Venezuela is rich in mineral resources, especially oil and gas. Other minerals such as iron, aluminum, nickel, and gold also hold significant development potential, attracting considerable attention from international mining investors. However, in recent years, the country’s volatile government policies—particularly the nationalization of enterprises and substantial increases in related taxes and fees—have had a substantial negative impact on its mining investment environment.

I. Basic Information

Venezuela’s full name is the Bolivarian Republic of Venezuela. It is located in the northern part of the South American continent. To the east, it borders Guyana; to the south, it shares a border with Brazil; to the west, it adjoins Colombia; and to the north, it faces the Caribbean Sea. Its area is 916,700 square kilometers. Venezuela asserts sovereignty over the Essequibo region, which currently falls under Guyanese administration and covers approximately 159,000 square kilometers. The country’s coastline stretches for 2,813 kilometers. The nation is divided into 21 states, 2 frontier regions (the Amazon and the Amacuro Delta Frontier Region), 1 capital district, and 1 federal territory consisting of 72 islands. With the exception of mountainous areas, most of the country has a tropical savanna climate. Temperatures vary depending on altitude: mountainous regions enjoy mild temperatures, while the lowlands are hot. The rainy season lasts from June to November each year, while the dry season runs from December to May.

In 2005, the population was approximately 26.56 million. Mestizos accounted for 58%, whites for 29%, blacks for 11%, and indigenous peoples for 2%. The official language is Spanish, and 98% of the population professes Catholicism, while 1.5% adhere to Christianity.

Venezuela is one of the more economically developed countries in Latin America. The petroleum industry is the lifeblood of its national economy. Rapid progress has been made in industrial sectors such as metallurgy, mining, power generation, manufacturing, construction, petrochemicals, and textiles. Agricultural development, however, has been slow, and the country cannot meet its own food needs. From 1998 to 1999, affected by international oil price fluctuations, Venezuela’s economic situation was severe. After Chávez took office (first elected in December 1998), he advocated an economic model that combines state control with market regulation, vigorously promoted the development of national industries as well as state-owned and collectively-owned enterprises, implemented a comprehensive plan for the development of agriculture, industry, and tourism, encouraged production, stimulated domestic demand, and adjusted income distribution, enabling the economy to achieve recovery and growth. From 2002 to the first half of 2004, due to political instability and a deteriorating international and regional economic environment—particularly a nationwide general strike called by the Venezuelan opposition—the country’s economy experienced a serious downturn. Following a national referendum in August 2004, Venezuela’s political situation stabilized. Coupled with a sharp rise in oil prices, the economy quickly recovered and maintained a strong growth momentum, though it continues to face pressures such as inflation. In 2006, Venezuela’s GDP reached 173.354 billion U.S. dollars, an increase of 10.3% over the previous year, with a per capita GDP of 6,667 U.S. dollars. The currency is called the Bolívar (1 U.S. dollar = 2,150 Bolívares).

II. Geology and Mineral Resources

Venezuela’s geological structure can be broadly divided into four major geological regions: the Andean Fold Belt, the Guiana Shield, the Zulia (also known as the Maracaibo Basin)-Falcón Basin, and the Central Basin. The Guiana Shield covers an area of 400,000 square kilometers, accounting for 45% of the country’s total land area. It has long remained relatively stable. During the late Mesozoic era, the Mérida and Perija Mountains—the extensions of the Andean Fold Belt—experienced folding, followed by folding of the Caribbean Coast Range in the Miocene epoch. These folded mountain ranges and the Guiana Shield divide Venezuela into two major basins: the Zulia-Falcón Basin, situated between the Perija and Mérida Mountains, and the Central Basin, located between the Mérida-Caribbean Coast Range and the Guiana Shield.

Venezuela’s favorable geological conditions have given rise to abundant mineral resources, particularly oil and gas reserves, which rank prominently worldwide. The country also boasts relatively rich deposits of iron ore, bauxite, nickel, gold, diamonds, and coal. In addition, Venezuela is endowed with a variety of other mineral resources, including copper, lead, zinc, vanadium, titanium, phosphorus, gypsum, feldspar, barite, asbestos, as well as numerous types of clays and rare-earth minerals.

