Perforce, I had to bring up the subject of allegations that Rusoro's predecessor, Hecla has been accused of mistreating its labor force ... that human rights were being violated.
"I think they applied very strict American rules on mining. I don't know exactly what it means, but they were not flexible to local working environments but I'm not sure about human rights! I'm sure that security did some (strip) searches, but I think they had issues with a local union and they were not flexible. Actually, I don't understand why, because their mining operation is so beautiful ... the grades are fantastic and they should have created jobs instead of firing a lot of people ... it is a better way to find a peace accord, but I know they sliced about a third of the work force in one go, and of course it affected a lot of people in the El Callao area, a lot of families."
Getting back to the concept of 50/50 socialist joint venture ... I asked Andre Agapov if it is more a way to get the cooperation of the local communities to work together with the transnationals, to create employment and to get the economy going?
"Well it's more business. Of course, all those points included, but essentially it is a corporation with two shareholders and the government invests pro rata for their 50% and both parties are committed to take care of the social aspects!"
But what exactly does the Venezuelan government, or Mibam, bring to the table in this respect with your joint venture?
- "They bring the La Camorra concession and the La Camorra mill into the joint venture because they had expired and de facto had been returned to government ownership. Since there was no capital expenditure (Capex) needed -- touch wood -- everything works well. Their (the government's) contribution was to permit the Las Ninas goldfields. We are really looking forward to bringing Las Ninas online since we have very high hopes that Camorra trend goes into Las Ninasm spreads all over Ninas but Nina 4 will be the principal concession and once that permit is done, we as a joint venture we will have gold straight into La Nina 4 ... a fantastic geological result."
- "In this particular case, yes, but let's say if in the future we have already defined resource and it needs Capex to build the mill and develop the mine, and let's say the budget is a hundred $ million or one $ billion ... they (the government) would have to come up with half."
- "Well it's amazing, because last year. or the year before, when we did a road-show for financing or something else, the first thing every hedge fund or investment bank asked our (Rusoro) president, George Salamis, was about was Las Cristinas. Like, I guess, people are so anxious and it's been going on for so many years. I think it will be resolved quite soon ... how it will be resolved is completely up to the (Venezuelan) government, but Bob Fung is a veteran of Venezuelan mining and so is Doug Bellanger. So how it will be worked out, I have no clue. As you know, we tried to buy Gold Reserve in late August but the bid was unsuccessful. They think they'll get the permit themselves! There was, however, a press release recently where they said they might go somewhere else, some other businesses elsewhere, NOT in Venezuela. Crystallex, I don't really know, I don't know their cash position, but they have an operating contract and maybe they will come to terms with the government."
- "Oh, if they were to walk away ... yes, if they surrendered their concession it would become the property of Mibam and then it's up to Mibam what they want to do with it, to do it themselves or make it a joint venture with some company."
- "I think Kilometer 88 is a wait and see situation in general!"
There's a hell of a groupie following to Crystallex which, I think you know, hang on every tiny thread and extrapolate the tiniest detail to make mountains out of molehills. What I want to know is if you are going to make a hostile bid for Cristallex or if you're going to try to force the government into giving Crystallex 'the kick.'
- "Oh no, we're not going to be aggressive or pressing, or asking, government to do anything in our behalf ... this is absolutely clear ... there's no need for that. I think that time will resolve all the issues and in this particular case it will not take ten years. I need to emphasize that I'm NOT part of the management of Gold Reserve and/or Crystallex, I'm just an unrelated third party, so it is my personal opinion ... maybe they're already in talks with someone, how would I know?"
- "Yes, well I don't know how to explain that paradox; but first of all, Doug Bellanger and Bob Fung have been in Venezuela more years, many more years in fact, before we arrived. So I really don't know, I really don't know who handles their communications between Mibam and any other governmental agencies ... it is difficult to explain, honestly, but darn it they've been there for ever. Gold Reserve was incorporated in 1994, 1993, I think ... I'm not sure!"
- "The reason I am mentioning it is because we have a group of concessions of our own in that area. That area is fantastic and it's important to stress that without any acquisitions in Venezuela, and growing the company organically, the potential is incredible. All that El Choco (which we bought from Gold Fields) needs for growth is just a larger mill and we could easily triple production, which the mine allows, and of course San Rafael and El Placer ramps go into production in 2009 and, with the Isidora mine, it will take us to a different level in 2009 ... maybe up to 10,000 ounces more ... so its incredible! Our goal for 2009 is to produce close to 200,000 ounces and in 2011 to produce half a million ounces with projects we can afford."
As regards taxation and commitments of bullion gold sales to the Banco Central de Venezuela (BCV), Agapov says that on a case-by-case basis they should sell 15% of production to the BCV but that, otherwise, Rusoro is selling its gold domestically in Venezuela at spot international prices.
"We have a lot of choices and there are a lot of buyers in local jewelry businesses. We are NOT (yet!) producing a million ounces and, if you produce up to 50,000 ounces a month it is easily sold in El Callao. If you go there now, you'll see how many jewelry shops they are and they can easily consume 50,000 ounces if not more. El Callao has really changed!"
Procurement of heavy machinery? "We had some issues with supplies in August and delays. Capex is obviously required to complete our underground mine next to La Camorra (about $20 million) to get it into production and to triple production at El Choco that's about $85 million!"
Foreign exchange problems? "The fixed foreign exchange rate doesn't really affect us because all our costs, with the exception of two or three items of supplies, are in domestic currency, not to mention the fact that diesel is 1 and a half cents per gallon or something like that! Problems with electricity supplies were fixed ... CVG-Edelca fixed all the problems all the way to El Callao and beyond. It's not a problem any more. The power lines go all the way down to the Brazilian border and Venezuela exports electricity to Northern Brazil from the Guri hydroelectric dam. The last issue we had with electricity was in 2004."
"Cellular phones works right now and they all have international services. Everybody carries a Blackberry, and its a different world from before, so we're absolutely in Venezuela to stay. They've been good to us all along ... and we're very comfortable in Venezuela and the future looks good!"
Roy S. Carson
vheadline@gmail.com
Venezuela is facing the most difficult period of its history with honest reporters crippled by sectarianism on top of rampant corruption within the administration and beyond, aided and abetted by criminal forces in the US and Spanish governments which cannot accept the sovereignty of the Venezuelan people to decide over their own future.
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