Venezuelan government to pay Gold Reserve $770M
Settlement also includes US$240M for company’s technical mining data
TORONTO On the surface, Gold Reserve Inc.’s US$770-million arbitration settlement with the government of Venezuela appears to be a huge win for the Torontolisted company.
But there is an important caveat: Venezuela has to raise the money and pay it out, even as it deals with a massive economic and humanitarian crisis.
Gold Reserve unveiled a firm settlement agreement with the government on Monday, which follows a signing ceremony late last week. Under the terms of the deal, Venezuela agreed to pay US$600 million to the company by the end of October, and an additional US$170 million by the end of December. The socialist government will also buy Gold Reserve’s technical mining data for US$240 million, and the two sides will form a joint venture to develop the Brisas-Cristinas gold project, which is expected to cost US$2.1 billion.
“We want to turn mining into one of the great development motors in the country,” Venezuelan President Nicolas Maduro said on state television, according to a report.
In return, Gold Reserve agreed to drop its US$740-million international arbitration claim against Venezuela. The company won the award in court last year after its Brisas project was expropriated.
Shares of Spokane, Wash.-based Gold Reserve soared as much as 28 per cent on Monday. They closed at $6.72, up 17 per cent, giving the company a market value of $529 million.
“A substantial majority of the net proceeds of the payments related to the award and sale of technical mining data is planned to be distributed to our shareholders,” president Doug Belanger said in a statement.
Venezuela was under pressure to settle with Gold Reserve. International arbitration awards are enforceable under law, and if a government refuses to pay, a company can try to seize state-owned assets located outside the country. Gold Reserve was attempting to seize interest payments on Venezuelan debt last year, which were being routed through Luxembourg.
If Venezuela does not make its payments to Gold Reserve on time, the company can terminate the settlement agreement and try to enforce the arbitration award once again.
“Clearly, there is an element of this (settlement) which is a business transaction,” said Robert Wisner, a partner and international arbitration specialist at McMillan LLP.
“But there is obviously a part of it that was forced upon Venezuela by the fact that Gold Reserve had taken enforcement actions.”
Ultimately, this deal is contingent on Venezuela raising the money and paying out Gold Reserve. Maduro did not indicate how that would happen. Venezuela is undergoing an economic collapse amid weak oil prices, and its people are suffering due to shortages of food and other basic goods. A huge payout to a Canadian mining company could be controversial amid so much misery.