Gold Reserve deal with Venezuela a potential turning point for Canadian miners with arbitration wins

Canadian mining companies are putting together an excellent winning streak in international arbitration cases against foreign governments.

But their record of collecting on those awards is much more mixed.

Late a week ago, a tiny firm called Gold Reserve Inc. shocked many onlookers by reaching a potentially favourable settlement with the Venezuelan government, so it has been battling in the court in excess of six years. On the other hand, Khan Resources Inc. and Stans Energy Corp. have won high-profile decisions against Mongolia and Kyrgyzstan and have yet to determine any benefit from their efforts.

Gold Reserve spent a lot of the 1990s and early 2000s developing the Brisas project in Venezuela, while another Canadian firm called Crystallex International Corp. worked on an adjoining gold deposit called Las Cristinas. Each company invested vast sums of dollars in Venezuela before Hugo Chavez’s government expropriated them both in 2008.

Both firms filed international arbitration suits. As well as in September 2014, Gold Reserve won an award worth more than US$740 million. (The Crystallex case is still ongoing.)

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That is a major bill for Venezuela, where the economy is reeling due to weak oil prices and runaway inflation. However, if the government refused to pay for, Gold Reserve may potentially seize sovereign assets located outside the country. A refusal could also have a negative effect on Venezuela’s credit reputation.

Venezuela decided to settle. The federal government said hello formed some pot venture with Gold Reserve to develop both Brisas and Las Cristinas projects. Gold Reserve said Venezuela also agreed to pay an arbitration award, although it did not specify the amount.



“We’re not commenting on the dollars,” leader Doug Belanger said, though he added that Venezuela “recognizes the award.”

At this time, the two sides have only signed a memorandum of understanding. If the settlement agreement doesn’t happen, Belanger said Gold Reserve would continue to try to claim its full arbitration award.

Meanwhile, Toronto-based Khan has failed in the efforts to get Mongolia to pay up or settle. The organization won a US$100 million award early this past year following the state seized its Dornod uranium project.

“It’s been a year now,” Khan chief executive Grant Edey said. “We’ve asked them to pay and they’re reticent. They don’t respect Canadian companies or even the rule of law.”

Mongolian officials will be in Toronto next week, trying to solicit purchase of the nation’s mining sector in the Prospectors and Developers Association of Canada (PDAC) conference. It will likely be a difficult sell so long as the state will not pay out Khan.

Edey will be ending up in the Mongolians ahead of the conference and hopes the 2 sides can finally reach funds. Until then, Mongolia is attempting to annul the arbitration award having a legal challenge in France.

In the situation of Stans Energy, the organization won a US$118 million award against Kyrgyzstan in 2014 that got annulled by Moscow courts the following year. Regardless, the organization is trying to get the award recognized by the Ontario Court of Justice.

Legal experts asserted when countries have no choice but to spend arbitration awards, they usually do agree to pay or settle. Argentina, for example, recently settled arbitration cases and ended a long-running dispute with creditors.

On the other hand, Russia indicates no willingness to pay for a US$50 billion award to the former shareholders of Moscow-based Yukos Oil Company, a business that during the past decade was allegedly bankrupted by the state and then had its assets nationalized.

“Most cases find yourself seeing some form of settlement after the day, since these awards are enforceable and also have some type of bite,” said Robert Wisner, co-head of the international arbitration practice at McMillan LLP.

pkoven@nationalpost.com

Twitter.com/peterkoven