1. Oil and natural gas

In 2006, Venezuela’s remaining recoverable oil reserves totaled 10.96 billion tons, accounting for 6.1% of the world’s total remaining recoverable reserves, placing it seventh globally and first in the Latin American region. Venezuela’s oil resources are primarily concentrated in the Orinoco Heavy Oil Belt located in the Maracaibo Basin and the Central Basin, as well as on the continental shelves off Venezuela’s Pacific and Caribbean coasts.

The Maracaibo Basin oil region is the country's most important hydrocarbon-rich area and one of the world's renowned petroleum-producing regions. The primary source and reservoir rock formations are those of the Tertiary and Cretaceous systems. Currently, the basin contains more than 30 oil and gas fields, including 10 major fields with original recoverable reserves of approximately 6 billion tons. The famous Bolívar Field is located within this basin; its original recoverable oil reserves exceed 4.3 billion tons, and its producing reservoirs consist of Tertiary clastic rocks. Other oil fields are distributed around Lake Maracaibo—for example, the Menegrande Field is situated on the eastern shore, while the Maracaibo-Pospós Field is located in the northwest part of the lake.

The world-famous Orinoco Heavy Oil Belt is located along the southern edge of the Central Basin and lies within the Oligocene formation. The oil belt stretches 700 kilometers in length, with a maximum width of 60 kilometers, covering an area of 23,000 square kilometers. The oil sand layer has a thickness of 60 meters, and estimated reserves amount to trillions of barrels. Using new technologies, the recoverable oil resources are projected to reach 400 billion barrels. In 2006, Venezuela’s natural gas reserves totaled 4,314.94 billion cubic meters, accounting for 2.5% of the global total—placing it ninth worldwide and first in the Latin American region.

2. Coal

Coal reserves are approximately 10 billion tons, with coal primarily concentrated in the Guasarena Basin in Zulia State. Coal deposits are also found in Anzoátegui State, Táchira State, Monagas State, Lara State, and Falcón State. The Guasare coal field has confirmed reserves of about 600 million tons, with total resources amounting to 3.6 billion tons. The coal formed during the Middle Eocene epoch and is characterized by low ash and low sulfur content.

3. Iron ore

In 2006, the iron ore reserves stood at 4 billion tons (with an iron content of 2.4 billion tons), and the reserve base reached 6 billion tons (with an iron content of 3.6 billion tons). The country ranks eighth in the world in terms of iron metal reserves. These reserves are primarily concentrated in the Imataca Iron Ore Belt. The deposits are Mesoproterozoic metamorphic deposits, with hematite and magnetite as the primary iron-bearing minerals. Major deposits include Cerro Bolívar, Cerro San Isidro, and Los Barrancos.

4. Bauxite

In 2006, bauxite reserves totaled 320 million tons, with a reserve base of 350 million tons. Virtually all known resources are concentrated in the northern part of the Guiana Shield, specifically in Bolívar State. The main deposits include Los Pijiguaos, La Cevatana, Upata, and Nuriya. The Los Pijiguaos deposit is located on the weathered surface of Precambrian granitic bedrock, exposed at the surface. The ore bodies have an average thickness of 7.6 meters and formed during the Late Cretaceous to Early Tertiary periods. Reserves here amount to nearly 200 million tons, with prospective resources reaching as much as 5.8 billion tons. The Upata deposit features ore bodies that are sac-like and flat-lying, distributed within clays, sands, and detrital materials, and formed during the Tertiary period. The Nuriya deposit has ore bodies that are flat-lying and sac-like, occurring within the weathered crust’s clays, sands, and detrital materials, exhibiting bean-shaped and dense structures. Proven reserves exceed 24 million tons, with prospective resources estimated at 500 million tons. All these bauxite deposits are of the weathered laterite type, with gibbsite being the primary ore mineral in each. The Al2O3 content in these deposits consistently exceeds 54%.

5. Gold

Gold mineral resources are primarily concentrated in Bolívar State, with the southeastern and eastern regions—bordering Brazil and Guyana—being the most heavily endowed. Alluvial gold deposits are widely distributed in these areas. The main lode-type gold deposits include the El Callao gold mine, the Las Cristinas gold mine, and the Brisas copper-gold mine located within the Imataca Forest Reserve. The El Callao gold deposit is a quartz-vein type gold deposit hosted within a greenstone belt; its host rocks are predominantly silicified basaltic tuffs, metamorphosed to the greenschist facies. The ore reserves exceed 2 million tons, with an average gold grade of 12 grams per ton. The Las Cristinas gold deposit holds reserves of 13 million ounces (approximately 368.6 tons) and is considered one of the largest undeveloped gold deposits in the world today.

