China to help Venezuela develop one of world’s largest gold mines

China and Venezuela have signed an agreement to jointly develop Las Cristinas gold mine, one of the world’s largest deposits of the shiny yellow metal, located near a town bearing the name of the mythical golden city of El Dorado.

The agreement, signed Friday by officials of the Venezuelan government and the state-run China International Trust & Investment Corp., or Citic Group, includes the engineering, construction and processing of both gold and copper. It also involves the production of a map with Venezuela’s mineral deposits.

Located in the southeastern state of Bolivar, Las Cristinas has reserves of more than 16 million ounces, equivalent to 500 tons. Although massive, Las Cristinas doesn’t have high grade gold, with previous owner Crystallex putting the average grade at 1.13 grams per ton.

According to the Latin American Herald Tribune, the CITIC Group currently is fulfilling its contract to build 33,000 homes in Venezuela and has completed 24,000 thus far, including industrial condominiums in the vast Orinoco Oil Belt.

Relations between the nations have recently grown tight, with Beijing becoming Venezuela’s biggest creditor. China has offered the Chavez government more than $36 billion in loans, which are being paid off largely with increasing oil shipments.

In fact, both countries have signed refinery construction deals and contracts for the sale of 640,000 barrels of Venezuelan crude per day to the Asian nation.

President Hugo Chavez nationalized the gold industry last year with a decree that allows the state to collect a 13% royalty on gold mining, but smaller operations would only be subject to a 3% tax. Military zones were also established to crack down on illegal mining operations.

Gold companies wanting to do business in Venezuela were force to become minority partners with the government.

The new law also eliminated the option for companies to avail themselves of international arbitration; should disputes occur, they will be solved in Venezuelan courts.

Russian-Canadian miner Rusoro Mining Ltd. (TSXV:RML), which was until recently  the only private gold miner left in Venezuela, has been severely affected by the measure.

Last July, the company asked an arm of the World Bank to intercede in a legal dispute with Venezuela after the country took over the junior’s investments without compensation.

Canadian Crystallex International (TSX, AMEX: KRY) and US-based Gold Reserve (TSX-V, Amex: GRZ), respectively, are also seeking compensation after Venezuela withdrew the companies’ rights to their properties.

Venezuela produces 11 metric tonnes of gold each year, compared to global production of more than 2,400 tonnes and China’s production of more than 300 tonnes.

According to The Washington Post, about $6.5 billion in non-gold international reserves, such as bank deposits and bonds, are also being “spread out” to diversify Venezuela’s assets.