A lot of good people lost a lot of money as the late President of Venezuela played games with the international mining companies he had encouraged to invest in Venezuelan gold mining.
As the writer Gabriel Garcia Marquez said years ago after meeting the charismatic Chávez, who had risen from paratrooper to president, Garcia Marquez didn't know if he had just spoken to a visionary capable of saving Latin America or a dreamer who would turn into a typical Latin American despot.
Chávez will be remembered for completely changing the face of Venezuela and much of Latin America. His passing definitely marks the end of an era.
When he was first elected president in December 1998, he represented an alternative to Venezuela's corrupt elite and to the two parties who had alternated power for years.
As Germany's Spiegel news organization noted, "He rewrote the constitution, disempowered the old parliament and replaced it with a new one, and concentrated power in his own hands. He handed top political positions to his closest confidents."
"Perhaps most important, he secured control of the country's most valuable treasure: oil. With Venezuela being one of the world's largest producers of crude, oil income was to be a significant element of Chávez's power, and he didn't shy away from nationalizing parts of the industry," wrote Spiegel reporter Klaus Enringfield.
Chávez seized thousands of assets in nationalizations, including energy, telecommunications, banks and agriculture. He also nationalized parts of the mining industry, leaving a legacy of mining companies teetering on bankruptcy and a large group of investors who lost millions.
However, Chávez was the first modern Venezuelan president, who redirected a large share of oil revenues—fueled by high oil prices--into generous social and education programs that benefited the country's lower class. He was able to reduce poverty from half the country's population to less than one-third.
Chávez also paved the way for Evo Morales in Bolivia and Rafael Correa in Ecuador to win their presidencies. He forged closed ties with Fidel Castro in Cuba, Vladimir Putin in Russia, Robert Mugabe in Zimbabwe, Libya's Muammar Qaddafi, Iran and China.
MINING'S TURBULENT HISTORY WITH CHAVEZ
Placer Dome walked away from the Las Cristinas gold project, which it had put on hold in 1998, partly out of a fear that the Chávez Administration might never allow the lucrative project to be developed by a foreign company. The Chávez Administration had a strong interest in the Kilometer 88 Mining District in Southern Venezuela in which Las Cristinas was located.
Ironically, an old legend that said the mine had been cursed wasn't that far off the mark as Canadian gold miner Crystallex would subsequently find out as it tried to resurrect Las Cristinas. However, this time, the curse turned out to be the Venezuelan government and the Chávez Administration, which dragged Crystallex through years of red tape and delays, and then seized the property.
Idaho's Hecla Mining got as far as being able to operate and produce gold from the La Camorra unit for nine years before the company threw in the towel and sold the mine at a fire-sale price of $25 million in cash and stock to Russian-Canadian junior Rusoro Mining in 2008.
By 2009 Venezuela's Finance Ministry required that 70% of the gold mined in Venezuela must be sold domestically and 60% of that must be offered first to the Central Bank, while the remaining 30% could be exported. Nevertheless, Rusoro hung in there and continued to operate La Camorra.
Perhaps the title for the scrappiest, never-say-die Venezuelan gold mining contender was Spokane, Washington-based Gold Reserve, which hung on to its Las Brisas Project for years until the government came and literally seized the operation in 2009.
By 2011, even Rusoro found the going tough in Venezuela as Chávez signed a degree to nationalize the exploitation of gold and relative activities. Basically, the Chávez Administration mandated the creation of joint ventures with state-owned majority control for the exploration and exploitation of gold.
By September 2011, Rusoro, the sole private miner left mining gold in Venezuela, found its assets had been expropriated by Chávez's nationalization decree. Rusoro would join Crystallex and Gold Reserve in the World Bank's International Centre for Settlement of Investment Disputes (ICSID). The three companies are demanding several billions of dollars in compensation from the Venezuelan government.
The bad news for international miners is that Chávez has left a "legacy of economic disarray" as the Financial Times puts it. "Amid mounting institutional disarray, doing business with its increasingly disorganized and cash-starved government will present a challenge for foreign oil majors," and, presumably, mining companies.
"Opportunity lurks, but so does the peril of operating in a country battered by years of aggressive misrule," said the FT. For instance, Venezuela is home to the world's largest proven oil reserves estimated at 296.5 billion barrels.
New expectations are anticipated within 30 days with pundits assuming Chávez's hand-picked successor Vice President Nicolas Maduro will beat probable challenger Henrique Radonski, the governor who lost to Chávez last year by 11% in the presidential race.
"While affable, Mr. Maduro is a yes-man lacking in political weight," a former Latin American foreign minister told The Economist.
With a deficit estimated at 17% of output, Venezuela's economy is still in bad shape, despite record oil prices.
Maduro also recently seized Pepsi-Cola warehouses in Venezuela, accusing the private sector of "hoarding and speculating," resulting in shortages.
The wild card for mining would be if the opposition actually managed to win the presidential election, which could finally bring about a change in resource policy in Venezuela.
In an interview with the Globe and Mail, the CEO of Eagle Mountain Gold Corp noted Venezuela has huge potential. However, Peter Leon, head of the African mining and projects practice at Johannesburg's Webber Wentzel, suggests Chávez's death "may well mean a much less nationalistic approach to the resources governance in the Andean region."
The Economist suggests, "The bigger question in the months ahead will be how much will survive of Mr. Chávez's 'Bolivarian revolution'…His reluctance to surrender power despite his illness underlined how personal his regime was."
"Death cut short [Chávez's] oft-stated intention to rule his country until 2030," said The Economist. "And it means he will not be around to face the reckoning after 14 years of a corrupt, oil-fuelled autocracy."