UPDATE 3-Venezuela ends Gold Reserve Brisas' concession

Mon May 25, 2009 3:55pm EDT

(Adds detail of El Pauji)

CARACAS, May 25 (Reuters) - Venezuela has ended a concession held by U.S.-based miner Gold Reserve (GRZ.A) in one of Latin America's largest gold deposits, part of a strategy to increase state control of key economic sectors.

The official gazette said on Monday the government had not granted an extension to the El Pauji concession of the large Brisas project, citing contractual failures.

The Brisas project covers several concessions in the KM88 mining belt south of the Orinoco river and is adjacent to the legendary Las Cristinas project.

"This should now become a joint venture controlled by the state, that's what we are looking for in the sector," a Mining Ministry spokeswoman said on Monday.

Gold Reserve's representative in Venezuela declined to immediately comment. U.S. spokesmen were unavailable.

Venezuela's socialist President Hugo Chavez said earlier this year that the gold industry should be controlled by the state. He said the KM88 district would be exploited by a joint venture between the state and a Russian mining company.

Chavez has steadily been nationalizing key sectors of Venezuela's economy, including energy and telecommunications, over the last two years. This month he took over several oil and iron companies.

One possible beneficiary of the decision on the El Pauji concession is Russian-owned Canadian miner Rusoro (RML.V), which is interested in developing the KM88 area and last year launched a failed takeover bid for Gold Reserve. Rusoro declined to comment on the news.

Brisas' neighbor Las Cristinas has floundered in legal disputes and government inaction for decades. The now defunct Placer Dome invested over $100 million in the project before abandoning it.

Rights to Las Cristinas are currently held by Canada's Crystallex (KRY.TO), which has not been given the permits needed to produce gold there.

Gold Reserve, a Canadian company that is headquartered in Washington state, last month threatened to file a $5 billion arbitration suit against Venezuela for blocking development of Las Brisas by revoking a construction permit last year.

The Brisas' El Pauji concession expired last year but Gold Reserve had requested an extension, the government said.

According to Gold Reserve's website, Brisas contains an estimated 10.2 million ounces of gold. The company acquired the concession in 1992 and has invested $100 million in the project.

The combined KM88 area is estimated to contain well over 20 million ounces of gold. (Reporting by Ana Isabel Martinez, Enrique Pretel and Adriana Barrera; Writing by Frank Jack Daniel; Editing by Leslie Adler)

http://www.reuters.com/article/marke...