Jonathan Wheatley | The Financial Times

Venezuela has stopped making payments on more than $1bn it owes to a Canadian mining company, highlighting the country’s extreme difficulties in paying off its overseas debt.

Gold Reserve sued Venezuela under the World Bank’s dispute settlement system more than eight years ago over the expropriation of its gold mining operations. The company finally agreed to a $1.03bn settlement in September 2016, mostly to be paid in monthly instalments that began last July.

But fourth-quarter financial statements published by Gold Reserve at the end of last week show that the payments ended in November.

It follows an apparent cessation of payments to holders of Venezuela’s sovereign bonds in September last year.

Venezuela’s dispute with Gold Reserve is one of several involving foreign mining companies that invested in the country as the government sought to exploit what are thought to be some of the world’s largest deposits of gold and other metals.

But gold mining has become chaotic as foreign companies have been forced out and illegal miners have taken over, often overseen by the army.

“It’s completely haphazard, no companies are doing it, only wildcatters,” said Russ Dallen of Caracas Capital, an investment bank, who revealed the cessation of payments to Gold Reserve in a note to his clients.

Mr Dallen said gold from unregulated mining channelled to the central bank by the army had contributed about $100m to Venezuela’s foreign reserves in February.

Caracas turned to gold mining as a source of income after oil revenues plummeted. Oil production fell after the industry was nationalised and foreign assets were seized by then president Hugo Chávez. Those seizures led to a string of acrimonious disputes with international oil companies.

But gold production, too, has fallen, from an average of nearly 11 tonnes a year in the five years to 2009, to just over 500kg a year since 2015, according to Bloomberg data from the World Bureau of Metal Statistics.

Central bank data show that Venezuela’s stock of gold fell from more than $21bn in 2011 to just over $6bn in January. The central bank has sold the equivalent of 15 per cent of its reserves since October, according to the IMF.

The cessation of payments to Gold Reserve mirrors a struggle by Crystallex, another Canadian gold miner, to receive payment ordered by the World Bank over the expropriation of its Venezuelan mining assets, adjacent to those of Gold Reserve.

The World Bank awarded $1.4bn to Crystallex, which agreed to settle for an undisclosed amount last November. But it, too, has struggled to enforce the settlement. However last month it secured its first payment after reaching an agreement with another of Venezuela’s foreign creditors.

Bron; Financial Times