Venezuela – Gold to the Rescue

Venezuela is planning to move fast with a new mining joint venture announced this week with Spokane, Washington-based Gold Reserve Inc. and will start extracting the precious metal within six months, according to central bank President Nelson Merentes.

The government will have a 55 percent to 60 percent stake in the new venture, while Gold Reserve and partners from the U.S., Germany and Canada will control 40 percent to 45 percent, Merentes said Friday in an interview in his office in Caracas, adding that the consortium will be incorporated within a month.

“The venture involves the largest gold producer in the world and the largest copper producer,” Merentes said, declining to name the companies that will join the project with Gold Reserve. “There are already global banks, investment funds and people with capital who want to invest. This agreement will bring liquidity to help the state meet its commitments.”


The joint venture resolves an arbitration dispute with Gold Reserve and will bring funds totaling $5 billion into the country that will help shore up international reserves that have declined with the price of oil, Merentes said. The investment and new gold production will diversify the country’s sources of foreign currency earnings and allow it to continue making payments on international debt, he added.

“We’re on the way toward getting a $5 billion loan, of which $2 billion will go to develop the project and another $3 billion will go to the central bank or state, depending on what the investor is most comfortable with,” Merentes said. “If we get more, it would even be better.

The amount that goes directly to the government will be repaid from its share of production from the project, he said. 

A World Bank arbitration court ruled in 2014 that Venezuela must pay $740 million to Gold Reserve for taking over its Brisas gold and copper project in 2008. Gold Reserve said it acquired and began developing the Brisas mine, which it considers one of the world’s largest undeveloped gold and copper deposits, in 1992, according to its website.

No Default

Venezuela is seeking to develop sectors beyond petroleum as it endures its deepest recession in a decade after oil prices slumped amid a global supply glut. Seeking to increase government revenues, Maduro last week raised gasoline prices for the first time in almost two decades and devalued the nation’s currency to get more bolivars for its petrodollars.

The country will continue to make debt payments and will not default, Merentes said. The country is buying back debt in market operations when it can, he added.

Venezuela’s international reserves fell $1.5 billion to $13.5 billion on Feb. 25, the lowest level since March, 2003, as the country paid back bonds that matured Friday. The country’s bonds rallied as the payment bolstered investor confidence and as oil, the country’s main export, headed for its biggest weekly increase since August.

“Venezuela always has paid its debt, and we won’t stop doing so,” Merentes said. “It’s always a good move to buy back debt when the price is low and we do so when we can.”

Trade Minister Jesus Faria said this week that the government will honor all of its obligations this year, yet swaps traders see a 63 percent chance that the country will default sometime over the next year, the highest rate in the world.

While the country shipped $1.3 billion of gold to Switzerland in January, most of the country’s reserves of the precious metal remain in Venezuela, Merentes said, adding the the movements were a normal part of liquidity management.

Merentes declined to comment on reports that Venezuela had asked China to modify repayment terms for loans it has from the country and deferred questions on the matter to state oil company Petroleos de Venezuela SA.

Currency Market

The central bank is finishing up regulations for a revamped alternative currency market known as Simadi and expects to make announcements next week, Merentes said.

“It will start around the rate where it is right now and then float,” Merentes said. “When it floats, it will float. Last year, Simadi did not float, but this time it will truly float. The conditions for the new system are different. The central bank may intervene from time to time, but we hope that it’s private actors who will act with a greater force.”

Maduro announced the changes to the currency market last week when he devalued the official rate to 10 bolivars per dollar from 6.3 and scrapped an intermediate rate that traded around 13 bolivars per dollar. The Simadi market last sold dollars for about 205 bolivars, according to the central bank.


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