus far in the process.

“It is too early for Crystallex to forecast how this issue will be resolved, but it is encouraged by the support from the Venezuelan Government and National Assembly,” concluded the company, whose statement was titled “Crystallex and Ministry of Environment Begin Discussions.”

Likewise, Gold Reserve President Doug Belanger stated, “We believe it is premature to predict the outcome of this initiative by the government.”

The ministry’s renewal of permit discussions seems to contrast with its ban on open-pit mining in the Imataca Forest proclaimed May 15th by Environment Minister Yubirí Ortega, who had specified that “neither private or public companies will for now exploit Imataca’s gold.”

After denying an appeal by Crystallex in late May, Ortega reiterated last weekend that only underground vein exploitation will be permitted, and that this is part of Venezuela’s plans to “favor national interests over foreign interests" and "save and take ownership of what is ours.”

Ortega has not said mining bans shall be permanent, but instead explained that “for the moment we do not need to exploit these minerals; as the president says, we don't need diamonds or gold, or coal.”

Belanger expressed wariness about the government’s mixed messages, telling investors Tuesday, “Although we are enthusiastic with [the Environment Ministry’s] initiative, we are also trying to reconcile Environmental Minister Ortega's statements related to the potential banning of open pit mining in the Imataca Forest Reserve.”

Despite the caution expressed in the company statements, Crystallex stocks shot up 66% and Gold Reserve stocks rose 35% in value following Tuesday’s announcements.

In an interview with Venezuelanalysis.com, a deputy on the Environment Commission of Venezuela’s National Assembly affirmed Wednesday that definitely no new mining concessions are on the government’s agenda for the Imataca Forest, and that all current mining concessions are currently undergoing “profound revision.”

This has the mining industry in the Imataca region “semi-paralyzed,” the deputy expressed. The deputy also assured that the government definitely plans to uphold the 3.8 million hectare (9.4 million acre) Imataca’s status as a national forest reserve.

The Las Cristinas Mine from which Crystallex hopes to extract an estimated 17 million ounces of gold is owned by Venezuela’s state mining corporation, the Venezuelan Corporation of Guayana (CVG), but has been contracted to Crystallex since 2002. Crystallex’s permits to begin operations were never granted, though.

Gold Reserve acquired the property where it hopes to invest more than $1 billion and extract 10.2 million ounces of gold from the Las Brisas mine in 1992.

Last April, the government nationalized the Andean region’s largest steel plant, SIDOR, which is located in Bolívar state near the Imataca Forest, in order to bring an end to a 15-month collective contract struggle between the workers and the management, and to take control of “strategic” natural resources.

Shortly after this, workers at the nearby Isidora gold mine owned by Idaho-based Hecla Mining Company, which is the largest gold producer in Venezuela, blockaded a major highway and clamored for nationalization of the mines, citing “the constant violations of human rights being carried out by the management of this company.”

After Rodolfo Sanz announced that Hecla`s contract would undergo revision, Hecla sold its subsidiaries in Venezuela to the Russian firm Rusoro for $25 million. The government has made no further statements about the projects formerly owned by Hecla.

The Venezuelan government’s desire to become the majority partner in mixed enterprises in charge of mining projects was first expressed in 2005, the year President Hugo Chávez declared a “big turnaround” in the nation’s mining policy.