Gold Reserve raising US$30M to bid for Venezuela’s Citgo in asset seizure dispute

Gold Reserve (TSXV: GRZ; US-OTC: GDRZF), an exploration company that’s still trying to collect on what it’s owed by Venezuela for a 2008 expropriation of its Brisas gold project, is raising up to US$30 million to bid for Venezuela-owned Citgo Petroleum.

Part of the proceeds will go toward the company’s previously announced credit bid for PDV Holdings (PDVH), the indirect parent company of Venezuela-owned oil refiner Citgo, it said in a release on Tuesday.

Earlier this month, Gold Reserve said it had placed a bid for PDVH as part of a United States federal court auction to pay off Citgo’s creditors. These include the gold miner itself as well as Canadian miners Rusoro (TSXV: RML) and Crystallex. The latter was the first to bring up the case in the state of Delaware, where more than half of U.S. public companies are incorporated. 

One of the largest oil refiners in the world, the Houston-based Citgo currently represents Venezuela’s most important foreign asset, processing up to 807,000 barrels of oil per day. Naturally, it became the main asset targeted by creditors.

Together, the group of 18 creditors is seeking as much as US$21.3 billion in arbitration rewards for past expropriations and debt defaults in Venezuela dating back to the Hugo Chavez regime.

Current President Nicolás Maduro has repeatedly rejected the auction on the grounds that the U.S. is trying to steal his country’s key assets.

Auction sale

Meanwhile the Citgo sale process kicked off in January, but the first round of bids fell short of Citgo’s valuation of US$11 billion-US$13 billion. Bids have already been placed in the second round of auctions, for which the deadline is set for July 15.

In the initial round, Gold Reserve and others had sought funding from JPMorgan Chase for the failed US$7.3-billion bid. However, the auction recently attracted other high-profile investors such as Elliott Investment Management and Centerview Partners.

According to Reuters, Venezuela might press the court for a third bidding round if offers do not approach US$10 billion.

After Gold Reserve was awarded US$740 million in 2014 for Brisas by an international arbitration panel, it came to a settlement agreement with Venezuela in 2016. The government paid about US$250 million, but Gold Reserve is still owed more than US$900 million (including interest.) The parties formed a joint venture to develop the Siembra Minera project. but Gold Reserve’s mining rights were revoked in 2022. Its claim against Venezuela was cleared by the court for repayment from the auction’s proceeds.

The company’s private placement will be priced at US$4.10 per share.

Shares of Gold Reserve ended the day up 2.3% at $6.14 apiece for a market capitalization of $610 million. The stock has gained 65% this year so far.