The Legend Of El Dorado, Turned Backwards

March 1, 2016

1621-map-by-Willem-BlaeuOne of the multiple maps pointing to the location of El Dorado

When I was an elementary school student, I always admired how the natives of South America invented and propagated the Legend of El Dorado in order to distract and mislead the Conquistadores. Not only did they succeed, but they did it for centuries, deceiving well learned and well educated men and inducing expeditions from Venezuela to Peru, looking for this mythical place of wealth and riches. The myth was developed so well, that there are many maps like the one above, purporting to indicate where El Dorado was located. Even Humboldt took some time away from his erudite pursuits to look for El Dorado in Guyana, to say nothing of Sir Walter Raleigh.

All of this comes to mind, because the saga of the Las Cristinas mine in Bolívar State, seems to be turning into a sort of Legend of El Dorado, except backwards, as the announcements surrounding the mine seemed oriented more towards dazzling and distracting the natives and expropriating foreigners, than about producing gold.

The story starts from what I understand, in the sixties, when the wife of one of the people that helped Jimmy Angel explore Venezuela’s Guyana region, obtained a mining concession to exploit Las Cristinas. The concession was the subject of numerous lawsuits, until the concession ran out.

From here, the story is clearer, Canada’s Placer Dome, signed an agreement with the Corporación Venezolana de Guayana (CVG) in 1990 or 1991, whereby Placer Dome would exploit the mine and give some percentage of the profits to CVG.

But then Crystallex, another Candian company claimed to have a concession to part of the mine, which stopped the project and later forced Placer Dome to sell rights to the mine for US$50, according to lore, when gold dropped in price to a company named Vanessa Ventures. The Government was not happy and expropriated Las Cristinas, giving it back to CVG.

Then in 2002, the Chávez Government awarded the mine to Crystallex and Vanessa sued the Government at the World’s Bank ICSID arbitration panel in Washington DC. But it was not until 2007 that Crystallex satisfied all of the requirements of the Government, including an Environmental Impact Statement and posting the bond required by CVG. But the Government denied the permit, despite all of the legal authorizations and approvals being present. Crystallex also sued in the World Bank’s ICSID arbitration Court.

In 2011, the Chávez Government nationalized the gold industry, prompting Rusoro, which exploited the El Callao mines and Gold Reserve, which had the rights to the Las Brisas mine to sue the Government at the ICSID.

In 2012, the Chávez Government assigned China’s CITIC to the rights to develop Las Cristinas (So much for reserving it for the Government two years earlier).

Don’t know what type of contracts or agreements were signed with the Chinese, if any.

As far as I know, the only company that produced any important amount of gold in all these years was Rusoro, which reportedly produced close to 100,000 ounces in 2010.

 So, much like the mythical El Dorado, Las Cristinas, El Callao, Las Brisas have all been but a myth, Venezuela has huge gold deposits, but other than illegal miners, and Rusoro for a while, not many ounces have come out it.

You can say that the politicians have turned it into a myth to defend sovereignty, promote the idea that Venezuela is rich and soon we will be even richer. Except that very little has happened.

And a new chapter in the myth was born last week, when, after Gold Reserve had won its suit at the ICSID and any Court in the world that was needed to enforce an award of US$ 740 million plus interest, that the Minister of Mines and President of PDVSA announced an MOU (Memorandum of Understanding, a piece of paper in which we agree to sign a contract, if we agree again later on the details) with Gold Reserve that apparently settles the case.

Or does it? Or did we just see a new El Dorado legend just being born?

Because this week, the Government issued a somewhat confusing MOU with Gold Reserve claiming:

-A joint venture with Gold Reserve (45%) and the Government (55%) will be created.

-The project “implies” and investment of US$ 5 billion in a win-win relationship

-The MOU puts and end to the legal situation at the ICSID.

-The investment in the project includes US$ 2 billion for the exploitation of the mine and US$ 2 billion in loans to the country, as well as the resources to get the company going.

Then the shares of Gold Reserve were suspended from trading, awaiting for the company’s interpretation of the agreement, which came out yesterday, in which the company said:

-They have signed an MOU with Venezuela that contemplates settlement, including payment and resolution, of the arbitral award of the ICSID.

-Venezuela would proceed with payment of the Award including accrued interest and enter transactional (settlement) and mixed company (“joint venture”) agreements, which are expected to be executed in approximately 60 days.

– It is anticipated that Venezuela, with the Company’s assistance, would work to complete the financing to fund the contemplated payments to the Company pursuant to the Award and for its mining data and $2 billion towards the anticipated capital costs of the Brisas-Cristinas Project. Upon payment, the Company will cease all legal activities related to the collection of the Award.

-The Brisas and Cristinas properties, together with the technical data with respect to the Brisas project owned by Gold Reserve, would be transferred to a Venezuelan mixed company, which is expected to be beneficially owned 55% by Venezuela and 45% by Gold Reserve

The differences are clear: First of all, Gold Reserve gets both Las Cristinas and Las Brisas, not just Las Brisas, which was the mine they sued for. Second, “Upon payment, the Company will cease all legal activities” and third, Gold Reserve will provide only “assistance” to obtain the funding. No more, no less.

But many people read all of this like a new El Dorado legend: Venezuela will get a US$ 2 billion loan, we have huge gold reserves, we are going to produce gold like crazy. And Gold Reserve will produce all this.

We shall see, but I doubt it.

A new El Dorado legend is born, but this time aimed at distracting mostly the locals, rather than the invaders…just like El Dorado, but turned backwards.