6. Other metallic minerals

Other metallic minerals include nickel, vanadium, titanium, copper, lead, and zinc. In the Caribbean Coastal Range, lateritic nickel deposits formed from the weathering of ultramafic rocks have been discovered. Primary and secondary ilmenite-magnetite deposits have been found in anorthosite and anorthositic gabbro rocks in northern Yaracuy State; these deposits contain 39 million tons of titanium with a TiO2 content of 6.55%. The Bailadores polymetallic sulfide deposit in Mérida State is estimated to hold reserves of 3 million tons of ore, containing 11% zinc, 3% lead, and 1.5% copper. Additionally, sedimentary copper deposits associated with terrestrial Triassic strata are found in Cervurco, in the Mérida Mountains.

7. Diamond

Venezuelan diamonds are primarily found in the Guiana Highlands region and are mostly alluvial deposits. In the late 1960s, diamond production began in the Guaniamo area of Bolívar State, from alluvial gravel layers. In 1982, geologists discovered a kimberlite pipe complex in the Cordero district, consisting of more than 20 tabular-shaped kimberlite bodies covering an area of approximately 100 km². These kimberlites are rich in diamonds; fresh rock samples yielded a Rb-Sr age of 710 million years (previous weathered samples had previously yielded ages as high as 1.7 billion years). The mineral assemblage in these diamonds is overwhelmingly dominated by eclogite-type minerals.

8. Phosphate rock

Phosphate rock reserves rank among the highest in South America, with total resources reaching 254 million tons. These reserves are primarily concentrated in the states of Falcón, Táchira, Zulia, and Mérida. The mineralization dates back to the Cretaceous and Miocene epochs, and all deposits are sedimentary phosphate ores. The Cretaceous deposits are found in the states of Mérida, Zulia, and Táchira, comprising two types of phosphorus-bearing formations with total resources amounting to 209 million tons and containing approximately 16% P₂O₅. The Miocene deposits are located in southeastern Falcón Province, forming coastal phosphorus-bearing formations that are concentrated in two major ore bodies: Leticia and Rizardo. The former has reserves of 25 million tons, with a P₂O₅ content of 21.6%, while the latter holds reserves of 20 million tons, boasting a P₂O₅ content of 25.3%.

9. Barite

They are mainly distributed in the western part of Bolívar State and the eastern part of Zulia State. The former are associated with carbonate complexes, while the latter are hydrothermal deposits whose reserves remain unknown.

10. Other non-metallic minerals.

Other non-metallic minerals mainly include asbestos, bentonite, gypsum, feldspar, various types of clay, silica sand, and salt. Asbestos is found in the northern region of Cojedes State and is associated with ultramafic rocks along the Manrique Fault Zone. Bentonite is primarily distributed in the southeastern part of Táchira State and the northern part of Cojedes State; the former is hosted within Cretaceous formations, while the latter’s formation is linked to metamorphic igneous rocks.

III. Current Status of Mineral Resource Development

Mining plays a significant role in Venezuela’s economy. In 2006, the output value of the entire mining sector accounted for approximately 14.5% of the country’s gross domestic product (GDP). Among these, the oil and gas industry was particularly crucial, accounting for 13.8% of the nation’s GDP in 2006—a slight decrease from 15.6% in 2005. In addition to petroleum and natural gas, the main mineral products include bauxite, nickel, iron ore, gold, coal, diamonds, and other non-metallic minerals.

1. Petroleum

Venezuela’s oil production ranks among the top ten worldwide and is second only to Mexico in Latin America. In 2006, Venezuela’s crude oil output was approximately 916.515 million barrels. The state-owned Petróleos de Venezuela, S.A. (PDVSA), which is fully controlled by the government, is the country’s largest crude oil producer, directly controlling 78% of the nation’s total crude oil output. Its oil fields are mainly located in the states of Anzoátegui, Apure, Falcón, Guárico, Monagas, and Zulia. The remaining 22% of production is managed and controlled indirectly by PDVSA. A subsidiary of PDVSA—the Corporación Venezolana del Petróleo (CVP)—manages 32 Operating Service Agreements (OSAs) and 8 risk-sharing/production-sharing contracts with foreign companies, accounting for 14% of the country’s total crude oil output. Starting in the 1990s, Venezuela began opening its upstream oil sector to private investors. To date, Venezuela has signed 32 Operating Service Agreements (OSAs) with 22 foreign oil companies, including several global oil giants such as Chevron, BP, Total, and Repsol-YPF. Under these agreements, foreign companies are responsible for operating the oil fields, while PDVSA pays them fees and enjoys priority access to purchase the produced crude oil at prices below market rates. Additionally, PDVSA has awarded eight blocks under risk-sharing/production-sharing contracts. According to these contracts, if a foreign operator discovers commercially viable oil resources during the exploration phase, PDVSA has the right of first refusal to acquire a 35% stake in the project. Furthermore, CVP manages equity interests in four strategic associations that primarily produce extra-heavy crude oil, whose output accounts for about 8% of the country’s total crude oil production.

