All right, so this story is neither unpredictable nor surprising. But it seems ironic. Hugo Chávez, you see, has made a deliberate policy of attracting investment from countries like Russia and China in order to displace the evil companies from the Empire. He would be free from the Empire without losing access to foreign capital and technology. The foreign companies, meanwhile, would get good deals from the Bolivarian Republic, and be protected by diplomatic ties.
How’s that working out? Um, not so great. On September 16, 2011, the government nationalized the gold industry. (The link goes to the text of the decree, for those who are interested in the gory details.) The decree was not, it seems, expected. On April 3rd, the Venezuelan government took over Rusoro, a Russian-owned (and Canadian-listed) gold mining company.
Rusoro says that it’s invested a billion dollars in its operations, and holds title to $3 billion in gold reserves. (In 2010, it had a book value of roughly $590 million.) The market does not agree. At the end of 2010 it was worth only $182 million. Moreover, it had to sell 60% of its output to the Banco Central de Venezuela at an exchange rate of 4.30 bolívares per dollar, at a time when the black market rate was around 8.3.
But Venezuela has gone ahead and nationalized it anyway, for reasons that are beyond me. The company currently has a market cap of $34 million and loses money. The Russian connection meant nothing. So now the owners have put a limit: come to an agreement by June 15th, or go to ICSID. I have no idea what they will get; I will bet it has an NPV above $34 million.
My money is on a settlement. I wish I understood why President Chávez wants to bother, though.