Note added on March 2nd.: The only way this could receive financing, in the absence of financials and an ongoing concern, is that Gold Reserve will “facilitate” transferring the 45% rights to the Chinese in exchange for US$ 2 billion loan to the Venezuelan Government and/or the project.

19 Responses to “The Legend Of El Dorado, Turned Backwards”

  1. OldSarg Says:

    Stories of last night’s military attacks starting to appear through communication blackout.

  2. m_astera Says:

    There doesn’t appear to be a shred of honesty, competence, or ethics to be found in the Bolivarian government. All they know to do is steal and then lie to try to cover up the theft and incompetence.

    Reminds me of the Barmecide banquet in the Arabian Nights. At some point the beggars will get tired of pretending to eat pretend food.

  3. Roger Says:

    Las Cristanas is quite visible on Google Earth as a brown spot in a sea of green three canopy rain forest. This is just another scam where you can buy a 49% stake in the Bolivarian revolution and get rich less the commisions, bribes, and plus shipping.

  4. Adam S. Says:

    The ongoing obsession with gold is a lot like the story of El Dorado. Several years ago officials from the Ministry of Planning and the CVG told me they were going to issue special bonds with gold reserves (those in the ground, not in a vault) as a guarantee. They seemed a bit crestfallen when I half-jokingly asked how they intended to put the entire Guayana Shield in escrow.

    • moctavio Says:

      I remember that, a reporter told me about it and I asked how could gold that was underground in Venezuela be used as guarantee when so little has ever been produced. I suggested it would be easier to give oil in the ground as guarantee, but that if the oil was in Venezuela nobody would accept it. The reporter was surprised he had been so gullible.

      • Adam S. Says:

        It seems that Rodolfo Sanz, José “Chino” Khan, Nelson Merentes et al. were already fishing around for a deal something like this one a few years ago.

        • Adam S. Says:

          And it’s still a really strange proposition. I can see something like the PdVSA joint ventures of the nineties — where you create a separate legal identity and go out to get financing for the project without having to worry about the state’s creditworthiness — but you’d have to be a bit nuts to think you’d be able to scrape up money for serious balance-of-payments stuff in that way.

  5. Lobo Says:

    There are precedents with the financing programs of the oil sector which has been successful (so far). Company X secures financing for an agreed work program in which the commodity produced is use for equity to pay dividend or cost arrears and loan repayments + interest. If the financials make sense, they can make it work.

    • moctavio Says:

      There is nothing here. First (see comments previous post) all you have is a bunch of illegal miners, there are no financials, nor production, it is really a future project.

      • Lobo Says:

        If the commodity is there they can make it work. We have done this in the Empresa Mixtas. The roadblocks can be overcome if there is actually gold that can be monetized and make profit. There are ALWAYs financials Miguel, and access to SIMADi has significantly reduced investmant cost for foreign partners, if they have access. And illegal miners can be thrown out with help. We have Caminpeg for that right?

        • moctavio Says:

          Cll me a skeptic unless the Chinese get involved….oil is more solid (pun intended) than gold in Venezuela and things are not happening there.

        • The empresas mixtas are a scam. They don’t pay dividends to compensate the lender/foreign shareholder. As far as I can see the scam is perpetuated by company management not fessing up how much money has been trapped and lost.

  6. Dr. Faustus Says:

    Oh my, that was excellent! The chances that a Canadian bank, or a German bank, or even a Chinese bank, and with the consideration of the majority shareholders (!) from such banks, would even consider lending 5 billion was reduced even further when Ramos Allup waved his arms and demanded AN participation in the matter, or the illegalities of the deal would be taken-up by a future new government. Good stuff.

    • pookeye Says:

      i agree, i saw that on twitter, great way to tell anyone who wants to sign an agreement with venezuela to beware, they may default on it.

  7. JB Lenoir Says:

    It gets worse. The word at Central Bank is that a relative of El Chino Khan (another dirtbag red corrupto) was a middleman in this deal. Say it ain’t so “Johnny P.” The Gold Reserve execs who signed the MOU in Caracas were blindsided by Maduro/Del Pino remarks. But gold does bewitch the naive and greedy. Twixt the lines it seems Gold Reserve was sandbagged into wasting 60 days it could have put to better use seizing Venezuelan state assets wherever possible.

  8. JFE Says:

    I don’t understand what Gold Reserve expects to get of this deal. By now everyone should know that the Government is not going to get the financing. So they are getting a paper company without capital in lieu of the US$740 million?.

    The only idea that I have is that they are banking in a long term change of the situation in Venezuela at which point they will still own the rights to the mines and be able to sell them exploit them in better conditions. But that is a very risky gamble full lof uncertainties.

  9. Virginia Says:

    I must be brain dead.. I don’t understand this AT ALL! The US is going to LOAN Venezuela how many BILLIONS of DOLLARS? Impossible..I must have misunderstood all of this gobbldigook! No one in their right mind would LOAN Venezuela one cent.. NOT UNLESS, all political prisoners are released immediately, and every other shady thing that good for nothing government has done and stolen in that country.

    • moctavio Says:

      Not the US, someone will, prompted by a tiny company in Canada, which only wants to collect its award US$ 740 million from Venezuela.

      Very unlikely that given the legal history and problems, anyone will lend them money.

      • pookeye Says:

        did I read this right? gold reserves gets rights to 2 locations for gold? then they will “loan” venezuela 5 or was that 2? billion dollars, but whats really going to happen is, gold reserves (cause they are such a small player) would just transfer those rights to the chinese to get the 2 billion dollar loan to venezuela? just want to make sure i got that right… now the chinese holds more interests in venezuela, im sure thats going to go well with new government when the chavistas eventually get toppled…

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: