Sorry if anyone posted this from yesterday - don't think so. My work schedule is keeping me out of the loop a bit.

=DJ Russia's Rusoro Finds Gold In Warm Ties With Venezuelan Govt

. By Darcy Crowe

Of DOW JONES NEWSWIRES


CARACAS (Dow Jones)--Mining in President Hugo Chavez's Venezuela is a risky business, but Rusoro Mining Ltd. (RML.V) is confident cozy relations with the government will help it quadruple output and increase production to 1 million ounces of gold in five years.

Investment in the country's mining industry has all but dried up as labor problems and threats of nationalizations have scared international investors away, despite booming commodity prices. Yet Russian-owned Rusoro has been gobbling up mines while cultivating a close relationship with the Chavez administration.

Rusoro's success in becoming the preeminent force in Venezuelan gold mining - essentially operating unhindered by government regulators while other companies have struggled with red tape - shows that warm relations with the government, and the right nationality, appear to be prerequisites for turning a profit in Venezuela.

Rusoro's latest move was the purchase last week of La Isidora gold mine from the U.S.'s Hecla Mining Co. (HL), which had suffered a production halt over the last months due to labor strikes.

Vancouver-based Rusoro is confident the connections of the Agapovs, the Russian family that controls it, and the warm relations between Moscow and Venezuela, will help it succeed where the U.S. company faltered.

Hecla had been unable to restart operations because of the labor disputes. Rusoro, however, said the mine would start working again in two weeks.

Rusoro also said the mine would be a joint venture with the government. The Agapovs paid $20 million in cash and $5 million in shares to Hecla. The government, which will take a 50% stake in the new joint venture, didn't pay anything.

The new acquisition will allow Rusoro to boost its total production in Venezuela to 1 million ounces of gold in five years, George Salamis, the company president, told Dow Jones Newswires in a telephone interview.

"We approached the government with this framework," he added.

"Having the government as a partner is a huge advantage.... It can help us deal with any problems on the ground or with workers," he said. The mine will be solely operated by Rusoro.

Pedro Palma, head of local research firm Metroeconomia, says the joint venture could be a smart strategy.

"Commodity prices are surging, but in Venezuela mining is becoming increasingly difficult," he said. "Having the government on your side should make it easier."

The public-private partnership strategy appears to provide protection against worker demands, and facilitates close relations with the government, including regulators. Unions have been emboldened recently by government support for their demands against companies and threats of nationalization if their requests aren't satisfied.

Mining Minister Rodolfo Sanz, for instance, appeared to take the side of workers in their dispute with Hecla management, declaring the government could revoke the company's concession if the strife continued.

Beyond Hecla, the industry as a whole has been left in regulatory limbo because a new mining bill may force companies into joint ventures with the government if it becomes law.

Some mining companies have been pummeled recently by changing government policy.

Crystallex International Corp. (KRY), also of Vancouver, and Gold Reserve Inc. (GRZ) of the U.S. were hoping to mine gold and copper in a large forest reserve. They apparently had a green light from the Mining Ministry after years of paperwork, but were blind-sided in May when the Environmental Ministry announced it wouldn't allow for open-pit mining in that region. Their share prices tumbled and Crystallex's chief executive soon resigned.

Salamis, however, said that for Rusoro there's little to fear. And while some companies prefer not to highlight their nationality or how their close relations with Venezuela's government give them an edge over their rivals, Rusoro appears eager to do so.

"The fact that we're Russian-owned makes a huge difference. If we were American or from somewhere else, things would be more complicated. We're able to take risks that others wouldn't," Salamis said.

"It's not just that we're Russian," he added. "The Agapovs have been active in Venezuela for eight years, their reputation is known and they have delivered."

The Agapov family has indeed enjoyed staggering success in Venezuela, coming to control the majority of the country's most sought-after gold mines. The company became the largest gold producer in Venezuela late last year when it purchased the Choco 10 gold mine from South Africa's Gold Fields Ltd. (GFI).

The company clearly has benefited from the closer Russian-Venezuelan ties, Salamis acknowledged. As a testament to this, Chavez recently unveiled plans to create a Russian-Venezuelan development bank and announced a visit to Moscow this month for arms purchases that according to some reports could surpass $2 billion.


-By Darcy Crowe, Dow Jones Newswires; (58) 212-905-6304; darcy.crowe@dowjones.com


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(END) Dow Jones Newswires

July 15, 2008 14:55 ET (18:55 GMT)

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