The Chilean revolution: What it’s not, what it is, what it means for your copper

As Chile plunges into its first general strike in eight years, outside observers can be excused if they are a bit surprised. Chile is supposed to be the stodgy, conservative, institutionality-respecting corner of South America, where nothing ever happens. But this is changing as the public runs out of patience after centuries of being told that if they wait and work hard, someday their children will be better off than they are.

With that said about what is happening, let me tell you what’s not happening, a bit of what is happening, and a bit about why this may pose a long-term risk to copper supply:

About that gold

In my prior post on Venezuelan gold, I should have included a couple links that are probably worth posting here rather than making an update:

Caracas Chronicles put up a clever post about the many arbitration cases that Venezuela is facing. Companies say the suits are a result of the Chavez administration’s inconsistency on gold mining policy, while the most charitable interpretation is that they are the result of a series of unserious gold (and copper) miners getting their hands on Venezuelan concessions. This probably isn’t the place for the debate, but anyway, go read their post. It’s good.

Rusoro says more or less what they told me, but this time telling people with the good taste to avoid such disreputable corners of the internet.

Devil’s Excrement also touches on gold, but in this case is looking at repatriation, rather than nationalization.

The folks at BBO, an investment bank in Caracas, published an analysis of Venezuela’s foreign reserves this week that focuses particularly on gold holdings. Very nice timing! It can’t be downloaded, but if you really want a copy, contact moctavio@bbo.com.

But the real news comes, as usual, from the Chiguire. If you don’t speak Spanish, this is a very good reason to learn.

One last little note. Chavez’s government normally offers book value for expropriated assets. This usually works out well for the Bolivarians because most companies take maximum advantage of depreciation in order to dodge taxes. You have to be financially sophisticated to find the book value Rusoro carries…but let’s just say shareholders wouldn’t be sobbing.

Rusoro says no worries as Venezuela moves against gold miners

Venezuela’s only private-sector gold miner says it has nothing to worry about after President Hugo Chavez says he will nationalize the gold mining sector.

It’s “not a concern for us at all,” Andre Agapov, president and CEO of Rusoro Mining, said late yesterday in a phone interview. “This is all to do with illegal mining activities, nothing else.”

Rusoro shares fell 2 cents, or 17 percent, to 13 cents a share on triple average volume yesterday after Chavez said he would nationalize gold mines. The shares have fallen by two-thirds this year.

As Noticias 24 captured in its tape of state television (my translation, starting at 0:24 in the tape):

“There, south of the Orinoco, is one of the biggest gold reserves in the world. And I inform you that a decree law will be approved. A decree law for what? To begin to take over the gold zone there. I’m counting on you. Because it remains anarchic. Mafias, contraband, et cetera. It’s a great fortune. One of the biggest in the world. Gold, precious stones, coltan, diamonds, bauxite, iron — it’s the mining arc of Guayana. Here I already have the law, to reserve to the state all activities of exploration and exploitation of gold, and all connected activities.

PDVSA Pension Ponzi: Reuters gets you up to speed

Decent story giving the overall story of the PDVSA Pension Ponzi on Reuters today. Nothing much new in there except that PDVSA retirees are marching against the company. But not a bad way to get up to speed if, like a sane person, you haven’t been hanging on every word at this blog for the past seven months.

Retired workers from the oil behemoth have taken to the streets in protest. Their beef: nearly half a billion dollars of pension fund money was lost after it was invested in what turned out to be a Madoff-style Ponzi scheme run by a U.S. financial advisor who was closely linked to President Hugo Chavez’s government.

The fraud case centers on Francisco Illarramendi, a Connecticut hedge fund manager with joint U.S.-Venezuelan citizenship who used to work as a U.S.-based advisor to PDVSA and the Finance Ministry.

Several top executives at PDVSA have been axed since the scandal, which one former director of the company said proved Venezuela under Chavez had become “a moral cesspool.”

You get the idea. Check it out if you’re a bit lost on this whole Caso Illarramendi.

Market failure

So long as we’re on agriculture (or at least, the Brazilian is), I thought I’d post this image from an organic sheep farm in Chile:

Harvested organic wool in the Santiago Metropolitan Region, Chile.