The Maracaibo Basin and the Oriental Basin are Venezuela’s two major oil-producing basins. The Maracaibo Basin accounts for roughly half of PDVSA’s total oil production. All of the basin’s oil fields are aging, requiring substantial investment to maintain current production levels. The basin’s key oil fields include Tomoporo, Lagunillas, and Tiajuana. At the end of 2004, Petróleos de Venezuela completed an expansion project at the Tomoporo field, increasing its output from 100,000 barrels per day to 116,000 barrels per day. According to PDVSA, the Tomoporo field holds recoverable oil reserves exceeding 1 billion barrels. Through a series of expansion projects, the company aims to boost the field’s production to 250,000 barrels per day by 2008. Near the Tomoporo field, Petróleos de Venezuela is conducting exploration activities at the Franquera field, which is estimated to hold reserves of 500 million barrels of oil. PDVSA hopes to increase Tiajuana field’s production from its current level of 312,000 barrels per day to 527,000 barrels per day by 2012. To slow down the decline in production from the Maracaibo Basin, PDVSA is implementing measures to reinject natural gas into the reservoirs, thereby boosting reservoir pressure.

2. Natural gas

In 2006, Venezuela’s natural gas production was approximately 28.5 billion cubic meters. Major development areas were the Anaco gas field in Anzoátegui State, eastern Venezuela, and the Barrancas region in Barinas State, western Venezuela. From 1970 to 1998, Venezuela’s natural gas production showed a steady upward trend, reaching a historical peak of 32.3 billion cubic meters in 1998. From 1999 to 2005, natural gas production fluctuated between 25 billion and 30 billion cubic meters, with the lowest level recorded in 2003 at 25.2 billion cubic meters and a subsequent increase to 28.9 billion cubic meters in 2005. Venezuela’s natural gas production accounted for 1% of the world’s total output.
All of Venezuela’s natural gas is consumed domestically. In terms of oil equivalent, natural gas consumption in 2005 reached 26.01 million tons, an increase of 3.2% over 2004, accounting for 1% of the world’s total natural gas consumption.

3. Coal

Venezuela is an important coal-producing country in Latin America, with an annual coal output of around 7 to 8 million tons. In 2006, its coal production reached 7.45 million tons, primarily from the Paso Diablo mine, the Mina Norte mine, and the Cachiri mine, all located in the Guasare Coal Basin in Zulia State. Paso Diablo is Venezuela's largest coal mine, with a current annual production capacity of 8 million tons. The mine is operated by Carbones del Guasare, S.A. (in which Carbozulia S.A. holds a 49% stake, Peabody Energy holds 25.5%, and Anglo American Coal holds 25.5%).

4. Aluminum

Venezuela is a major global producer of bauxite, alumina, and primary aluminum, accounting for 3.4%, 3%, and 1.9% of the world’s total output, respectively. In 2006, its production volumes were 5.928 million tons of bauxite, 1.892 million tons of alumina, and 610,000 tons of primary aluminum. Bauxite is primarily mined at the Los Pijiguaos bauxite mine in Bolívar State. The mine went into operation in 1987 and employs open-pit mining; its capacity reached 6 million tons in 2006. The current operator is C.V.G. Bauxilum C.A., a wholly-owned subsidiary of Corporación Venezolana de Guayana. This company operates an alumina refinery in Ciudad Guayana, in southeastern Venezuela, with an annual production capacity of 1.8 million tons. Corporación Venezolana de Guayana, which holds an 80% stake in Aluminio de Venezuela (the remaining 20% shares are held by a Japanese consortium), is Venezuela’s largest producer of primary aluminum. It operates an aluminum smelter in Ciudad Guayana with an annual production capacity of 430,000 tons.

