CARACAS, Venezuela вЂ” A Canadian gold mining company on Thursday won the right to go after VenezuelaвЂ™s prized U.S.-based oil refineries and collect $1.4 billion it lost in a decade-old take-over by the late socialist President Hugo Chavez.
Chief Judge Leonard P. Stark of the U.S. Federal District Court in Delaware made the ruling in favour of Crystallex, striking a blow to crisis-wracked Venezuela, which stands to lose its most valuable asset outside of the country вЂ” Citgo.
Chavez took over the gold mining firm and many other international companies as part of his Bolivarian revolution thatвЂ™s left the country spiraling into deepening economic and political turmoil.
Venezuelans struggle to afford scarce food and medicine as masses flee across the border. In a sign of rising political tensions, current President Nicolas Maduro threw an opposition lawmaker in jail this week, charged in a failed assassination plot using two drones loaded with explosives.
The latest order by the U.S. judge could set off a scramble by a long list of creditors owed $65 billion from bonds that cash-strapped Venezuela has stopped paying within the last year, said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.
вЂњThis was the most vulnerable low hanging fruit for debtholders to go after,вЂќ Dallen said. вЂњIt looks like Crystallex is the lucky lottery winner because they got there first.вЂќ
Chavez in early 2009 announced VenezuelaвЂ™s take-over of the Canadian mining operations in Bolivar state, a mineral rich region with one of the continentвЂ™s largest gold deposits. He accused mining companies of damaging the environment and violating workersвЂ™ rights.
Crystallex spent years trying to negotiate a deal with Venezuela before making its case in 2011 to a World Bank arbitration panel, which sided with the Canadian firm, despite VenezuelaвЂ™s vigorous fight.
U.S.-based Citgo, part of the state-run oil company PDVSA, has three refineries in Louisiana, Texas and Illinois in addition to a network of pipelines. If the order is carried out, Crystallex wonвЂ™t get all of Citgo вЂ” valued at $8 billion вЂ” but Venezuela could be forced to liquidate it to make good on the court order.
Today, the gold mining region once operated by Crystallex is largely lawless and dangerous, run by rogue miners who blast the earth with water and mercury to expose gold nuggets and sell them to government forces, often leading to deadly conflicts.
The judgeвЂ™s ruling is unique, because government assets, like PDVSA, are normally protected from lawsuits against a sovereign nation. But the judge found that Crystallex can attach CitgoвЂ™s parent because Venezuela has erased the lines between the government and its oil firm, now run by a military general.
Upon issuing the order, the judge delayed enforcing it for a week, which Dallen said could be a move to give Crystallex and Venezuela time to reach an agreement, such as returning to payment terms of an earlier resolution, Dallen said.
вЂњThis gives Venezuela the chance to honour its settlement agreement,вЂќ Dallen said. вЂњOr theyвЂ™ll lose Citgo.вЂќ