Venezuela: Huge prizes for miners

Mining is always high risk/high return, but never more so than in emerging nations such as Venezuela and the Democratic Republic of Congo, which boast vast, undeveloped mineral deposits that rank with the best in the world, but where political uncertainty has put mining stocks on a huge discount to peers in stable, Western jurisdictions.

In Venezuela, socialist president Hugo Chavez is nationalising sections of the economy and the government has cancelled mining licenses for three large gold concessions in the Imataca Forest, an 8.6m acre reserve rich in gold, diamonds, iron, and bauxite. Companies that own title to the concessions include Rusoro Mining and Canadian miners Gold Reserve and Crystallex International.

Crystallex has appealed against a decision in May to deny it a permit for its Las Cristinas open pit gold mine in Imataca Forest, which could yield an astonishing 17 million ounces of gold. The shares recovered some ground in late August on the news that the Venezuelan environment ministry is satisfied with the modifications put forward to the permit application. The level of renewed optimism is difficult to square, however, with environmental minister Yubiri Ortega's recent speeches condemning open pit mining in the region.

Adjoining Las Cristinas is Gold Reserve's Las Brisas field, whose permit has also been rescinded, and which recently rejected an approach from Rusoro based on two of its shares for every one of Gold Reserve's. Rusoro's Russian management believes a consolidation of its assets and abilities with those of Gold Reserve could potentially foster development of the Las Brisas deposits - an estimated 9.2 million ounces of gold and 1.2 billion pounds of copper.

Rusoro believes its Russian links forge a special relationship with the Venezuelan government. Critical mass also helps, and it already owns the Choco 10 mine, acquired in an equity and cash deal with Gold Fields, which is on track to produce 120,000 ounces in 2008 - a figure that could double in three years, and Idaho-based Hecla Mining's Venezuelan subsidiaries, which are subject to government scrutiny over a labour dispute at the underground Isidora gold mine outside the Imataca Forest.