Hugo Chavez, president of Venezuela, has announced that the nation will be nationalizing its gold industry. In the statement he said that it was to crack down on illegal mining. Monitored production is at 11 tons a year, with illegal mining contributing a further 10 to 11 tons of gold, according to Chavez.

Over the past several years the country has nationalized three mining operations, and currently has only one foreign run operation, Rusoro, a Russian owned venture. Two of the previous operations were Canadian-owned and the last was American

Venezuela is also repatriating gold reserves that are held in banks in foreign nations such as England, the United States, Canada and Switzerland. 211 of 365 tons, worth $11 billion, of the precious metal had previously been held outside of the country. The reserves will most likely be moved to banks in Brazil, India, China, Russia or South Africa.

The obvious story is that Venezuela is trying to diversify its holdings, as the country gathers 95% of its income from oil production. But this could also be to avoid assets getting frozen when mining operations are nationalized. There are 17 pending cases against Venezuela in the World Bank’s International Centre for Settlement of Investment Disputes, 3 of which involve mining.

This may also negatively affect Venezuela’s sovereign credit rating, based on the political motives that can be construed from the move. The country has accumulated $34 billion in debt in the last 16 months, and it could be that creditors want Venezuela to use the gold to guarantee the loans.

 Print This   Email This