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The death of Venezuelan President Hugo Chávez on Tuesday (Mar 5) raises as many questions as answers for the local mining industry, which was not immune to Chávez's penchant for nationalization.

In September 2011, Chávez passed a law nationalizing all gold mining activity in the country and requiring private sector gold mining companies to form JVs with the state as the majority partner.

The deadline to form these JVs came and went in 2012 without any successful cases. Instead, the government, through state gold miner Minerven, took over Vancouver-based Rusoro Mining's (TSX-V: RML) local operations - the only large-scale private gold mine in the country - and took complete control of VenRus, a 50:50 JV between Rusoro and the government.

Chávez's desire to nationalize Venezuela's gold resources is a good example of his tendency to improvise policies with a political goal in mind without taking into account the practical consequences or, indeed, the lack of technical know-how.

The gold nationalization law was not written with the aim of developing a mining policy but rather with a political concept of mining, mining lawyer Mariana Almeida told BNamericas in May last year.

"They are different things because one is developing a mining policy that has a long-term mission and a future strategy, and another is the political concept of mining where the government has the idea that it has to be the main player and adjusts everything so that this is the case, without knowing how to do it," Almeida said.

PENDING CASES

The nationalization of gold assets did not begin in 2011, however. The state cancelled Toronto's Crystallex International's concessions for the Las Cristinas gold deposit in Bolívar state in 2008, and in September 2012 announced plans to develop it through a JV between Minerven and Chinese state-owned Citic Group. Crystallex has an ongoing arbitration case at the World Bank's International Centre for Settlement of Investment Disputes (ICSID) over the expropriation of its assets.

Las Cristinas has 464Mt grading 1.13g/t gold or 16.9Moz gold in proven and probable reserves, in addition to 629Mt grading 1.03g/t gold or 20.8Moz in measured and indicated resources.

Interestingly, this January the ICSID dismissed claims brought by Canadian Vannessa Ventures over the nationalization of Las Cristinas in 2001, after which the Venezuelan government transferred the rights to Crystallex. The court concluded that the company's rights under the Canada-Venezuela bilateral investment treaty had not been violated. Vannessa is now known as Infinito Gold.

US-based Gold Reserve (NYSE: GRZ) also has a case at the ICSID against the government for the expropriation of its Brisas project. Brisas, which is next to Las Cristinas, has proven and probable reserves of 10.2Moz gold and 1.39Blb (630,039t) copper.

In related news, at the end of last year, global resource group Anglo American (LSE: AAL) announced that it was leaving the country after the government refused a request to renew the concessions and permits for its Loma de Níquel nickel operation. However, Anglo American is unlikely to seek compensation.

Venezuela is facing a total of 29 pending cases at the ICSID, according to Bloomberg.

LOCAL OPPOSITION

International companies were not the only ones to suffer from Chávez's nationalization plans. Local, small scale miners also protested against the new gold law, arguing it to be unconstitutional. Communities brought a petition to the supreme court requesting the annulment of the law, claiming that it does not recognize the indigenous communities, which were never consulted. The outcome of the case is pending.

PRODUCTION

In August 2012, the president of Venezuela's national mining chamber (Camiven), Luis Rojas, called on Chávez to boost the local gold industry, as he said bullion production levels were close to historic lows.

Prior to the enactment of the gold nationalization law, yellow metal production in Venezuela stood at 4.27t (137,000oz) annually. Currently, there is no data on the production rate.

Venezuela's mining sector is not aware of how much gold is really being produced in the country, the president of the mining and metallurgical industry association (AIMM), Jorge Roig, told BNamericas in July last year.

"The truth is Venezuelan gold production currently lacks transparency. Much of what's produced ends up being smuggled out of the country," Roig said.

SUCCESSION

Venezuela is now expected to hold presidential elections and the candidate that analysts see as likely to win is vice president Nicolás Maduro, who was verbally appointed by Chávez as his successor. Maduro is unlikely to change any of his predecessor's policies in the short term. Market research firm IHS said that "growing instability, together with a marked worsening of the macroeconomic situation (large fiscal deficit, high inflation and declining oil output) increases the risk that Maduro will depict the private sector as the main source of the country's economic ills."

With resource nationalism topping the list of mining companies' risk factors, and Venezuela recently ranked as the least attractive jurisdiction in Latin America for mining investment by the Fraser Institute, the future of its mining industry looks bleak.http://www.bnamericas.com/news/mining/bleak-future-for-mining-in-venezuela-post-chavez1