This is a pile of wool on its way to be composted into soil mulch. The farmer sheared the sheep, but the price for raw wool in Chile is so low that it’s not worth it to haul the fiber to market. That despite international prices for finished Chilean wool yarn of around USD$20 a pound.

If you want to start a company cleaning, carding and spinning wool in Chile, there may be money to be made in the gap between cost & price.

Ag notes from the boomtown

Holy cow, Quasecarioca is a good writer. And for those many of you obsessed with Venezuela, please note that today’s post does in fact touch on the Bolivarian Republic. It’s all about land reform. It’s pretty amazing that while gringos have increasingly taken Wendell Berry and Michael Pollan to heart and are either buying little plots or converting their urban land into chicken coops and herb gardens, here in Latin America you really do hear ever fewer cries for land redistribution — at least of the old fashioned sort that would move city dwellers out to the country. As Quasecarioca says:

Latin American governments have for fifty years tried and largely failed to carry out land reform that relieve rural poverty. Brazil, which has more land to distribute than any other Latin American nation, is no longer trying…

…the underlying assumption of an Arbenz style land reform — that subsistence farming is appealing to a broad segment of the population – is much less true now than in 1954. It’s hard to assume that rural residents today would be willing to live the way their grandparents did, and hard to begrudge them for expecting running water, electricity, cell phones and internet.

That said, it doesn’t answer what to do in places like Brazil or Chile where there are many rural peasants who know nothing but farming, and who could really do with a plot of land to call their own. Maybe we don’t need baby greens in Mato Grosso, but there wouldn’t be any harm in government seeding some new industries in easily shipped organic goods like carrots, apples and wool. (Or up there in the tropics, fruit concentrates and cocoa.) A bit of help with land rights, organic certification and training could indeed create some sustainable industries.

Anyway, go read Quasecarioca’s latest article and get yourself some learning.

I’m not dead yet

Just busy. Weirdness in Venezuela & Chile = plenty of paid work for me, and less time for the website. My bedtime reading has been the PDVSA annual report. The local press and wires have picked up on most of the newsworthy items in there, but I’ll have my take on it soon. For now, go enjoy your summer (in the Northern Hemisphere) or your winter that feels like summer (here in the south).

Something worth reading!

Cuasecarioca is blogging. This person, who is remaining anonymous, is really smart, really informed, and really sharp with the analysis. I was honored to have a couple guest posts from this character this year, and I highly recommend that you read the new Lungs of the Earth blerg, put it in your RSS, subscribe to its Tweets, or do whatever it takes to read these crumbs of information and wisdom about Brazil, the environment, and sustainability. Today’s piece starts:

The frontier of the deforestation on the southeastern end of Brazil’s Amazon is steadily moving north, but the usual suspects – ranchers and farmers – are nowhere to be found. The big drivers here pig iron producers – a crowd you might not think about much, but are a key part of the vehicles and electrical appliances in our lives. In a complex global economy, understanding the environmental impact of our decisions involves digging further and further back into the supply chain and asking a lot of questions that don’t come up in day-to-day conversation.

Like for starters: What the hell is pig iron? And what on God’s green earth does it have to do with trees?

Go read.

Venezuela wins an arbitration case, PDVSA says

Venezuela beat Brandes Partners arbitration suit at the World Bank’s International Centre for the Settlement of Investment Disputes, state oil company PDVSA said in an e-mailed statement.

All we get from the statement is that Brandes got rejected by the the ICSID on jurisdiction grounds. Brandes owned shares of telecommunications company CANTV, which was nationalized in 2007. The statment also says the arbitration is now over, with Venezuela victorious. This has no immediate effect on the other bunch of mining and energy arbitrations that Venezuela is facing, but it shows that the international treaties aren’t guarantees for investors facing takeovers, either.

In related news, Italian oil company Eni recently renegotiated terms for a couple natural gas projects, Bloomberg reported. I got the article for you today, and am sharing it here. What makes this interesting is Eni moved its agreement from a Dutch subsidiary to a UK one. Probably no coincidence that the bilateral investment protection treaty with Holland is about to expire, while the treaty with the UK remains in force. (Also interesting that PDVSA eased terms of the contract in exchange for a bit of cash.)

The text of the Bloomberg story and today’s e-mailed statement are below the jump.