Venezuela Looms Large in Gold Reserve's Slide

by: FP Trading Desk November 28, 2008 | about stocks: GRZ    

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Like its neighbour in Bolivar State of southwest Venezuela, Crystallex International Corp. (KRY), Gold Reserve Inc. (GRZ) has seen its share price get punished by the uncertainty surrounding mining projects in that country and the possibility that Hugo Chavez’s government will take over their deposits.

Gold Reserve recently reported its third quarter results and completed the sale of some of its mining equipment but gave no update on Brisas. There has been no change to its status in the past five months and the Venezuelan government has not responded to the company’s request to review the decision to revoke mining permits, notes Michael Curran at RBC Capital Markets. Nor has the government moved to officially expropriate the concessions. So no news likely isn’t good news, the analyst said in a research note.

Gold Reserve did have C$64-million in cash at the end of September and sold some mining equipment for another C$19-million. While essentially getting rid of one of its two processing lines planned for Brisas, the company still has more unused mining equipment that could be used or sold in the future, Mr. Curran said.

He thinks it is highly likely that the government will try to take control of the project and Gold Reserve will be forced to seek a legal remedy. This may take several quarters, if not years, the analyst predicted, and once the legal process begins, Gold Reserve could seek to buy another exploration or development project as it seeks to restore shareholder value. Obviously, this won’t be in Venezuela.

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This article has 6 comments:

  •  
    Nov 28 10:14 AM
    Isn't free market globalization wonderful. An American can invest in a Canadian company like Crystallex and have a Venezuelan tinhorn dictator like Chavez unilaterally cancel leases and legal agreements thereby bankrupting the company and killing shareholder value.



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  •  
    Nov 28 02:04 PM
    cmon-its your money & you know the risks of russia,china,india,sou... america,etc.its hard enough domestically why get involved off shore? somebody smarter than i should figure out how much russia defaulted since ww1 & transpose into current $s.
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  •  
    Nov 28 04:12 PM
    It is unfortunate Venezuala has such poor leadership. Confiscation of property without adequate compensation always ends badly: for the property owners, the government and especially the people.
    Reply | Link to Comment
  •  
    Nov 28 05:23 PM
    Despite the lack of information from Venezuela, Gold Reserve unlike many other juniors is quite well cashed up and has a 35k tpd mill and process machinery ready for delivery next year.

    Venezuela may be able to block Brisas but they can't confiscate the cash and equipment even though the market prices GRZ as if they already have.. GRZ has approx. 56 million shares issued so that gives it well over $1 a share in cash without considering the value of the equipment, but it trades at 35 cents?
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  •  
    Nov 29 07:46 PM
    I see two options for Gold Reserve;

    1. Lets 'purchase' an international lawsuit that takes many years without ever getting the 20-year lease licences back, as the property of the leases is definately owned by Venezuela. You just won't win it. Amazone environment issues, deforestation etc. Period.

    2. Looking at shareholder value and amortization of equipment they continue to look further for assets and opportunities, leaving Venezuela for what it is. Thereby selling their equipment to Rusoro Mining, who happens to be in need of expansion, 'ping' and is willing to buy it at market value.

    Depending on duration of the legal remedy, it could take none or years of conflicting interest and amortization of assets in the books. Eventually Rusoro Mining, connected with the Agapov family from Russia, will takeover the La Christanas deposit as its already Venezuela's 'preferred partner' in the mining industry sharing a 50/50 producing asset formerly owned by Hecla Mining Company...

    Think again, you should be invested in mother Russia if you wan't shareholder value in the long term. Too bad people aren't willing to invest into the 'other side', as they say.
    Venezuela is very open to foreign investments, as long as its doesn't conflict with the socialist expenditure programmes in times of the largest recession of all times...depression-lik... almost.

    brgds,
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  •  
    Nov 30 09:03 PM
    After the debacle with Russia basically confiscating the Dukat property from Pan American Silver, I would not touch that country with a ten foot pole. As for Gold Reserve, I have gotten the impression that the company has bent over backward to get production going in Las Brisas, and for its efforts been given a most un-business-like run-around from that country's Byzantine bureaucracy- they think maybe they will reward their great Russian buddies for helping arm them, but they are fools. President Chavez has achieved the dubious distinction of killing the golden goose before it got to lay its first egg.
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