Mining Ventures Rush To Tap South America’s New Frontier

Scouring the vast Amazon wilderness for gold in the late 19th century, cricket-playing British miners and hard-bitten Venezuelan panners missed the mark by only 88 kilometers.

More than a century later, engineers hunched over computer models one recent morning, drawing blueprints for what is to be the largest gold mine in Latin America. The site is 55 miles, or 88 kilometers, south of the town of El Dorado.

“Every day, we will mill 35,000 tons of ore to produce 40 kilos of gold,” predicted Klaus Essig Torkuhl, camp manager for the project, which is owned by Placer Dome Inc. of Vancouver, British Columbia. Wearing boots to navigate through the mud - 10 feet of rain falls here annually - he added, “It would mean investing over $400 million.”

Plans for this huge mine are part of a continentwide surge that is pushing South America past North America to become the world’s largest center for new mining investment.

Inland Northwest companies have been looking south for opportunities since the early 1980s - first to Mexico, then to South America.

Venezuela, slower to attract foreign investment than larger Latin American countries, is the current center of attention.

“This is a new frontier. No one has ever been to some of these places,” H. Brooke Macdonald, Placer Dome’s Venezuela manager, said in Caracas.

It is a frontier that will not be conquered easily. Sometimes called Venezuela’s “wild south,” this thinly populated mix of forest and highland savannah has supported independent gold panners for generations. And small miners, blaming foreign companies for fencing off the most productive areas, have staged protests, sometimes invading mines.

Such disruptions may only slow things down.

“Mining is blossoming throughout Latin America, and Venezuela could be an important mining country because of its coal, nickel, bauxite and gold,” said Rosemary H. Werrett, publisher of the Lagniappe Letter, a business newsletter.

Spokane-based Gold Reserve Corp., among the first U.S. companies to show serious interest in Venezuela, is one of the companies moving ahead despite initial difficulties.

After a long legal battle with the former claimants of the gold property, Gold Reserve is counting on the Brisas gold mine in southeastern Venezuela to be its flagship gold property.

Preliminary drilling results from various areas around the site have been encouraging. The company is moving toward making a decision on when to begin full-scale mining.

Venezuela, spurred by a deep recession, is moving in fits and starts to abandon half a century of nationalism and encourage foreign investment in its vast resources.

But obstacles remain, including a 1945 law that made foreign investment uneconomical and high tax rates on mining companies.

“Venezuela needs a modern mining law,” said Anthony F. Ciali, president of Monarch Resources Ltd. of Princeton, N.J. After spending $100 million in Venezuela since 1988, Monarch in August opened La Camorra, Venezuela’s first private underground mine in 50 years, producing gold at $125 an ounce, roughly one-third of world prices.

Private capital now accounts for 95 percent of new mining investment, but the reception can be rough for foreigners.

“The mines are ours - not the gringos,”’ graffiti painted on walls in El Dorado read in May. That month, itinerant gold miners first invaded a gold exploration site run by Greenwich Resources, a British company, and then production pits operated by Crystallex of Canada. At the Crystallex pits, the invading miners tried to work at night during a tropical rain. Several walls caved in, killing nine men. Mining has been suspended.

Macdonald, referring to the 20,000 independent miners in the region, added: “You can’t pretend these guys aren’t there and hope they will go away. If people can’t mine, they can’t put food on the table.”

The Rev. Damian Moreschi, a Roman Catholic priest in El Dorado, said of a part of southern Venezuela: “In the last two or three years, the whole territory has almost been completely delivered to outside companies. But they create a structure of hunger by not working the concessions. A lot of speculators get concessions so they can play the Vancouver Stock Exchange.”

Foreign and national companies have snapped up 425 concessions since 1991, but exploration dropped sharply after Venezuela imposed foreign-exchange controls last year, causing foreign banks to cut off loans.

And local police commanders have enraged miners by ignoring government-mandated price controls and increasing demands for payoffs. “The incidents could spell the death knell for Venezuela’s hopes to emerge as a major mining power any time soon,” VenEconomy, a business newsletter, warned foreign investors. “The wild south is likely to prove too wild for even the hardiest mining companies.”