Editorial: More confusion for miners in Venezuela

The psychodrama that is Venezuela welled up again onto the world stage during the week ended June 28, the last trading week of the first half of 2008.

• Share prices of both Crystallex International and Gold Reserve nearly doubled on reports that, a week earlier, personnel from both companies met with officials from Venezuela’s Environment Ministry. The meeting resulted in yet more mixed signals from the Venezuelan government towards both companies’ development-stage gold projects in the country.

Words are one thing and deeds are another, and metal-mining investors should take a look at what the Venezuelan government is doing in the cement business.

Hugo Chavez’s government has just given Venezuela’s largest foreign cement companies 60 days to reach a deal on the nationalization of their assets or face expropriation. The cement giants involved include Mexico’s Cemex, France’s LaFarge and Switzerland’s Holcim.

The government has stated it will take at least a 60% interest in these companies’ Venezuelan assets, but the companies would be allowed to negotiate the conditions of their minority status, or else compensation for the expropriation of their assets. The transfers are slated to be completed by year-end.

For whatever reason, the exception to the rule for foreign, publicly listed investors in Venezuela seems to be Rusoro Mining, which is based and listed in Canada, but largely run and funded by Russians. Rusoro has just raised US$80 million and struck a deal to buy Hecla Mining’s Venezuelan assets for US$25 million. With its existing and new assets in the country, Rusoro is now targeting an annual production rate of 220,000 oz. per year in Venezuela by the end of 2008.

• HudBay Minerals, the Manitoban zinc and copper miner, has made a surprise friendly offer for junior nickel developer Skye Resources and its Fenix nickel laterite project in Guatemala. The all-share offer values Skye at around $430 million.

From humble beginnings just a few years ago, HudBay now has the cash and know-how to get Fenix into production, a task that will include building a large, standalone power plant.

Much more difficult will be the social aspects of this project, which is encumbered with bad blood that dates to the darkest days of Guatemala’s vicious civil war, which ran from 1960 to 1996.

The Fenix project is to be built on the location of Inco’s controversial and failed Exmibal nickel mine and smelter on the shores of Lake Izabal, a story that’s well-known among anti-mining NGOs.

Fenix will use up a good chunk of prime farmland in an impoverished region densely populated by indigenous people — a classic recipe for problems.

HudBay’s management will need to summon all its skills in diplomacy to sort out these land issues to avoid the same confrontations that plagued past foreign mine developers in this area.

• For our readers, we had hoped to cover the U3O8 Corp. annual and special meeting in Toronto, where dissident shareholder Aberdeen International would try to remove U3O8’s board of directors. However, U3O8 denied us entry to the meeting, which is quite unusual behaviour for a public company. Shareholders might ask themselves what this company is trying to hide from the media.

• Talk about your cost overruns: Warren Newfield’s CIC Energy said its Mmamabula coal and energy project can’t go ahead as planned in Botswana, owing to costs shooting up from about US$6 billion to a mind-blowing US$16 billion. The original concept called for construction of a coal mine and two 2,500-megawatt power stations in southeastern Botswana, with most power to be sold into South Africa.

The decision is another reason to expect South Africa’s power crisis to last for many more years. The power crunch will significantly constrain mineral production from this fading country and give long-term boosts to prices for minerals South Africa is a dominant producer of — particularly gold, platinum group metals, vanadium, titanium, chrome and diamonds.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.