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Rusoro: They've been good to us all along ... we're very comfortable in Venezuela and the future looks good!"

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VHeadline editor & publisher Roy S. Carson writes: Vancouver-based Rusoro Mining's CEO Andre Agapov has spoken exclusively about his company's "excellent relationship" with the Venezuelan government and the much-heralded concept of a "Socialist" 50/50 joint venture with Venezuela following its June 19 (2008) acquisition of USA-Idaho-based Hecla Mining's Venezuelan assets (including the Block B - Isidora mining leases and the La Camorra mill facility) in southeastern Venezuela.

Speaking in London-England, Agapov said the Hecla deal had been done for US$20 million in cash and $5 million (4,273,504) in Rusoro shares. The transaction secured a second tranche ($52 million) in $80 million forecasting "an exceptional growth profile to target an annual production rate of 220,000 ounces by year's end.

Of Rusoro's "very good relationship with the Venezuelan government," Andre Agapov says: "Yes, that is correct, we arrived in Venezuela in the summer of 2002. We were actually the first Russian investors in any kind of business ... let alone mining ... and we established first contact with the Ministry of Energy & Mines (MEM) -- the predecessor to Basic Industries & Mining (Mibam) -- which covered oil and mining!"
  • "Over the past 6-7 years we've met 6 ministers and in 2004 we met President Chavez who said he actually liked the fact that Russians are involved in the Venezuelan economy and that we were investing in gold mining and another non-metallic business."
Rusoro's non-metallic Venezuelan interests are in the domestic extraction of kaolinite (china clay),which he says is very high quality, and -- interestingly enough -- to be found in a huge quantities between Crystallex' Las Cristinas contract and Gold Reserve's claim of a concession at Las Brisas de Cuyuni in the very much larger mining district of Kilometer 88 in southern Bolivar State. "You'd think it was snow on the ground, surface deposits ... it's a white patch!"

While the company's mining interests are NOT entirely focused on kaolinite, Agapov (pictured left!) and his father (Rusoro chairman Vladimir Agapov) say that it is a particular favorite of President Hugo Chavez, who has mentioned the Russian Agapov family's ties to Venezuela on more than one occasion, recently telling television viewers of the strategic importance of china clay (kaolinite) to Venezuela's economy. Rusoro is scheduled to go into kaolinite production in March 2009 to help supply Venezuela's huge need for construction materials in an ambitious program to build some 350,000 houses per year ... all the more interesting since about 20-25% of any new home requires kaolinite for wall and floor tiles, white paint, sanitary ware and even plates, cups and saucers.

"Venezuela's ceramics and construction industries will benefit most from that mine since they are currently importing china clay from the United States and Colombia, and it is nowhere near the quality of domestic Venezuelan kaolinite which is probably the best in the world ... my father says it is THE best!"

Agapov admits that it was NOT his intention to cause such widespread controversy when he granted an interview to a reporter from Bloomberg at the beginning of last month (November). Somehow, a recounting of Mibam Minister Rodolfo Sanz' expression of interest in Rusoro's participation in the development of the massive Kilometer 88 region was uniquely focused on the continuing saga of Las Cristinas, and cited as a possible "nationalization" of the Venezuelan government's own gold resources, which are subject to a mine operating contract between the state-owned Venezuelan Guayana Corporation (CVG) and the Toronto-based Canadian miner Crystallex International Corporation. The confusion could, possibly, have stemmed from a corporate buy-out offer made to USA-Spokane-based Gold Reserve, which was rejected as per an August 27 press release related to Gold Reserve's claim of a mining concession at Las Brisas del Cuyuni, adjacent to Las Cristinas.
  • Rusoro has seen positive in a buy-out of Las Brisas as part of a general consolidation of assets in a broader Kilometer 88 scenario, including access to the kaolinite deposits situated between the two objects of international controversy.

So the Minister (Sanz) was talking about the whole of the mining sector rather than a specific area like Las Cristinas/Las Brisas? "That is correct! That is correct! Every mining company in the world is closely looking at the situation, especially in Russia, since there are such significant deposits and it is perhaps the last undeveloped gold resource of that magnitude in the world."



"Talking about Las Cristinas and Brisas together, all I can say is that the proper way to do it is NOT to wait for both companies to default on their operations contract or concession. It is more of a corporate transaction; but we are very far away from that and we now at the end of the year and with the world financial crisis it is not so easy for us. We are a company of small size, but some Russian giants or some international giants can afford it."

  • "I have to point out that Rusoro Mining is the first company to have entered into a 50/50 joint venture with Mibam -- Mibam is a 50% participating partner! That's never been done before, so I it is a platform that will be used for further development!"

While it is, of course, rather in line with what President Chavez wants particularly for Venezuela's oil sector, I asked Andre Agapov is he thinks it is a way forward for other companies in the area? "Well, if they wish to ... yeah! We all want to work together with the government. Its not a requirement if you own a concession. You can develop it by yourself."

