Venezuela has significant mineral resources including gold reserves rivalling Peru and Brazil and large dormant projects the government seized more than a decade ago as companies and investors size up opportunities after the U.S. toppled President Nicolás Maduro.
But mining projects face severe headwinds in a country with dilapidated infrastructure, pervasive state control and patchy exploration records while world-leading oil reserves are bound to attract more immediate capital from U.S. companies, analysts said.
“Venezuela has considerable reserves of gold, iron ore oxide and coal,” Phillip Mackey, a veteran geologist who was an expert witness in Anglo American’s (LSE: AAL) World Bank arbitration hearing over the Loma nickel mine that the Hugo Chávez regime stopped in 2015, told The Northern Miner on Wednesday.
“Before Loma de Níquel was seized, Anglo American reported nickel ore reserves of 33.1 million tonnes at 1.47% nickel,” Mackey said by phone. “Cobalt is also present at lower levels.”
Most of Venezuela’s mining production, exploration and investment collapsed after Chávez nationalized the industry by expropriating foreign miners such as Crystallex International and Gold Reserve (CVE: GRZ) and refusing to renew Anglo American’s concessions. Mining had accounted for as much as 6% of the country’s total exports in the 1990s, J.P. Morgan says. At that time, Venezuela was a large regional producer of aluminum, gold, cement, bauxite, iron ore and steel.
Offers coming
Gold Reserve’s stock has more than doubled this week to $4.79 apiece in Toronto as the company considers offers on its stalled gold and copper deposits, Brisas and Siembra Minera, Bloomberg News reported on Wednesday. The developer is seeking more than $2 billion in compensation through World Bank tribunal arbitration.
Siembra alone holds 1.18 million measured and indicated tonnes grading 0.7 gram gold per tonne and 0.1% copper for 26.8 million oz. gold and 2.69 million lb. copper, according to a 2018 preliminary economic assessment.
The project, a joint venture between the Venezuelan government and Bermuda-based Gold Reserve, accounts for about 30% of the country’s identified gold reserves, Gracelin Baskaran, head of the critical minerals security program at the Washington, D.C.-based Center for International & Strategic Studies, said in a note this week.
“Asset-level data” of 24 identified gold-bearing mines shows that Venezuela now holds an estimated 75 million oz. of gold, equivalent to roughly 2,343 tons in the ground, Baskaran said. Still, “assessing Venezuela’s mineral endowment is difficult because reliable data are scarce and often conflated,” she added.
U.S. Geological Survey data from last year show Peru has 2,500 tons in reserves and Brazil has 2,400 tons.
Artisanal gold
Only two of the Venezuela’s 24 gold mines that have reserve data are active – while 19 are inactive and three have been temporarily suspended, Baskaran said.
Venezuela’s gold potential is vastly undeveloped. Artisanal operations, many of which are associated with regime-linked groups, dominate current production. Annual gold output ranges between 50 and 70 tonnes, Alicia Garcia-Herrero, chief economist for Asia-Pacific at the French investment bank Natixis, wrote in a LinkedIn post this week.
State ownership plays an outsized role in Venezuelan mining: 11 of the country’s 20 largest mines are held by the state-owned holding company Corporación Venezolana de Guayana.
“These dynamics underscore the extent to which Venezuela’s mining sector is constrained by state dominance and limited participation by credible private investors,” Baskaran wrote.
Crystallex, which owns the huge Las Cristinas gold project expropriated in 2011, won its arbitration claim against the government in 2016. John Ing, CEO of investment firm Maison Placements in Toronto, and who was active in Venezuela in the 1980s, suggested Crystallex could be “the first in line” to benefit from potential changes in the country’s economy.
“[Las Cristinas] is a big potential project,” he told The Northern Miner. “The question is, how much is left after all these years when the army and all these other people have raped and pillaged the deposit?”
Anglo nickel
Anglo American sought $600 million for alleged breaches of the U.K.-Venezuela bilateral investment treaty regarding the Loma de Níquel lateritic nickel mine it had operated it for decades as the country’s only nickel producer.
The World Bank tribunal ruled against the company in 2019. It said the nickel assets reverted to Venezuela by law at the concession’s end and weren’t an unlawful expropriation. Today, it lies dormant like many mining operations the government took over.
Rusoro Mining (CVE: RML), which had the Choco 10 gold mine and part of the Isidora mine before the Chávez government expropriated the assets without compensation, agreed with Venezuela in 2018 on a $1.28-billion settlement. Some $100 million has been paid.
Most of the country’s minerals, which also include zinc and rare earth elements, areconcentrated in the Orinoco Mining Arc, an area covering southern states such as Bolivar and Amazonas that has become a hub for illegal mining. The arc is part of the Guiana Shield which covers most of northeast South America, including neighbouring Guyana and Suriname.
The region surrounding Los Pijiguaos, the country’s sole operating bauxite mine, is estimated to contain up to 6 billion tons of probable bauxite resources, Baskaran said.
“Given the opaque nature of Venezuela’s official and black-market economy, we cannot say for sure what the real prospects are for critical mineral development,” Michael Cembalest, chairman of market and investment strategy for J.P. Morgan Asset & Wealth Management, said in a note this week. “But it’s notable that China, which controls the vast majority of critical mineral mining and processing activities around the world, is active in Venezuela.”
Decade or more
Even though 20 years ago Venezuela was the 12th-largest producer of iron ore and 8th-largest producer of bauxite, the toll of nationalization and neglect on the mining industry means it will take more than a decade for any meaningful change, according to analysis by BMI, a unit of Fitch Solutions.
“We see no upside [from 2026 to 2035] for Venezuela’s mining sector from the removal of Nicolás Maduro,” BMI said this week. “We do not expect these production declines to reverse over our forecast period, given years of underinvestment in mining and rail infrastructure in Venezuela’s mining regions. Gold production is also significantly underdeveloped, with mining in Bolívar and Amazonas often controlled by guerilla groups and criminal gangs.”
Between 2004 and 2024, it estimates annual iron ore output fell to 2 million tonnes from 20 million tonnes, bauxite to 300,000 tonnes from 5 million tonnes, and coal to less than 500,000 tonnes from roughly 6 million tonnes. And Venezuela is similar to countries with abundant oil reserves like Saudi Arabia and Nigeria that have underdeveloped mining sectors, BMI said.
“Ironically, we see Venezuela’s substantial reserves of oil – the world’s largest – as the biggest barrier to investment in new critical mineral projects in the country. In most cases, production of oil is far easier and quicker to achieve than production of minerals; hence it is likely to be prioritized by U.S. companies and by the U.S. government.”
Infrastructure
A significant expansion into strategic minerals would require large-scale mining and refining investment; financing access; a predictable legal and judicial framework as well as transport, energy and port infrastructure, Natixis analysts led by Benito Berber, said in a separate research note this week.
“These enabling conditions are not presently in place, limiting realistic near-term output,” they wrote.
Constraints for Venezuela’s mining sector “today are not geological,” Baskaran added. “They are political risk, sanctions exposure, insecurity in mining regions, weak rule of law, and the absence of enforceable contracts. Until those fundamentals change, serious Western capital will likely remain on the sidelines.”
Mackey agreed the mining sector is very much underdeveloped.
“Because of much uncertainty and other issues it will likely take a long time before investor confidence returns.”
With a filing from Blair McBride.
Be the first to comment on "Venezuelan neglect scars mining potential: analysts"