Chavez's Gold Bind

By Brian Ellsworth / Las Claritas

Thousands of miners staged a violent two-week demonstration last September in Las Claritas, Venezuela, close to the Brazilian border. They blocked the border highway, burned trucks and threw rocks and Molotov cocktails at national-guard troops. Their main target was Crystallex, a Toronto-based company that since 2002 is said to have held the legal rights to Las Cristinas--the world's fifth largest gold mine, with 12.5 million oz. of proven reserves.

Another confrontation between a ruthless First World corporation and exploited Third World labor? No, this is the Venezuela of President Hugo Chavez, where any semblance of business as usual is usually unintentional. The miners, who are illegal squatters, were protesting because they say Crystallex is trying to bar them from doing their free-lance work at Las Cristinas--despite the fact that Crystallex has yet to begin operating the mine and, as a result, has failed to create the 1,500 formal, well-paying mining jobs (more than $200 a month, with benefits) that had been promised. Crystallex points out that it can't open the mine--and thereby offer the legitimate jobs--because the company has yet to receive the government permits to operate it.

So in the meantime, the mine continues to be worked by thousands of illegal miners such as Henri Gonzalez. Laboring under a sweltering sun, he blasts a water cannon against clay to loosen any tiny gold-bearing nuggets. He then extracts the gold with mercury, which sticks to gold like glue. "Sometimes I spend 15 days at a time in here without finding anything," he says. Like most of his fellow miners, Gonzalez, 29, typically earns only enough to afford a shack made of zinc sheets and tree branches, set in a seedy mining camp where kids play in mercury-contaminated water.

The miners' demonstration was fueled in large part by Chavez's increasingly popular antiglobalist agenda, which he recently put on display at a protest rally in Mar del Plata, Argentina, against President George W. Bush, who was there to push free trade. In another speech, in September, Chavez warned that in order to "recover the national power and sovereignty of our resources," Venezuela "will not give any more mining concessions to transnationals," and it may even revoke some. The day after that broadside, Crystallex's share price on the Toronto Stock Exchange plummeted 40%, to $1.50. Shares of other firms mining gold in Venezuela, like Idaho-based Hecla, also took hits--especially when Chavez promised to create a competing, state-owned company that would employ the illegal miners. Jonathan Goodman, CEO of Toronto-based mining firm Dundee Precious Metals, told Bloomberg News, "Chavez scares the crap out of me."

Goodman isn't alone. Chavez is determined to curtail U.S. and foreign influence in Latin America. He has panicked already bug-eyed energy markets this year by raising taxes and royalties on Venezuelan oil piped by what he calls scofflaw foreign oil firms, including U.S. giants like ExxonMobil. He's insisting that they convert their drilling contracts into joint ventures that give the government a majority stake.

That new populist bravado, which Chavez has backed up with a multibillion- dollar social-spending program at home, has spread to South American countries like Bolivia, where two Presidents have resigned in less than two years after raucous protests calling for the nationalization of vast, newly discovered natural-gas reserves. Says Amy Myers Jaffe, an analyst at the Baker Institute for Public Policy in Houston: "Chavez has seemingly become a leader who can galvanize antiglobalization agendas anywhere."

Next to Venezuela's gargantuan oil industry, gold once seemed an unlikely target of resource nationalism. But Venezuela possesses about 2.5% of the world's 1 billion oz. of unmined gold reserves, and experts say about half its gold is mined by some 30,000 illegal miners. So as bullion approaches $500 per oz.--and as miners call attention to their squalid lives--gold has become a hot political as well as economic commodity.

Few Venezuelan mines create more heated debate than Las Cristinas. Rights to the mine were a Dickensian legal muddle for most of the 20th century until Chavez granted Crystallex the concession in 2002 for a bargain $15 million. But company executives cannot open Las Cristinas because, among other reasons, the Chavez government has not granted the necessary environmental permits, which, so far, have been mired in bureaucratic review. One problem may be the chronic concern, as government officials have said privately, that foreign companies like Crystallex rarely create as many jobs as promised. For now, Crystallex complains it must sit idly by while its lodes are being picked at by illegal miners the government seems unable or unwilling to stop--workers Crystallex says it would be happy to hire if it could just run the mine. "The way to resolve the misery and desperation [the miners] live in," pleads Guillermo Adrian, Crystallex's Las Cristinas general manager, "is to give them the jobs."

The sooner the better, considering the misery. The miners' slums have become cauldrons of drugs and prostitution in recent years. Sewage trickles through the unpaved streets. Houses are often built of nothing sturdier than flattened gasoline drums, and the surrounding terrain looks moonscaped from the slash-and-burn deforestation. Chavez has begun to organize the miners into some 3,000 government-backed cooperatives, which would be given legal access to any gold-mine reserves the government might take away from idle concessionaires, foreign or Venezuelan. But many miners remain skeptical, especially since the cooperative funds are moving as slowly through Caracas as Crystallex's environmental permits. "We're always living with conflict and manipulation," says Humberto Jose Alonso, 37, an illegal miner for 18 years. "We hear promises from everyone, but we don't see results."

Industry analysts say even Chavez, for all his provocative socialist rhetoric, realizes that the best way to achieve those results is to tap into the capital and technology of the multinationals. Says Luis Rojas, vice president of Venezuela's mining chamber: "He knows foreign investment is the only way Venezuela can boost its production and increase its reserves." While Chavez's September speech may have scared the mother lode out of mining execs, many believe it was meant more to appease the restless miners than to presage the ouster of the foreigners.

The multinationals are counting on it, anyway. Hecla is one firm that seems to have learned how to navigate chavismo. Last year it mined 130,000 oz. of gold in large part by investing $2.2 million in a partnership with about 450 miners, providing them with training, equipment like ventilators and chain saws--and legal status. An additional 140 are being brought in. "If it weren't for [Hecla], we'd still be out there with our picks and shovels getting nowhere," says Mireya Cobarrubia, 42, a mining veteran. Says local Hecla manager Jose Pino: "It isn't a problem as long as things are organized correctly." But as the conflict over Las Cristinas shows, organization in Venezuela's mining industry can be as rare as gold.

With reporting by Tim Padgett/ Miami