As if the news that Venezuela will transfer billions of dollars in cash reserves from abroad to banks in Russia, China and Brazil and tons of gold from European banks to its central bank vaults was not enough to scare away all foreign investment from the country, now Chavez will nationalize the gold industry, including extraction and processing.
Interestingly, Rusoro, the only large gold miner operating in Venezuela is owned by a Russian family,
Venezuela has some of Latin America’s largest gold deposits, buried below the jungles south of the Orinoco river. According to official figures, formal mining in the country produces 4.3 tons a year.
Chavez agreed last year to let gold miners export up to 50 percent of production, from 30 percent previously. The other 50 percent must be sold to the central bank.
But that did not satisfy foreign companies like Rusoro, which said the limits made it much harder for them to secure financing abroad, develop projects and create local jobs.
One victim of the dispute has been a huge but long-troubled project called Las Cristinas. It has been in limbo since the government canceled a development license with another Canadian miner, Crystallex, in February.
Rusoro had expressed interest in Las Cristinas, which has not been developed since the 1980s but has reserves estimated at 17 million ounces. Locals once found a 1-kilo (2.2-lb) nugget there.
But the company’s chief executive told Reuters in an interview in June that it could not take on the project unless the government scrapped its export rules.
Chavez said the government aims to fight “mafias” that have been taking some of the country’s gold; he may be referring to wildcatters and smugglers in the remote areas of Venezuela.
Imaginary mafias or not,
It’s unclear how the decree is different from a 1965 law that nationalized gold mining in the country. In 1977, the government granted itself exclusive rights for extracting gold.
George Maniere wonders if this is all posturing on Chavez’s part and what the effect would be on the physically-backed gold exchange traded funds (ETFs), while Martin Hutchinson asks, Is Hugo Chavez ahead of the investment curve?
Miguel Octavio watched on TV the three stooges discuss the move,
It was quite comic, if not tragic, to watch the idiotic trio of Merentes, Giordani and Chavez try to explain why they were moving Venezuela’s international reserves. As I have said before, I believe the gold should be in Venezuela, not elsewhere, as a normal policy, the problem is why these clowns are making this move right now. I initially dismissed the news about the reserves being moved, there was not much to be moved besides the gold, which I did not believe would be moved (and was not the main focus of the proposal) But these guys truly plan to move the gold, never mind how much it will cost. Time to worry!
Miguel asserts that the reason for all this gold lust is political,
it is clear (to me, at least) that this is political. Chavez wants to avoid sanctions if…that’s the hard part to guess, but I can only think of two things: US sanctions because of the Iran connection or UN sanctions if the Constitutional order is broken.
You can bet on the second. The gold will take a few months to get here. The timing is perfect! When the Constitutional order is broken, the gold will be here and the reserves will be depleted! These guys have a plan and it goes back to the Jose Vicente interview two weeks ago, Chavez still has doubts about democracy.
Venezuela faces international arbitration over nationalized gold assets from three companies including Crystallex International Corp. (KRY), a Canadian gold producer whose Las Cristinas mine was taken over by the government in February.
As of the writing of this post, oil is trading at $83.40. Chavez is undoubtedly aware of this; his Bolivarian Revolution is very expensive, and he’s running out of time.
He needs the gold.
Cross-posted at Conservative Commune.
Commenter Barry Davis,
The more troubling point is why now? What is Chavez planning, or what does he know is about to hit, that will trigger the rest of the civilized world (as opposed to the dictatorships and fellow traveler lead states) to try and freeze the accounts he is moving. Something is up.
UPDATE, August 19,
Linked by Venezuela News and Views. Thanks! Make sure to read that post.