5. Nickel

Venezuela’s nickel mining industry also holds a significant position in the global market, with annual mine production hovering around 20,000 tons—accounting for roughly 1.3% of the world’s total output. The majority of production comes from the Loma de Níquel mine, located about 80 kilometers southwest of Caracas (spanning the states of Aragua and Miranda). The mine is operated by Loma de Níquel C.A., a company in which Anglo-American holds a 91.4% stake. In 2006, the mine’s nickel production was approximately 16,600 tons—a 20% reduction from the projected output, representing only 75.5% of its full production capacity. In 2007, production continued to decline, reaching 15,700 tons of nickel. The primary reason for this decline was repeated strikes by mine workers, who demanded higher wages but were unsuccessful in securing an agreement with management. In February 2008, mine workers launched another strike, citing eight months of ongoing contract negotiations between labor and management without any breakthrough in reaching an accord. According to a spokesperson for the mine’s union, this strike has resulted in daily losses of nearly US$500,000.

6. Iron

In 2006, Venezuela’s iron ore production totaled approximately 23 million tons, with an iron content of 15.2 million tons. The primary sources of this iron ore were three open-pit mines located in Bolívar State: Cerro San Isidro, Los Barrancos, and Los Pailas. The operators of these mines are C.V.G. Ferrominera Orinoco C.A., a wholly-owned subsidiary of the Venezuelan Guiana Company. In 2006, the combined production capacity of these three mines was 2,500 tons.

7. Gold mine

In 2006, Venezuela’s gold mine production reached 12.4 tons, representing a 24% increase over the previous year. Gold mining activities are concentrated in the El Callao region of Bolívar State, with the main mines including Isladora, La Camorra, Colombia, Union, Choco-10, and Tomi. Among these, the U.S.-based Hecla Mining Company is the largest gold producer; its wholly-owned subsidiary, Minera Hecla Venezolana C.A., operates the Isladora and La Camorra gold mines, which had a combined production capacity of 5 tons in 2006. In May 2008, due to a strike by Venezuelan workers, the Isidora gold mine temporarily suspended production. The strike was aimed at pressuring Venezuelan President Chávez to take over this subsidiary. In June 2008, Hecla Mining Company announced that it had signed an agreement to sell its Venezuelan mining subsidiary for US$25 million.

South Africa’s Gold Fields Ltd. is also one of Venezuela’s leading gold producers. Its subsidiary, Promotora Minera de Venezuela—where Gold Fields holds a 70% stake (with the remaining 30% owned by Ferrominera Orinoco C.A.)—currently operates the Choco-10 gold mine in the El Callao region, with an annual production capacity of 2.5 tons. In 2007, Gold Fields Ltd. announced that it would sell its Venezuelan assets to Canada’s Rusoro Mining Ltd. for US$532 million in cash and stock. The transaction, including debt, had a total value of approximately US$532 million (EUR 372.2 million). Under the deal, Rusoro Mining would acquire the assets by issuing 140 million shares and paying cash; these shares would represent 38% of Rusoro’s outstanding shares. The transaction includes the Choco 10 gold mine located in Bolivar State, Venezuela, which has been in operation since 2006. Ian Cockerill, CEO of Gold Fields, stated that the Choco 10 gold mine requires new investment to fully realize its potential. However, after careful consideration, the company concluded that, under current market conditions, it would be best for another company to undertake this investment.

Rusoro Mining Company stated that it plans to leverage its experience in Venezuela to address certain challenges faced by Gold Fields at the Choco 10 gold mine. Rusoro Mining Company indicated that it will focus on enhancing operational efficiency, reducing costs, and exploring ways to boost production. Gold Reserve Inc., a Canadian gold mining company, is also an active participant in gold mining activities in Venezuela and could soon become one of the country’s leading gold producers. In March 2007, the mine received environmental and construction permits for the Brisas copper-gold project in Venezuela. Once operational, this project will become Venezuela’s largest gold mine. The Venezuelan Ministry of Environment announced that it has approved the environmental and social impact assessment plan for the Brisas copper-gold project and issued the project’s commencement permit. The Brisas copper-gold project boasts mineral reserves totaling 485 million tons, including 10.4 million ounces of gold and 1.3 billion pounds of copper. In 2005, the estimated cost of the mine was $552 million. The project’s mining life is expected to last 18.5 years, with initial production originally scheduled for 2007 but later postponed pending the issuance of the necessary permits. Doug Belanger, President of Gold Reserve Inc., described the issuance of the permit by the environmental authorities as a significant milestone that will enable the project to begin construction immediately.

