EDITORIAL & OPINION — Venezuela needs to get its act together — Less talk, more action please

Venezuela has broken the hearts of many mining companies and, unless changes are soon made to improve the investment climate in the Latin American nation, Canadian juniors will explore elsewhere, even in their own backyard, rather than risk being burned again.

The main complaint is uncertainty, particularly in the Guyana region, which, in the late 1980s, attracted many junior companies in search of gold and diamonds. Problems quickly arose as to which government agency was responsible for development of the mining industry in that region. Some companies signed agreements with the Mines Ministry, while others entered into agreements with Corporacion Venezoloan Guyana (CVG). Last year, the decree that allowed CVG the right to enter into contracts on gold and diamond projects with third parties was revoked.

But that was only one problem. The government had slapped on restrictions prohibiting companies from selling their gold production on the open market.

Foreign companies also experienced problems with exchange controls and other regulations, which made doing business in the country a challenge.

This month, the Venezuelan Ministry of Mines and Geology released a paper entitled Perspectives for Investment, which contains a brief outlook on the country’s mining policy. Unfortunately, the package wrapping is better than the content, for it contains precious little to convince investors that doing

business in the country will be any easier in the future than in the past.

On a positive note, the government says it is taking “firm steps” to convert CVG contracts into concessions. It also notes that the gold export allowance has been increased to 85% from 60%, and that “we expect that shortly a 100% gold export will be feasible.” Investors are reminded that exchange controls were lifted in early 1996, which, the government claims, brought about a modest increase in gold production that year.

The report also states that, after a period of intense review, the sales tax exoneration has been approved by government authorities and the executive cabinet, which also is good news for mining companies.

Unfortunately, the new mining code introduced to congress some time ago has not yet been adopted. The government says the code was the subject of intense review and it hopes the process for approval is now in the final stretch. But it appears the government is feeling pressure from environmental groups concerned about the impact of mining on the rain forest “and the indiscriminate use of mercury, cyanide or inadequate mining techniques not acceptable by society.”

Delaying passage of a modern mining code will do more to alleviate these problems than anything else, for it is in the absence of environmentally sound rules and regulations that harmful mining practices are allowed to continue in many parts of Venezuela. And such damage is being caused not by foreign companies but by local and artisanal miners. The Mines Ministry has pledged, however, to help play a role in introducing sensible rules on land use in the country.

The ministry ends its review on an optimistic note: “Our mission is to create an attractive environment for the mining industry, competitive with the rest of Latin America and the world.”

Unfortunately, Venezuela has fallen woefully short of that goal. It has been slow in bringing about a positive investment climate and has fallen far behind Chile, Peru and even Boliva as a place to invest and do business. We will wait and see if this latest effort bears fruit, but, with opportunities opening up all over the world, we doubt that mining companies will be attracted.