Bloomberg News

Rusoro Mining to Form Gold Venture With Venezuela’s PDVSA

August 30, 2011

(Updates with CEO comment on possible expansion starting in seventh paragraph, earnings report in 10th paragraph.)

Aug. 30 (Bloomberg) -- Rusoro Mining Ltd., the only publicly traded gold miner left in Venezuela, agreed to transfer its assets to a joint venture with a state-owned company after President Hugo Chavez nationalized the industry.

Rusoro, based in Vancouver, will transfer gold assets in Venezuela to the venture with Petroleos de Venezuela SA and own 45 percent of the new company, Chief Executive Officer Andre Agapov said today in a telephone interview. PDVSA, as the Caracas-based state oil company is called, will own the rest.

“Now, finally there is policy clarity,” Agapov said. “We will be compensated, and the formula for compensation will be identical to the way they compensated the petroleum companies in 2006 and 2007. It’s basically book value with some premium.”

Chavez on Aug. 23 said that PDVSA would begin gold mining operations in the country after nationalizing the industry this month. The new venture may be able to increase annual production to 500,000 ounces from 100,000 ounces now within two years of funding, Agapov said. PDVSA will pay its share of capital expenditures in the venture.

Rusoro fell 7 percent to 13 Canadian cents in Toronto trading as of 12:10 p.m. New York time. The stock has plunged 68 percent this year.

Possible Projects

Rusoro officials met with Oil Minister Rafael Ramirez last week in Caracas, and a formal agreement may be reached before year-end, Agapov said. A PDVSA spokesman, who declined to be named citing company policy, said today that negotiations are taking place.

“Minister Ramirez said that there would be possibilities of going jointly into new areas in Venezuela,” Agapov said from London. “They would like to develop some other properties together with us. Once the joint venture is formed, we will have to develop our strategy.”

The new venture will be able to export gold, he said.

Rusoro has two mines in production and 10 exploration projects in Venezuela, according to the company’s website. Rusoro owns and operates the Choco mill facility and has a 95 percent ownership in the Choco 10 mine. The Isidora mine is a joint venture with the Venezuelan government.

Rusoro’s second-quarter production fell 37 percent to 15,975 ounces of finished gold from the year-earlier period, according to an earnings report distributed by Marketwire today. The company posted a net loss of $9.8 million compared with net income of $3.3 million, and revenue dropped 48 percent to $26.6 million from the year ago.

PDVSA will form a compensation panel to be led by Eulogio Del Pino, the company’s vice president of exploration and production, Agapov said.

-- With assistance from Charlie Devereux and Corina Rodriguez Pons in Caracas. Editors: Robin Saponar, Laura Price

To contact the reporter on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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