COMMENTARY — Growth potential seen in Venezuelan mining sector

In 1993, the international mining investment community committed more than $200 million to Venezuela. Since then, uncertain political and financial circumstances have caused investors to become wary, and the flow of funds has diminished.

Yet despite pessimistic predictions about the macro-economic situation in the country, Yorkton Securities is convinced that significant investment opportunities are still available in Venezuela’s emerging mining sector.

The country’s minister of energy and mines, Dr. Erwin Arrieta, has sent a clear message to the international mining community that despite the perception that investment conditions are somewhat uncertain, his government is committed to creating a secure framework for the development of a strong mining industry over the next decade.

The much-anticipated new Mining Law, although delayed by several months, is almost ready to be introduced. The statute contains several innovative ideas, including the proposed creation of a state mining company, which would be patterned along the lines of the state oil company, Petroleos de Venezuela. This new company would expand the activities of the existing Minerven corporation and serve as the focus for strategic associations with national and international partners interested in the country’s mining sector. The aim is to streamline and improve the ability of international companies to do business in the mining sector.

Dr. Arrieta concedes there has been some confusion over the roles of the Ministry of Energy and Mines and the Corporacion Venezolana de Guyana (CVG) as regards their jurisdiction in the area of mining titles. However, he stressed to international investors that the government has no intention of interfering with valid mining contracts granted by the CVG. These contracts contain certain commitments to perform exploration, and all contracts issued to companies (national or international) that are being upheld under the terms granted will be honored. Only contracts that are not being properly adhered to will be sanctioned.

The new Mining Law is expected to provide for the granting of mining concessions. Current CVG contracts will be honored in order to secure mineral tenure for current investors, and rights will be granted whereby companies can explore for any minerals within one concession. In addition, the law contains procedures for streamlining permitting so that exploration and development can proceed with less obstruction, and concession holders will be able to pledge their land holdings as collateral for project financing.

These proposals have been warmly welcomed by the mining industry, including representatives of Camiven, the Venezuelan mining chamber.

Dr. Arrieta says his ministry is also determined to improve the lot of “small miners” by means of technical and environmental assistance.

Although the mineral industry of Venezuela is in the early stages of development, it is widely known that the country is rich in natural resources.

Significantly, senior government ministers are recognizing that changes are required before this tremendous potential can be fulfilled. Their positive proposals should be acted upon quickly so that the benefits of a strong mining sector can flow more steadily into the Venezuelan economy. The sector has the potential to grow substantially over the next decade, provided the current negative sentiment among investors is turned around by positive government action and by continuing progress in exploration and development by mining companies.

— Anthony Williams is in charge of international operations for Yorkton Securities.