Gold Reserve gets the job done in Venezuela

With the attainment of its environmental permit for its Brisas copper and gold project in Venezuela last week, Gold Reserve (GRZ-T, GRZ-X) reminded the world that foreigner-driven mining projects can go ahead in Hugo Chavezs Venezuela.

On a conference call held on April 5, company president Doug Belanger, highlighted the keys to its success.

We have kept a lower profile. Weve spent fifteen years in Venezuela and we understand how things work there, Belanger says. We didnt want to say the permit was coming sooner or later, because you dont know when that might be. You dont do your celebrating on the five-yard line, you do it when youve crossed the goal line.

While the comments werent made in direct connection to Crystallex International (KRY-T, KRY-X), its not much of a stretch to see how applicable they are to the Toronto-based company.

Crystallex has grabbed most of the headlines associated with mining in Venezuela for consistently not coming through on a series of statements that its key environmental permit for its massive Las Cristinas project was imminent.

Rather than making such public assurances Gold Reserve focused solely on developing its relations with the government.

You have to have direct involvement with the government, Belanger says. Our people can be in government offices on a day to day basis, because you have to understand what the government wants and then what you need to do about it.

The environmental permit which also covers the social aspects of the project enables Gold Reserve to begin construction of the mine, something Belanger estimates will take roughly 30 months from now, at a cost of roughly US$638 million.

But, he concedes, with rising nickel and copper prices, the project will likely be subject to the same rise in capital costs that are being inflicted industry wide.

Belanger also took time to clear up any confusion regarding further permitting and the companys connection with Crystallex.

On the permitting front, Belanger emphasized that while important, the environmental permit was in no way the last permit the company will need to secure.

We now have an ability to start construction, but well be getting permits until we close the mine down twenty years from now, he says.

Like most other mining jurisdictions, separate permits are needed for things such as building roads, using explosives and for exporting, but he doesnt anticipate any difficulty in securing them.

As for Gold Reserves connection with Crystallex, Belanger was adamant is saying that there isnt one.

Addressing reports on the Internet that Gold Reserve would not be able to develop Brisas unless Crystallex was given the permits for Las Cristinas, Belanger said:

There is no limitation on us going forward as it relates to Crystallex. It was made clear with the ministry of mines that these are two distinct projects and the permits are not linked.

With the environmental permit in place, and a clear separation established between itself and Crystallex, Gold Reserve is now turning its energy towards securing financing for the project no small feat for a company with a $320-million market capitalization, or roughly half of what it will need to raise.

In securing funds for the project, Belanger said shareholders’ wishes must be weighed against stakeholders’ interests and clarified that he included both the Venezuelan government and local communities as stakeholders.

Our record speaks for itself, Belanger said regarding the issue of possible share dilution to raise money. Our management are all shareholders and were concerned with dilution, but weve done well to get this far with only 42 million shares outstanding.

Belanger said with more options arising on selling forward on copper production, and with high gold prices, hedging, while not popular with the Street, will be considered. But he said the company would be wary of selling forward before it got into production as delays in construction could wreak havoc on forward sales.

As for the possibility of the company being sold to a major with pockets deep enough to bring the project to production, Belanger would only say:

The company is not for sale but that doesnt mean that the company cant be sold… you cannot induce these people to buy your company even if you wanted to sell it.

He referred to Gold Fields (GFI-N, GOF-L) purchase of Bolivar Gold, which operated the Choco 10 mine in the country, as an instance where the sale was conducted in a proper manner.

Belanger says a company must be careful to not send mixed signals to the government, something that would happen were it to give the impression that it were only looking to flip a project. But in the case of Bolivar and Gold Fields, Belanger says, the government had no problem with the sale because Bolivar wasnt out trying to sell the company.

Brisas has a proven and probable reserve of 446 million tonnes grading 0.7 grams gold per tonne and 0.131% copper, for roughly 10 million oz. of gold and 1.2 billion lbs. of copper.

Its shares have gained 58% since announcing the issuance of the permit on March 28. On April 5 its share price closed at $8.14 on roughly 340,000 shares traded.