Industry Trend Analysis - Domestic Instability To Offset Previous Efforts To Develop Mining Industry - JUNE 2017

BMI View: Venezuela ' s mining industry will remain insignificant in size, relative to regional peers, due to escalating political turmoil amid a severe economic downturn. Desp ite substantial mineral reserves and previous government efforts to develop the mining industry, Venezuela's mineral output will continue to decline over the coming years.

Venezuela's mining industry outlook will remain bleak, failing to return to growth over the next 5 years despite improving gold prices. As the country moves closer towards a default and potential regime change, none of the likely scenarios would improve the mining industry, as lingering regulatory uncertainty and economic crisis would prevent foreign investment interest for the foreseeable future ( see ' At The Breaking Point: Scenarios For Change ' , February 16). In early 2016, the government created a new state mining company, Compania Anonima Militar de Industrias Mineras, Petroliferas y de Gas (Camimpeg), and announced plans to develop the gold and diamond sectors, although we maintain these to be only symbolic moves. The country hosts essentially no foreign companies in the sector due to a generally hostile climate for FDI after nationalising all mines over 2009-2012, underpinned by a deteriorating macroeconomic environment. For instance, in 2016, Venezuela and US junior miner Gold Reserve reached an agreement over a disputed gold concession to create a joint-venture, however Venezuela now cannot pay the company the settlement of USD713mn and the parties continue to pursue legal action against one another.

Existing Operations To Be Hurt By Relatively Weaker Price Outlook

High Risk Environment Key Downside To Outlook
Select Mining Risk/Reward Indicators
Scores out of 100, higher score = more attractive market. Source: BMI Mining Risk/Reward Index

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