Venezuela Mining Permit Issues Precursor to Nationalization-James West

By Richard Ford
May, 2nd

Renowned resource industry investor and commentator James West, who publishes the Midas Letter, says the Venezuelan decision to rescind the permits of various mining companies operating in the country is a precursor to the nationalization of those assets.

“If anybody thinks those mines are ever going to get built, they’re absolutely right,” he said. “But it will be by contractors working under Venezuelan owners, not the public companies that discovered them.”

He points to the fact that Exxon Mobil, on the world?s largest energy companies, has essentially resigned itself to pursuing compensation for the nationalization of its assets in the country last year.

?Exxon will be in court for years to come trying to get a fraction of the value for the assets it discovered, developed and brought on stream. They have the bankroll to do it. Do these junior companies have that kind of financial firepower? I don?t think so. And more importantly, their investors aren?t interested in underwriting legal fees. They?re making their way to the exits in droves. The only option for these companies is to focus on projects in safer jurisdictions, if they have them, or else look to JV with other companies who do,? he said.

Crystallex (TSX,AMEX:KRY) and Gold Reserve Inc. (TSX, AMEX:GRZ) were the first to learn that the Venezuelan Ministry of the Environment (MinAmb) used Imataca, a protected foreset reserve as a pretext to rescind the project permit for the Brisas gold project, and apparently has used the same excuse to halt exploration activities at the Las Cristinas gold project.

In a news release, Crystallex said, "The communication by the Director General appears to be in conflict with the Las Cristinas EIS approval, Construction Compliance Bond Request and Environmental Tax requested issued by MinAmb (that Crystallex posted and satisfied last summer) and the communication appears to be in opposition to all mineral mining in the Imataca region."

The area was designated a mining zone in 2004 by Venezuelan President Hugo Chavez, who initially gave enthusiastic support to mining cooperatives in the area. There are also numerous illegal mineros (small miners) who also prospect in the region, but are not allowed to join the cooperatives unless they are Venezuelan citizens. The third category of miners in the region is international mining and exploration companies, which received government concessions.

Shares in both companies plummeted on the news, with Crystallex shedding over 50% of its value on the news, and is now trading below $0.90.

Gold Reserve shares suffered a similar fate, dropping from just under $4 to $2 before rebounding to the $2.40 range where it trades currently.

Both companies said they would act vigorously to defend their interests in Venezuela.

Hecla Mining (NYSE:HL), who operates the Mina Isadora mine there, saw its shares lose over 15% of their value.

Rusoro Mining Ltd, (TSX.V:RML), who controls Choco 10, one of the country?s most important gold mines, saw a 30% decrease in value, despite the company?s claims that its project will go ahead.

Its all part of the nationalist fever sweeping South America, according to Mr. West.

?We?ve seen (President) Correa in Ecuador suspend mining in that country, ostensibly to review mining laws, but that?s just doubletalk for what is really happening there, which is they?re saying thanks for the mines now get lost,? he says.

"We?ve been warning our subscribers for the last year against investing in South American countries with leftist politics. I wouldn?t risk a nickel on those countries ever again", he said.

IAMGOLD (TSX:IMG, NYSE:IAG), Dynasty Metals and Mining (TSX:DMM), Aurelian Resources (TSX:ARU), and Corriente Resources (TSX:CTQ, AMEX:ETQ) all announced plans to comply with the order.