Funeral bells may have sounded for two of Latin America's top gold projects after mineral-rich Venezuela warned it will not issue permits in a forest reserve, part of a slow campaign grinding away at private miners.

Left-wing President Hugo Chavez is on a nationalizing spree that has swallowed energy, steel and cement companies. For months he has toyed with the idea of taking a chunk of miners without ever fully revealing his intentions for the sector.

But in April the environment ministry ruled that no new gold mines would be allowed in a reserve that houses the country's main projects, owned by Canada's Crystallex and Gold Reserve, the strongest steps yet taken against miners.

Citing environmental concerns in the ecologically rich but degraded Imataca Forest Reserve, Minister Yuviri Ortega later said open-pit mining would be banned and all concessions were under review, prompting speculation the government is preparing to take over companies.

It was the latest volley in a steady campaign to limit the activity of foreign investors, which has already made the Caribbean nation an unnerving place to do business and hammered foreign investment.

Ortega's comments were a shock to the two companies, which have both invested hundreds of millions of dollars in their projects and had waited for months for final permits to start pulling gold from the ground.

If the decision to ban new pits in Imataca sticks, it will put an end to the projects.

That would be a major blow to the miners, especially to Crystallex, which does not own major reserves other than the 14 million proven and probable ounces in its Las Cristinas project in the park.

Crystallex stock has lost about half its value this month.

The 9.4 million-acre (3.8 million-hectare) forest reserve, home to several indigenous groups, has been extensively mined by loosely regulated, small prospectors but big companies have yet to delve into its vast deposits of low-grade ore.

Venezuela has mining potential, with sizable deposits of diamonds, gold, bauxite, iron and coal, but vast oil reserves mean digging other minerals from the ground is not a priority for one of the world's leading crude exporters.

In January, Venezuela annulled several nickel concessions belonging to Anglo American Plc, accusing the British company of contract violations.

Latin America as a whole is the world's favorite destination for mining investment but Venezuela is not alone in its mistrust of foreign miners. Ecuador this year suspended all exploration while it draws up a new mining law.


Just days after the environmental rulings, a group of workers paralyzed operations at Hecla's Isidora gold mine, Venezuela's largest, demanding it be nationalized.

Combined with a visit by the mining minister in April to the Russian-owned Rusoro gold mine nearby, the stoppage has revived attention in long-dormant mining law reform.

Chavez is still silent about whether he will use decree powers and pass a law to overhaul industry rules, which could contain changes to turn mining companies into joint ventures majority-owned by the state. He has used that model in the oil industry.

The companies themselves say they are in the dark about what comes next.

Gold Reserve said it would not speculate on the government's plans. Hecla said it had not decided what it would do in the case of a takeover of Isidora, which is past its prime.

We expect to continue to make decisions based on what is best for our shareholders and employees, whatever that arrangement ends up being, said investor relations vice-president Vicki Veltkamp.

Crystallex and Gold Reserve launched appeals against the environmental rulings and have said they will fight to stay in the country. A newspaper report this week said the government would not allow mining in Imataca but would permit open pits in other parts of the largely unpopulated Bolivar state.

Crystallex said on Friday it had lost the first step of the appeal process and will now take its fight to the minister.

The Canadian embassy in Caracas said it respects Venezuela's right to manage its resources as it sees fit but added it was concerned by the environment minister's comments.

Any government intervention affecting the mining sector should be consistent with the principles of transparency, fairness and respect for the rule of law, an embassy representative said. (Editing by Matthew Lewis)

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