Canada’s Crystallex International Corporation had long planned to mine gold in the Las Cristinas region in southeastern Venezuela. Since May 2005, the company has been awaiting the latest environmental permit required to enter the Los Cristinas area and begin gold mining operations. According to a 2008 report, Venezuela had already refused to issue an exploration license for the Los Cristinas gold mining project.
 
4. Mining Management

1. Management Agency

The government authority responsible for non-energy mineral resources in Venezuela is the Ministry of Basic Industries and Mining, headed by Minister José KHAN. The ministry comprises three divisions: the Division of Basic Industries, the Division of Mines, and the Division for Investment Promotion. The government authority responsible for oil and natural gas is the Ministry of Energy and Petroleum, headed by Minister Rafael Dario RAMIREZ Carre?o.

2. Legislation and taxation of solid mineral resources

The current Mining Law is Law No. 295, promulgated on September 5, 1999. This law covers all mineral resources except hydrocarbons and certain industrial minerals that have not yet been discovered. The law stipulates that all mineral resources are owned by the state. According to the law, any exploration and development of mineral resources in Venezuela must be conducted under a mining concession issued by the competent government authority. The Mining Law sets forth the following provisions regarding mining concessions: Applicants may apply for concessions covering both exploration and production, with an initial term of 20 years, renewable for another 20 years. The exploration period within the concession may be extended by one year beyond the initial three-year term; however, the maximum area covered by a concession shall not exceed 6,156 hectares. During the exploration phase of the concession, the concession holder must submit to the Ministry of Energy and Mines (which has since been abolished, with the management functions related to solid minerals now assumed by the Ministry of Basic Industries and Mining) feasibility studies addressing environmental, financial, and technical aspects. Upon approval by the Ministry of Energy and Mines, the concession may be leased, sub-contracted, or transferred.

The taxes on solid mineral resources mainly include income tax, surface tax, and production tax.

1) Land tax: There is a three-year tax exemption period, and land tax will be levied starting from the fourth year of the concession. 2) Production tax: The tax rates vary depending on the type of mineral. For gold, silver, and platinum-group metals, the tax rate is 3% of the commercial product value in the Caracas market for their refined metals; for diamonds and gemstones, the tax rate is 4% of the Caracas commercial product value; for other minerals, the tax rate is 3% of the mine’s product value. Due to economic conditions, with approval from the competent authorities, the production tax may be reduced to 1%.

3. Petroleum and Mineral Legislation and Taxation

In November 2001, President Chávez promulgated a new Petroleum Law stipulating that all hydrocarbons are owned by the state. The government may directly engage in hydrocarbon exploration and development activities, or these activities may be carried out by state-owned enterprises, or by joint ventures in which the government holds more than 50 percent of the equity. At the same time, the law raised the petroleum extraction tax from the previous rate of 16.66% to 30%, while reducing the income tax rate from 67.7% to 50%.

In April 2005, the government announced that foreign operators would be required to convert all OSA projects into new joint-venture agreements. Under this new agreement format, operators would pay higher mineral taxes and income taxes compared to the previous agreements, while Venezuela's state-owned oil company would hold a larger equity stake in these joint ventures. As of April 2006, the Venezuelan government had already signed agreements to convert 32 OSA contracts into the new joint-venture structure. In 2006, the formal establishment of these new joint ventures began; in most of these joint ventures, CVP held a 60% equity stake. For example, in August 2006, CVP and BP signed two agreements establishing a joint venture named BoqueronPetroperija to operate the Boqueron oil field (7,500 barrels per day) and the DZO oil field (12,000 barrels per day).

In May 2006, the Venezuelan National Assembly once again approved amendments to certain provisions of the Petroleum Law, deciding to introduce new tax types and increase the rates for petroleum development taxes and fees. The Assembly adopted two new taxes—the petroleum mineral tax and the petroleum export tax—and set a uniform petroleum mineral tax rate of 33.3% of total revenue for Petróleos de Venezuela, S.A. (PDVSA), joint-venture oil companies, and the four heavy-oil development joint ventures in the Orinoco Oil Belt.

