TORONTO (miningweekly.com) – Mining companies are starting to see Venezuela as an increasingly attractive proposition for future investment Norton Rose Fulbright partner Jorge Neher told delegates at a Latin America roundtable on March 4.

Neher practises both in Colombia and Venezuela, specialising in mining, electricity, energy and resources.

They have been spurred on as President Nicolas Maduro’s Chavist regime starts to teeter. “Over the past month, we’ve had riots in the country and people are extremely dissatisfied with the standards of living. There are shortages of everything,” Neher said.

However, it is impossible to predict when the government will finally fall. “We have a situation where the government controls all the institutions, including the military, so it’s very difficult for an opposition to form and develop the means to change things,” he explained.

At face value alone, Venezuela appears competitive for a prospective investor, both in regulatory and taxation matters. “But none of those regulations are applied by the government or enforced by the courts,” he said.

The currency regime is also detrimental, with the government requiring foreign investors and companies to use an official exchange rate. “This is set 10 to 12 times lower than the going black market rate, making it very expensive for an investor. [Similarly], when exporting, currency made on any material sold must be exchanged at the official rate as well, lowering revenue levels.” 

“The recently released Fraser Institute report ranks Venezuela 111 out of 112 jurisdictions analysed under the PPI, the public policy index,” he added.

But before the Chavez government took control, Venezuela’s mining endowment was robust, which underlines the scale of its dormant mineral wealth, Neher stressed.

“Venezuela used to be one of the largest coal producers in Latin America and one of the largest iron-ore producers in the world. It was an important nickel and bauxite producer too,” he said. “Now all of those industries have declined in productivity and in production volume significantly.”

Geologically, Venezuela remains highly prospective. For example, it comprises a major part of the Guiana Shield, while Zulia State contains the same formation as Colombia’s Cerrejón coal basin, he added.

Neher reports growing client and company interest in Venezuela. “They sense something is happening and they want to be the first to have a foot in the door when things change. And when things do finally change in Venezuela, the country [has the potential] to be a leading nation in both the mining and oil and gas sectors,” he said.

“Canadian companies have always been the spearhead of resource investment around the world, so I expect Canadian investors will be at the forefront into Venezuela when the time comes,” he added.

“So while I don’t know when, I do know it will be huge,” he continued. “The need for capital inflows will be so great that Venezuela will have to put in place extremely attractive terms for foreign investment, piquing the interest of investors, especially those in Canada.”