As regards the possible abrogation of concessions, Andre Agapov says that Venezuela's Mining Law has not been changed or edited since it was first promulgated in the early 1990s so terminology such as "CVG contract" and "Concession" remain different but still exist -- " we have CVG contracts and own Rusoro concessions as do other private and public companies in Bolivar State -- I don't foresee any problems!"

Click on the picture for a larger image
Agapov is very happy with production at the new "socialist" 50/50 joint venture which combines all of Hecla's former assets: the La Camorra concession, the La Camorra mine, Camorra plant and four or five surrounding concessions La Nina 1, 2, 3 and 4, the Carabobo and Isidora contract mines in El Callao's Block B. "It is a fantastic mine, maybe one of very few in the world where the average grade is one ounce per tonne. We're looking forward to 2009 and to grow our production organically within our resources -- we are a small company with greater potential. At the moment next to La Camorra we have adjacent concessions at San Rafael and El Placer which we own 100%. We're developing underground mines and should be finished in the third quarter of 09 to bring us approximately 120,000 ounces in annual production with a grade of half an ounce per tonne. Oh yes, absolutely!"

The sites that are 100% owned are NOT a part of the JV, but I asked Andre Agapov is there was any possibility that they could be included in a joint venture at a later stage?

"No!" he says emphatically. "It was ours from the beginning, so anything in the future that might be included in the joint venture is something we don't know of right now." Even if the Venezuelan government turned round and said that everything must be included in the 50/50 joint venture, Andre Agapov says he is NOT a pessimist and that everything would be 'grand-fathered' into whatever contract or concession they own right now. "So for any future development with us, or with any other companies that operate, or are yet to arrive in Venezuela in a 50/50 joint venture, its an area that belongs to the government right now. Of course areas are repossessed; it often happens when owners of the concessions don't pay their taxes -- I'm sure you know, it is very difficult in Venezuela, some private families own a group of concessions and have NOT paid surface taxes for sometimes eleven years ago, so, of course, like in any country, not just Venezuela, if you forget to pay your taxes for so many years, I think there is probably a case for it to be taken away from you!"

Such concessions, and there are a lot of them that were often awarded illegally as political favors during past presidencies, would probably be rescinded in due process of time. Would Rusoro consider itself to be in line to put in a bid for them as they come up?

"Well, of course, we would have to consider it on a case by case basis depending on the geological value ... we have a lot of concessions already and if it makes sense, and we see some geological value of course we'd be (interested)."

Meanwhile on a political front, Presdient Chavez has recently been making overtures to the Russian State, but isn't there a suspicion that the Agapov "family" as such may indelicately be seen to be part of the Russian oligarchy, also considering that "oligarchy" is such a buzz-word in President Chavez lexicon as a simile for the democratic opposition to his 21st Century Socialism and Bolivarian Revolution?

"No, no ... I think that oligarchy as such, as a term, is overblown and that the oligarchy is more closely defined as a multi-billion $ oil or industry complex where some individuals are still billionaires despite having lost their shirts in the world financial crash ... but the Agapov family was never part of that! We bought a very small business and developed it well and then played our cards right politically so..."

So how would Rusoro define itself within the Russian framework? "I would say we are a run-of-the-mill, medium-sized business and that, unfortunately, as a result of the financial crisis, it has been down-sized by the market ... but we are very optimistic in our gold and china clay businesses."

"Of course, it was a super-high risk when we decided to make a move in Venezuela in 2002, but we were driven by the price of gold, because we were looking at levels between $260 and $270 that particular year ... we all though it was ridiculous that an ounce of gold was being priced at that level and since gold
was poised to run higher and higher year by year, we went to Venezuela with a fantastic team from Russia. I guess we made the right geologically discoveries for Venezuela, as a country, has improved immensely on an annual basis from 2002 when there was the coup attempt. Maybe it was not an easy time in Venezuela. We saw some soldiers and armored vehicles in downtown Caracas and at times it was tough getting fuel for the cars and generators. It wasn't a two or three days thing; it was a week or more and it was a real test start after which it has been improving."

Agapov says he has traveled mostly throughout the south of Venezuela. "I don't go to the oil fields in the Maracaibo area or anything like that, but all of Bolivar State and some of the beautiful parts in Orinoco Delta. I think I must have been to every mine and concession in Bolivar State. I speak a bit of Spanish but, fortunately for me, everyone speaks English very well these days so no one bothers to speak Spanish with us. Even the miners, especially when it comes to grades or depths, you find they speak perfect English everywhere now."

What's Agapov's view of recent dissent from local miners? "Well I think it is somewhat overblown because, again it's on region by region and area by area basis. I know there are a lot of unemployed miners in Kilometer 88 and this has to be addressed ... we're talking about thousands ... I don't think anyone knows how many there are ... but all other issues with the small miners are very localized and small-scale ... there are no issues in El Dorado or El Callao ... I know we inherited some when we bought (South African) Gold Fields' assets in El Callao but we dealt with it in the first two months ... it's not rocket science to deal with them."

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Roy S. Carson is veteran foreign correspondent (45+ years in the business) currently editor & publisher of VHeadline Venezuela reporting on news & views from and about Venezuela in South America -- available for interviews -- call Houston (more...)
 
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