Venezuela’s ‘Gold Dream’ May Get Fettered Over Conclusion of Other ICSID Proceedings

Venezuela has announced late Wednesday planning to move fast signing a new mining joint venture for $5 billion with Washington based Canadian Gold Reserves Inc. Nelson Merentes, President of the Venezuelan central bank expects to initiate extracting the precious metal within six months.

Under the venture agreement, the government will enjoy a 55% to 60% stake while Gold Reserves and partners will control 40% to 45%. The Gold Reserves partners are from US, Germany and Canada and the consortium is expected to incorporate within a month, reports Bloomberg quoting Merentes while covering his interview on Friday.

Gold Reserve has claimed $750 million including interest for the expropriation of its assets during Hugo Chavez rule in 2008. The government has been reported to fight in a number of related cases in the International Center for Settlement of Investment Disputes (ICSID).

ICSID has sought $3.2 billion in restitution with interest against the cases. The government served bon requires paying arbitrated awards of $100 million or more within 30 days to avoid triggering defaults, reports Barron's.

The joint venture is expected to bring funds of $5 billion which will help shoring up ever declining international currency reserves with the price of oil. The investment and new produce will diversify the country's sources of foreign currency earnings which will enable making payments against international debt, forecasts WN, based on the quotations from central bank President.

The deal includes a $2 billion investment and $2 billion loan, narrates a government statement. The government intends to use the properties as collateral to obtain additional financing instead of a loan commitment, cites another statement from Gold Reserves. Though the exact terms of the deal remain unclear till now, but it is widely assumed that the government may hardly use this asset to generate new liquidity in the near future.

Aside from Gold Reserve, Exxon Mobil case for its Cerro Negro project and Highbury International case may conclude later this year. Several other proceedings are also underway, but are expected to be decided in 2017 or 2018.

Over the counter trades of Gold Reserves shares have been up more than 5% on Wednesday, following the deal. The iShares Latin America 40 exchange-traded fund (ILF) has gone down slightly while Emerging Market's High Yield Bond ETF has gone up 0.2% on Thursday.

As part of arbitration with Gold Reserves against case proceedings in ICSID, Venezuelan government has reached a venturing agreement for $5 billion. The government is depending heavily on this fund to tackle the turmoil related to decaying foreign currency reserve. However, the observers find little opportunity for the government using this fund, since other case proceedings in the ICSID are going to be concluded shortly.