Rusoro Mining to Benefit from Gold Reserve's Misfortune in Venezuela

By James West
MidasLetter
Wednesday, May 27, 2009

Rusoro Mining Ltd. (TSX.V:RML) may yet become the company that mines the Brisas Gold Deposit in Venezuela after all, as suggested by the Venezuelan mining ministry this week.

The future of Gold Reserve Inc.'s (NYSE:GRZ, TSX:GRZ) control of the 10 million ounce gold deposit was thrown into doubt even further when the Venezuelan Mining Ministry denied Gold Reserve's request to extend the El Pauji concession next to its Brisas project. Gold Reserve does not own the El Pauji concession but had the rights to use the property for infrastructure purposes.

"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, referring to the entity established between the Venezuelan government and Rusoro Mining, "Venrus", which has been established to advance projects in Venezuela according to the 50-50 joint venture model envisioned by Hugo Chavez. Rusoro has demonstrated its willingness to work within that model, and is advancing the Isadora Mine there under that structure.

Venezuela hosts one of the world's richest unexploited gold regions in the world in the renowned "kilometro 88" area north of the Orinoco River. It is estimated that the entire region contains in excess of 20 million ounces of gold.

Gold Reserve shares have lost 95% of their value since touching a high of $CA11.05 in April 2006. A takeover bid by Rusoro Mining that could have provided some relief to embattled Gold Reserve shareholders was quashed by an Ontario court earlier this year.

Gold Reserve is threatening to take Venezuela to international arbitration unless a solution can be amicably resolved said Gold Reserve president Doug Belanger.

""It is Gold Reserve's intention to settle this dispute amicably, but if that is not possible and the company is compelled to file for international arbitration, we would make a claim for the fair market value of our investment ... which we believe was in excess of $5 billion."

Rusoro currently has 7 million ounces of proven and probable reserves of gold and an additional 7 million ounces in the inferred category. The Brisas Project is a gold-copper deposit located in the Kilometer 88 mining district of Bolivar State in southeast Venezuela. According to Gold Reserve's 2008 Technical Report, it contains proven and probable reserves of approximately 10.2 million ounces of gold and 1.4 billion pounds of copper in 482.7 million tonnes of ore.

Recent statements by the Venezuelan government stipulating that gold producers must offer the majority of their production to the government is just a first right of refusal, according to Rusoro CEO Andre Agapov.

"On April 30th the Central Bank of Venezuela issued a new resolution pertaining to the sale of gold. Its an upgrade of the old resolution stating that 20% of all the gold produced in Venezuela should be offered for sale to the Central Bank. The new resolution states that up to 60% of gold produced must now be offered to the Central Bank of Venezuela," he said.

Venezuela, as a 50 percent interest holder in Rusoro's future development projects, is more likely to want to see its portion of production sold on the open market internationally as a way to generate reserves of foreign currencies.

It is within the interest of the Venrus joint venture to maximize profit in this regard, and it is not the intention of the Venezuelan government to expropriate gold produced by Rusoro or the joint venture.

George Salamis, Rusoro's president, stated, "Rusoro has never sold any gold to the Venezuelan Central Bank, nor have they ever requested to purchase any from us. Obviously, should they wish to, it would be our pleasure to sell our production to the Central Bank at market prices. As our major joint venture partner, Venezuela's interest is to profit through the sale of gold on the international market, just as it is for Rusoro and its shareholders."

Rusoro, which is expanding its operations in the El Callao mining district, expects to produce between 170,000 and 190,000 ounces of gold this year.

"The production profile in the Callao area alone can be in the magnitude of Las Cristinas .. it could reach 500,000 ounces a year in less than four years," said Andre Agapov, citing a study by mining consultants Micon.