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.

(Reuters has the full meaty story.)

“There’s nothing to nationalize at Rusoro because we just own the concessions and in any case it’s a property of the Venezuelan government,” Agapov said from his mobile phone. He said he and his father had been in touch with the mining minister in the past two weeks to request easier sales terms for the company’s gold output, in order to maintain and increase employment at its properties in Bolivar state, southern Venezuela. The minister was “very receptive,” Agapov said.

Chavez is actually targeting illegal miners, he said. “In the aggregate they produce more than Rusoro and the state mining company together. It’s a huge loss of revenue. Nobody controls it. Nobody has a clue where they sell the gold.” He said the government would like to capture some of that revenue, particularly the gold illegally mined at the site of the Las Cristinas and Brisas property, one of the world’s biggest proved, undeveloped gold deposits.

Improving results?

Rusoro fell to a loss of $1.4 million in the first quarter, down from a $1.2 million profit a year earlier, according to financial statements filed with regulators June 29. Cost per ounce of gold produced more than doubled to $1,294 an ounce from $587 a year earler. The cost per ounce was $2 higher than the realized gold price per ounce.

The company’s results will improve in the current quarter because of rising production and falling costs, Agapov said.

The company’s management discussion and analysis for that quarter also said that Rusoro did business with companies where Agapov was an officer and fellow Rusoro board member Jay Kaplowitz was a board member. This company or companies had billed Rusoro for a total of $264,000 for geological services, machinery rental, rent on Caracas office space, and legal fees (the whole section is pasted below). I asked whether he and Kaplowitz were trying to get more money out of Rusoro.

Agapov said he and Kaplowitz didn’t own a company that provided geological services, machinery rental or Caracas office space. He said he didn’t know why I was bringing up the question.

Taking advantage of having Agapov on the phone, I asked about another item in the company’s first-quarter financials:

During June 2010, the Company entered transactions in the normal course of operations that were not in compliance with certain Venezuelan laws and regulations. As a result of this non-compliance, the Company may be subject to fines to a maximum of $19.6 million and/or denial of the Company’s ability to generate revenues. No amount has been accrued in the interim financial statements in connection with this matter since the outcome cannot be determined at this time.

“I’m not concerned about that at all,” Agapov said, referring further questions to the company’s chief financial officer.

The company’s new underground mine at San Rafael Placer is nearing production and the mill is ready for any mine output, Agapov said.

As promised, the related-party transactions part of the filings:

11. RELATED PARTY TRANSACTIONS
The balances and transactions discussed below are expressed in thousands of US dollars:

— Included in amounts capitalized in mineral properties is $18 related to the provision of technical and geological services and machinery rental from a company of which Andre Agapov, a director/officer of the Company, and Jay Kaplowitz, a director of the Company, are an officer and a director, respectively.

— Included in accounts payable and accrued liabilities is $321 related to amounts due to a company which Andre Agapov, a director/officer of the Company and Jay Kaplowitz, a director of the Company, are an officer and director, respectively, and to a law firm, which Jay Kaplowitz, a director of the Company, is a partner. These amounts are unsecured, due on demand and non-interest bearing.

— Included in mining operating expenses is $60 related to machinery rental from a company of which Andre Agapov, a director/officer of the Company, and Jay Kaplowitz, a director of the Company, are an officer and a director, respectively.

— Included in general and administrative expenses is $27 related to the rental of the Caracas office from a company that Andre Agapov, a director/officer of the Company, and Jay Kaplowitz, a director of the Company, are an officer and a director, respectively.

— Included in general and administrative expenses are professional fees of $137, related to legal services rendered in connection with the expansion of production facilities, and $22 related to the provision of other legal matters, paid to a law firm, of which, Jay Kaplowitz, a director of the Company, is a partner.

Related party transactions are recorded at the price agreed to between the parties.

10 thoughts on “Rusoro says no worries as Venezuela moves against gold miners

  1. Francisco Toro

    Hmmmm…well, I’m well aware of your policy of immediately banning anyone who asks for more detail about Las Cristinas, and yet:

    What I can’t get a handle on is whether this is whether Chávez’s speech was the beginning of the negotiation or the end of it. I don’t for a second buy this notion that Rusoro really believes this is nothing to do with them. As one of my commenters noted, Rusoro’s been driving a pretty hard bargain on exploitation terms at Las Cristinas – http://www.latinomineria.com/noticias/index_neo_en.php?id=790 (hey, turns out los rusos really también juegan!)

    So there seems to be a pretty testy negotiation at play here over the fine print. Now, when fine-print negotiations start to turn up in headlines – We’re not going to play according to these rules! Fine, then we’re going to Expropriate the whole sector! – it seems a pretty good bet that the private aspect of the talks isn’t going that well.

    Chávez and Agapov are both signalling with these statements – but if you’re not privy to the private aspect of the talks too, how can you begin to interpret what the signals mean?

    Which is why I tend to fall back on the First Law of Las Cristinas:

    ‘It is a truth universally acknowledged that a mining company in possession of a Last Cristinas concession must be in want of an arbitration jackpot.’

  2. Francisco Toro

    Just to note: on closer inspection Agapov’s bravado just doesn’t make any sense in the context of Chávez’s statement. Go back to what Mi Presi actually said:

    Here I already have the law, to reserve to the state all activities of exploration and exploitation of gold, and all connected activities.

    If Agapov thinks that doesn’t apply to Rusoro because they don’t own the gold, just the concessions, I have 70-odd Costa Oriental del Lago oil services companies I’d like to sell him…

  3. Jimmy Humboltd

    Just about every response to a Chavez nationalization announcement begins with “We have not received any notification …” As for how it ends, well, you know how that one shakes out. Te tienen montao en la olla, papa …

  4. sapitosetty Post author

    Yeah, sadly I didn’t have the translation handy when I talked to Agapov. But yes Quico, that is exactly the right analogy. When Chavez says all, it means all. Going to be interesting.

  5. westslope

    If I follow the direction of your argument F. Toro, Rusoro essentially asked to be punished by Chávez by publicly complaining about restrictions on gold exports. It took Chávez less than two months to react. Companies in foreign jurisdictions should thinketh before running at the moutheth.

    Blame Ben Bernanke. He just explicitly informed markets that the Fed would hold the course until mid-2013. Or blame political fiscal grid-lock. Otherwise, one must admire Chávez’s market timing. From a gold bug’s perspective, gold appears more attractive now that is has in quite some time. Then the long-term reality sets in…

    From Reuters:

    “Production at the state-run gold miner plummeted last year and
    the company appealed for a $70 million government bailout.”

    The cost of capital in Venezuela just went up again. Productivity regress is unavoidable.

  6. nathaniel Bostwick

    I believe I spent a couple of weeks at that mine training the operators on the use of JCI underground loaders. It was run by some English firm then, right?

    Nathaniel Bostwick (Nat)

    1. sapitosetty Post author

      Hi Nat, thanks for getting in touch. I am not aware of an English firm ever having control over a Venezuelan underground mine, but it’s possible! I don’t know much about the mines owned entirely by the state gold company, but Rusoro has an underground mine in a joint venture with the state company CVG Minerven, the Isidora mine. That used to be owned by Hecla, of the USA.

  7. .5mt

    Nathaniel, could those accents have been South African? I have a friend, a mechanical engineer who spent some time in the region. Evidently hard-rock types from SA were all over the area.

  8. nathaniel Bostwick

    I think they could have been South African….I’m lousy at accents…
    Minerven was involved…
    I spent 20 years or so training miners in Latin America how to use things.
    Nathaniel.

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