The gold industry is reserved to the State

On September 16, 2011, the Decree with the level, value and force of Organic Law that Reserves Exploration and Production Activities of Gold, as well as its Ancillary and Auxiliary Activities (the “Gold Nationalization Law”), was published in  the Official Gazette. 

This law adopts, to a certain extent and as respects the gold mining sector, the scheme of migration (conversion) to “mixed companies previously adopted by the Venezuelan State in the context of the oil sector.  

This law entered into force and effect on September 16, 2011, except with regard to the new royalty created therein, which will be in force and effect upon 60 days from its publication in the Official Gazette (to wit, on November 15, 2011).

The Gold Nationalization Law includes several aspects: (a) the primary regulation of the regime of mines and reservoirs of gold (which are regulated in a subsidiary manner by the Mining Law and its Regulations); (b) the reserve to the State of the primary, ancillary and accessory activities in connection with the mining of gold; and (c) the regulation on the creation and operation of the mixed companies allowed to perform those activities.

Reserve to the State

The following activities (jointly, the “Reserved Activities”) are reserved to the State: (a) the so-called “primary activities”, which are understood to be the exploration and production of mines and reservoirs of gold; and (b) the so-called “ancillary and auxiliary activities”, which are understood to be the storage, holding, processing, transportation, moving and domestic and international commercialization of gold to the extent that the same assist in the performance of primary activities.

The reservoirs of gold belong to the Republic and are goods of public domain and part of the territorial sovereignty of the State. Therefore, such reservoirs are non-transferrable and not  subject to a statute of limitations and have no commercial nature. The goods and works associated to the Reserved Activities are declared of public utility and social interest.

Persons legally able to perform the reserved activities

The Reserved Activities can only be performed by: (a)the Republic, whether directly or through its public institutions, companies wholly owned by it or affiliates thereof; or (b) mixed companies, in respect of which the Republic or any of the companies previously indicated have control over its corporate decisions and hold an equity participation greater than 55% of the capital. 

In the case of mixed companies that intend to perform primary activities, their creation as a legal entity and the determination of the conditions that will govern the performance of those activities by them, must be approved through an accord of the National Assembly.

Individuals and legal entities that partner with the Republic or the companies previously indicated, for the formation of mixed companies that intend to perform primary activities, cannot assign, transfer or convey their shares, without the prior authorization from the Ministry competent on mining matters, which currently is the Ministry of the People’s Power for Basic Industries and Mining (“MIBAM”). In that scenario, the State has a preferential right to acquire those shares.

The National Executive, by means of a Decree, is empowered to transfer to the companies previously mentioned the right to perform all or part of the Reserved Activities and to also transfer them ownership or other rights  over the goods of private domain of the Republic that may be required for the efficient exercise of the same. The National Executive has the power not to grant those rights as well as to revoke them, in the fulfillment of its sovereign powers, whenever the same is convenient to national interest or the companies previously mentioned violate their obligations.

The companies intending to perform primary activities are allowed to perform all acts that may be required to perform the activities transferred to them by the National Executive and to enter into special services contracts.

Royalties and special advantages

The State has the right to a percentage of the quantities of gold extracted from any mine or reservoir, as royalty, equal to 13%. In the case of mixed companies related to mining projects of a social interest, involving the participation of indigenous communities, small-scale miners and artisanal miners grouped in the form of cooperatives or community social production enterprises, such royalty can be reduced down to 3%. The royalty may be demanded by the National Executive in kind or in cash, in whole or in part. As a separate matter, MIBAM is allowed to establish further royalties as special advantages.

The assessment, payment and collection of the royalty and the special advantages set forth in this law are performed by a newly-created State entity, the Office of the Superintendent of Assessment of Gold, a non-concentrated service that is part of the Ministry of the People’ s Power on Planning and Finance.

Regime applicable to the commercialization of gold

All gold produced as a result of any mining activity is subject to mandatory sale and delivery to the Republic, through MIBAM or the entity or entities designated by the latter. The Republic or the State entities designated therefor exercise a monopoly over the commercialisation of gold. The commercialisation of jewelry for personal use is exempt from the preceding commercialization restrictions and, generally, from the provisions of the Gold Nationalization Law.

Migration (conversion) to mixed companies, of concessions, of authorizations for the exercise of small-scale mining, and of contracts for the exploration and production of gold

The projects and investments on mining matters that currently adopt the scheme of concessions, of authorizations for the exercise of small-scale mining, and of contracts for the exploration and production of gold, granted prior to the Gold Nationalization Law (jointly, the “Prior Mining Titles”) must migrate and change to a scheme of mixed companies.

For that purpose, the titleholders of the Prior Mining Titles must negotiate the creation of the respective mixed companies with a commission designated to that effect by MIBAM, within 90 days from the date of publication of this law in the Official Gazette (to wit, no later than December 15, 2011). 

As part of those negotiations, it is implied  that the titleholders of the Prior Mining Titles must accept “by agreement of the parties” to the expiration of such Prior Mining Titles. The Prior Mining Titles, which have not expired “by agreement of the parties” upon the lapse of the referenced 90-day period automatically expire, by operation of this law.

The goods associated to Prior Mining Titles that have expired in accordance with the foregoing, are transferred to the Republic, free of all encumbrances and liens. Non-amortized investments made by the titleholders of concessions or of contracts for the exploration and production of gold, over the goods the ownership of which is transferred to the Republic, because of their expiration, are indemnified according to book value, provided that those investments have been duly notified to the competent agency or entity in the context of the production plan of the concession or of the contracts for the exploration and production of gold.

As a result of this forced migration, the titleholders of the Prior Mining Titles may negotiate the creation of the referenced mixed companies with percentages that may be mutually acceptable, subject to the 55 percent-minimum-percentage requirement previously mentioned. Having said that, it is not clear from the law itself whether or not the titleholders of the Prior Mining Titles that do not wish to migrate, will be allowed to negotiate the total transfer of their assets or of their companies for an agreed price or other form of consideration. 

In any event, titleholders of Prior Mining Titles that decide not to migrate and which are not able to negotiate the total transfer of their assets or of their companies for an agreed price or other form of consideration, should have the right to be indemnified through an expropriation procedure.

Governing law and jurisdiction

All facts and activities subject to the Gold Nationalization Law are governed by Venezuelan law and all disputes arising therefrom are subject, in an exclusive and excluding manner, to the jurisdiction of Venezuelan courts.

Penalties  

The following actions are penalized with a fine of 400 tax units to 1,000 tax units: (a) the failure to register as owner or holder of certain goods in the registries established by MIBAM;(b) the failure to cooperate with the assessments ordered by MIBAM; and (c)the filing with MIBAM of false, untimely or inaccurate information. 

Individuals and owners and directors of legal entities, which, directly or through an intermediary, perform Reserved Activities in violation of the Gold Nationalization Law, are penalized with imprisonment of six months to six years.

Transient provisions

Environmental permits granted to mining projects, which are at a development  stage, continue to be in force and effect and are deemed to be transferred to the companies to which the continuity of performance of those projects has been assigned.

Workers that perform services to the titleholders of the Prior Mining Titles and which migrate to mixed companies, continue to perform labour services for the latter.

Until MIBAM issues the corresponding resolution, any person performing ancillary and auxiliary activities,except for domestic and international commercialization of gold, are permitted to continue performing those activities.  

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