Gold Reserve Inc., of Spokane, has filed a $1.93 billion arbitration claim against Venezuela with the World Bank's Centre for Settlement of Investment Disputes to seek compensation for the taking of its Brisas and Choco 5 mineral deposits in that South American nation.
Gold Reserve, a Canadian company with offices here, says its claim alleges Venezuela violated the Canada-Venezuela Bilateral Investment Treaty when it seized Gold Reserve's mineral deposits in the fall of 2009. It says Venezuela failed to provide fair and equitable treatment and full protection and security to it; failed to guarantee treatment on no less favorable terms than that given nationals of any other state; and failed to protect against expropriation of investments without due process of law.
Gold Reserve says it's seeking compensation for all of its losses caused by Venezuela's violations of the treaty, including the full value of its investments in the properties and other related damage. It says that as of Sept. 24, it valued its damages at a minimum of $1.928 billion, or the equivalent of $30 a share in Gold Reserve stock.
"It's pretty sad," Gold Reserve President Doug Belanger says. He calls the Brisas "a great project. It would have employed 2,000. It would have put them on the map. It would be the second biggest gold mine in South America. They're trying to develop it, but all of the proprietary information is in our hands, which we are prepared to turn over for proper compensation."
Venezuela or any sovereign nation has the right to expropriate assets within its boundaries, but also has the obligation to provide full and just compensation for them, Belanger says.
Gold Reserve had spent almost $300 million exploring the Brisas property and preparing to construct a $731 million mine there, incurring since 1992 heavy costs for drilling, equipment purchases, engineering, and a host of studies, Belanger says. It expected to produce 457,000 troy ounces of gold and 63 million pounds of copper a year when Venezuela took the property and the Choco 5 deposit in September 2009.
"It's a massive asset," Belanger says of the Brisas.
Gold Reserve filed the arbitration claim in Paris, which is the European headquarters of the World Bank. The World Bank's global headquarters are in Washington, D.C., but Venezuelan leader Hugo Chavez is at odds with the U.S., and the respondent to such a claim can pick the location where it's filed, Belanger says.
The arbitration panel will find whether a violation of the treaty occurred, whether compensation should be awarded, and, if so, how much the compensation should be, Belanger says.
"The judgment can be enforced in any of the 72 nations that are members of the World Bank," Belanger says. If a party loses a case, but doesn't pay the judgment, "there is a collection procedure," and assets can be attached, he says. "There's a business that we've already identified that specializes in that."
He adds that the case is "not an exercise in futility. If this type of case was an exercise in futility, people wouldn't do it. It costs several million dollars, or even $10 million. We were spending 75 percent or even up to 80 percent of our time on this" up until Gold Reserve filed the claim, he says.
Venezuela has until March 7, 2011, to respond to Gold Reserve's claim, and Gold Reserve will have until June 14, 2011, to file its rebuttal to Venezuela's response, Belanger says. Venezuela then would have until Sept. 20, 2011, to file a rejoinder, and an oral argument hearing is scheduled to begin Dec. 5, 2011.
"It's a binding process," Belanger says. "There's no appeal to a higher authority," although the three-judge panel can decide how much is due in damages, if damages are due, rather than merely ruling one side or the other is in the right, as happens in some types of arbitration proceedings, he says.
"Nothing is guaranteed," and Gold Reserve is going to great lengths to prove its case, he says.
One of the judges in the case lives in Paris, while the others live in Italy and New Zealand, Belanger says.
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