China to Finance the Development of a Major Venezuelan Gold Mine

on Oct 5, 2012
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China and Venezuela have signed an agreement to jointly develop one of the world’s largest gold mines – Las Cristinas. Venezuelan officials and the state-run China International Trust & Investment Corp (Citic Group) announced their plans to exploit the copper and gold deposits in the mine, which is located in the Bolivar state of the Latin American country.

The agreement is supposed to cover construction, engineering and processing of the metals but financial specifics have not been disclosed. According to Crystallex International, Las Christinas is a low-grade site that has been eyed by a number of corporations but has remained undeveloped up to now. The mine holds proven and probable reserves of 464 million tonnes grading 1.13 grams per tonne, which is the equivalent of around 17 million ounces of gold.

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According to President Hugo Chavez, Las Christinas is “one of the biggest reservoirs of gold that exists — not only in Venezuela, not only in Latin America, but in the world” and its development would benefit both the Chinese corporation and also local Venezuelan communities. The deal was announced after a meeting between the president and Chinese officials at the presidential palace.

!m[](/uploads/story/527/thumbs/pic1_inline.png)Las Christinas has been the subject of controversy as a number of companies claimed that they have been exploited by the Venezuelan government and then denied permits to develop the mine.
Back in 2002, Toronto-based Chrystellex signed a Mine Operating Contract (MOC) and made significant investments in preparatory work for developing the site. By 2007 the company’s Environmental Impact Study was already approved and the Venezuelan government said it would issue the required environmental permit after certain fees and a Construction Compliance Guarantee Bond were paid. Chrystellex claims to have made all those payments but the government went back on its word, denied the permit and rescinded the MOC. One year ago Chrystallex appealed to a World Bank arbitration body, claiming it was due $3.8 billion in compensation.

China’s money going into Venezuela has provided a crucial boost for Chavez, who is running for a third term against the opposition coalition candidate Henrique Capriles. According to Bloomberg, China has lent the Latin American country a total of $42.5 billion (£26 billion), backed by revenue from Venezuelan crude. Using these Chinese loans, the government has built more than 250,000 houses since last year and has increased its spending by 30 percent, pushing growth to 5.4 percent in the second quarter. Venezuelan loans from China are paid with oil – currently servicing the debt takes up 200,000 of the 640,000 barrels a day, which the government sends China. The interest rate is only 6 percent – half of what other international bondholders in the capital market require.

Beijing’s interests are spread across Venezuela – the abovementioned Chinese state-owned Citic is involved in a number of other projects apart from the Las Christinas mine. The Chinese conglomerate has built 5,360 housing units outside the Barinas state capital and is currently in talks with Petróleos de Venezuela (PDVSA) to join in the Petropiar Chevron-PDVSA joint venture meant to develop the Orinoco Belt.

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