Thursday, March 29, 2007–Gold Reserve Inc. stunned a skeptical market yesterday after winning a key permit to mine a significant gold-and-copper reserve in Venezuela, sending its stock up nearly 49% in heavy trading.
The news killed fears the foreign miner might never get the green light for the mine from socialist President Hugo Chavez, which it won after making rigorous commitments to invest in the area and its residents that will extend long after the mine is exhausted and Gold Reserve has packed up and gone home.
“I grew up in Canada and lived in small mining towns, and you always have to ask the question ‘What happens when the mine is gone?’ ” said Gold Reserve president Doug Belanger.
Gold Reserve’s long-term plan will be hashed out with the help of a non-governmental organization and area residents. One possibility they will explore is the creation of a tourist area, which Mr. Belanger said may be feasible given the area’s beauty, the project’s proximity to a major highway and the airstrip and other infrastructure that will be built to accommodate the mine and its workers.
While construction is underway, the mine will employ 2,000, many of whom will be drawn from the local community. Gold Reserve will build training facilities, then bring workers up to speed on modern mining techniques during the 24 to 30 months it will take to construct the mine.
The area also has independent miners that may not want jobs at Gold Reserve’s Las Brisas project, but will also be encouraged to benefit from its knowledge.
“What he [Mr. Chavez] wants to see is the people of his country participating more in the benefits that are generated by his rich natural resources,” Mr. Belanger said.
Other projects could involve building clinics and other services, and helping local business people secure funding to open services, including stores and a gas station, for mine workers. The mine should be operational for 20 years or more, and Mr. Belanger estimates it will employ 1,000 full-time workers and create up to 4,000 indirect jobs.
Gold Reserve’s news encouraged markets, which have fretted that Mr. Chavez could move to nationalize the country’s natural resources and send foreigners packing. This helped shares of Toronto-based miner Crystallex Inc., which has been waiting three years for a similar permit at its own gold project in Venezuela. In a recent interview, Gordon Thompson, Crystallex’s chief executive, said the company was “closer than ever before” to obtaining this prize.
“The significance for Crystallex of the Gold Reserve announcement today is enormous,” said Mark Turner, an analyst for Hallgarten & Co. who is based in Peru. “It has proven once and for all that the Venezuelan government are as good as their word and that they do indeed welcome investment from foreign companies.”
However, foreigners looking to cash in on this resource-rich country won’t find it easy to turn a quick buck, said Mr. Belanger, whose company has operated in Venezuela for 15 years and worked with the Chavez government for eight of those.
In addition to wooing the government, they must satisfy a set of global banking principles that have been adopted in particular to protect the interests of developing countries.
“The new issue is how to deal with the social aspects of the local community and how you impact them, and you truly do impact them. In the past, there was a tendency for companies to say you just throw money at the problem. But that’s not what the Equator Principles dictate,” Mr. Belanger said.
The Equator Principles [EPs] are a global set of voluntary standards introduced by a group of banks in 2003 to assess the environmental and social risks of project financing. Companies that don’t comply with these standards, which often include intensive consultations with local area residents, can be denied project financing by their lenders.
“They are all signatories to the Equator Principles and they are going to make you adopt that or they simply won’t loan you the money,” Mr. Belanger said of the backers for his company’s US$650-million construction project.
A number of Canadian institutions, including Manulife Financial, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Bank of Nova Scotia, have signed on to the EPs, which were revised to be more stringent in 2006.
“We have adopted the revised principles and I think, overall, it just shows as a company real responsibility,” said Kaz Flinn, Scotiabank’s vice-president of corporate social responsibility.
Beyond project financing, Ms. Flinn said she has observed a noticeable overall increase in the desire for companies to tackle social and environmental issues in the past couple of years.