In addition, the revised Petroleum Law has changed the name of products from the Orinoco Oil Belt from “natural asphalt” to “ultra-heavy oil.” Ángel Rodríguez, Chairman of the Energy and Mining Committee of the Venezuelan National Assembly, stated that the amendments made to the Petroleum Law will help safeguard Venezuela’s petroleum sovereignty and boost the country’s fiscal revenues.

V. International Assessment of the Mining Investment Environment

Venezuela boasts relatively abundant oil resources, and its mineral resources—including iron ore, bauxite, and gold—also hold significant development potential. However, the country faces considerable uncertainty in terms of relevant regulations and policies. In recent years, domestic nationalist sentiment has surged, prompting the government to introduce a series of policies aimed at nationalizing oil and mining enterprises. These policies include shifting the cooperation model for foreign companies’ oil exploration in Venezuela from contractual arrangements to the establishment of joint ventures. The new joint ventures are controlled by Venezuela’s state-owned oil company, PDVSA, which holds no less than 60% of the shares. Due to their disagreement with the transformation of their oilfield contracts into joint ventures with PDVSA, French company Total and Italian company Eni have already seen their two oilfields in Venezuela taken over by PDVSA. Moreover, the government has substantially increased taxes and fees related to mining activities, further worsening the investment climate for the mining sector. Coupled with underdeveloped infrastructure, limited geological exploration efforts, and numerous political and security challenges, these factors have had a substantial negative impact on Venezuela’s mining investment environment. According to the 2006/2007 Global Mining Company Survey released by Canada’s Fraser Institute, Venezuela’s overall assessment of its mining investment environment is poor. Among the 15 factors surveyed, 14 ranked below 50th place (the higher the ranking, the more favorable the investment environment). Only the mineral potential—excluding considerations of land-use restrictions and policy impacts—ranked 46th. The Policy Potential Index ranked 64th, while the Mineral Potential Index under current regulations and land-use constraints ranked 59th. Among the nine major Latin American countries surveyed, Venezuela ranked eighth in four of the indicators, with all others ranking last (Table 2). Overall, among Latin American countries, Venezuela has the worst evaluation of its mining investment environment.
6. Main Activities of Chinese Mineral Enterprises in the Commission

China and Venezuela established diplomatic relations on June 28, 1974. Currently, the relationship between the two countries is friendly. In recent years, high-level officials from both governments have exchanged visits frequently, and economic and trade exchanges have continued to grow. Venezuela is my fifth-largest trading partner in Latin America. In 2006, bilateral trade volume reached 4.338 billion U.S. dollars, an increase of 102.53% over the previous year. Of this total, my exports amounted to 1.698 billion U.S. dollars, up 87.04%, while my imports totaled 2.64 billion U.S. dollars, up 113.93%. My main export items include machinery and equipment, electrical and electronic products, computers, and communication technologies; my main import items include crude oil, iron ore, emulsified oil, alumina, and steel. In 2006, I imported 4.1 million tons of crude oil from Venezuela, an increase of 117.96% year-on-year, and 3.1145 million tons of fuel oil, up 323.62%.

Venezuela is rich in mineral resources and enjoys strong complementarity with China. Coupled with the friendly relations between the two countries, in recent years several Chinese enterprises have participated in some mineral development projects in Venezuela. Although the current mining investment environment remains challenging, mining cooperation between the two countries has so far proceeded relatively smoothly. Currently, activities are primarily focused on oil and gas exploration and development.

Oil and gas development cooperation between China and Venezuela has received strong support from the governments of both countries. At the end of 2004, Venezuelan President Chávez visited China, during which he announced several plans for energy cooperation. In 2005, Chinese Vice President Zeng Qinghong visited Venezuela, and during that visit, 19 cooperation agreements were signed—including five energy cooperation agreements. These agreements included a plan for China to invest millions of dollars in Venezuela’s oil and gas fields. Among these agreements, China also intends to provide financial and technical support for the development of certain non-oil and gas mineral resources in Venezuela.

The energy cooperation agreement signed between China and Venezuela in 2005 supported several plans announced during Chávez’s visit to China in December 2004, opening up significant opportunities for PetroChina to develop oil and gas resources in Venezuela. Under one of the agreements, the Chinese side intends to establish a joint venture with Venezuela’s state-owned oil company in Venezuela’s Orinoco Oil Belt, where ultra-heavy crude oil will be refined into higher-quality, lighter oil suitable for export. According to another agreement, CNPC will develop more than a dozen oil and gas wells in Zumaño, eastern Venezuela, said Venezuelan Oil Minister Rafael Ramírez. Venezuelan officials estimate that the Zumaño oil and gas field holds oil reserves of 400 million barrels, which could rise to 1 billion barrels if further exploration is conducted.

