Despite Trading Ban, Venezuela Wants to Develop Diamond Mines

Venezuela President Hugo Chavez is in a bid to get a loan to finance the country’s diamond and gold mining sector. Chavez said the loan will be partially paid with the mines output. In June 2008, Venezuela has suspended itself from the Kimberley Process, two years after it started nationalizing mines.

“We are on the verge of acquiring a credit with several institutions and countries to invest in the exploitation of gold, diamonds and precious metals. And we will pay a part of this credit with that production," Chavez was quoted by Reuters. He did not state how large a loan the state is seeking.

Mass rough diamond smuggling out of Venezuela and into neighboring Brazil and Guyana made their way to Panama according to NGOs monitoring the region, leading to demands that the country be suspended from the KP certification system until it stops the smuggling. The pressure led the country to self-impose a suspension from the scheme.

With hardly any diamond industry besides mining diamond mining, it is not clear what the country will do with the goods it will produce if it can not export them.

In 2006, Chavez proposed that the country take control of “non-productive" gold and diamond fields. He passed a law that tightens the government's hold on natural resources, including areas awaiting permits. “We want to reassert our sovereignty over these areas, which were kidnapped years ago,” Heavy Industries and Mining Minister Victor Alvarez, said at the time.

Under the law, the country could take a majority stake in all mining joint ventures formed to explore non-operating fields.

A few months later, Russian officials and business executives were in Caracas to discuss diamonds and gold mining.

Chavez is clearly interested in gaining control of the mines as well as develop them, even if that requires muscling out mining companies. Such was the case with De Beers in late 2003, when its diamond concessions were revoked. Chavez defended the action, saying the revocation of diamond concessions was “absolutely legal.”