In fact, CNPC began participating in petroleum investments in Venezuela as early as 1998. That same year, through its subsidiary, CNPC International (Venezuela) Ltd., it secured a 20-year operating license for two oil fields in Venezuela—Calaguales and Interguamo. According to publicly available information on CNPC’s website, during the term of this contract, CNPC’s daily crude oil production exceeded 40,000 barrels by the end of 2000—a threefold increase compared to the level at the time of takeover. In 2001, annual production reached 1.68 million tons; even in 2002, despite social unrest in Venezuela, CNPC still managed to produce 1.22 million tons of crude oil. For these two oil fields, CNPC adopted a “production-enhancement contract” approach for profit-sharing. Specifically, starting from the date of takeover, any additional production achieved each year would be shared between CNPC and the Venezuelan side according to a predetermined ratio. The profit-sharing ratio followed a progressive, sliding scale: the higher the additional production, the smaller the share CNPC would receive. In accordance with new regulations introduced in 2005, which required foreign companies operating in Venezuela to shift from contractual production arrangements to establishing joint ventures, these two oil fields were also required to be converted into joint ventures with Venezuela’s national oil company. In April 2006, CNPC signed an agreement with Venezuela’s national oil company, transitioning the operation of the two Venezuelan oil fields previously under its management from a cooperative production arrangement to the establishment of a joint venture.

In May 2008, PetroChina and Venezuela's state-owned oil company signed an agreement to establish a joint venture that will jointly develop crude oil production in Venezuela's Orinoco Oil Belt, providing feedstock for a new refinery—also planned by both sides in China—that will have a daily output capacity of 400,000 barrels. The massive energy deal between China and Venezuela has a total contract value of up to 2 billion U.S. dollars, equivalent to approximately 14 billion RMB. The two companies will carry out extraction activities in the "Junin4" area of the Orinoco River basin. PetroChina has already confirmed significant oil reserves in this region. Additionally, a new refinery with a daily processing capacity of 400,000 barrels will be built in southern China. A member of the joint venture’s board of directors stated that the newly constructed refinery in southern China will begin operations in 2013, with a daily output capacity of 400,000 barrels. At that time, the joint venture oil company will supply all of the refinery’s crude oil requirements. Members of both companies’ boards emphasized that the new refinery will not use Orimulsion—a high-sulfur, low-quality, asphalt-like fuel oil that Venezuela once sold at very low prices.

In addition to cooperation in oil and gas development, Chinese enterprises are also involved in the development of metallic mineral resources. Shandong Gold Group is one of the earliest Chinese mining companies to enter Venezuela. In May 2002, the company signed an agreement with Venezuela’s state-owned gold mining company, Guayana Group Mining, to undertake the rehabilitation and development project of the Sosa Méndez gold mine through 2011. This project is an underground gold mining operation. Shandong Gold Group invested US$7.93 million, accounting for 60% of the total investment. The Chinese side was granted a concession to construct and operate this gold mine, allowing it to carry out the project as a wholly-owned entity and manage it independently. Upon expiration of the contract, the mine will be transferred to the Venezuelan side free of charge. The Sosa Méndez gold mine is located in Bolívar State, southeastern Venezuela. According to forecasts by the Venezuelan side, the mine’s potential gold reserves amount to 1.3 million tons. The mine is expected to process nearly 300 tons of gold ore per day initially, with processing capacity increasing to 500 tons per day after eight months. By the end of 2006, Venezuela Jin Yan Mining Company, a subsidiary of China’s Shandong Gold Group, had completed preparatory work for the initial phase of mining at the Sosa Méndez gold mine.

In summary, the mining projects currently being undertaken by Chinese enterprises in Venezuela are going relatively smoothly. However, given the current unfavorable investment environment for mining in Venezuela, it is not advisable to launch new projects at this time.

Main reference materials:

1. USGS, Minerals Yearbook, 2000, 2001, 2002, 2003, 2004, 2005, 2006
2. Fraser Institute Annual Survey of Mining Companies, 2006/2007