Gold Reserve Suit Claims Rusoro Violated Citgo-Bid Agreement

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(Bloomberg) — Gold Reserve Ltd. sued rival Rusoro Mining Ltd. for allegedly violating an agreement to join a bid to acquire the controlling shares of Citgo Petroleum Corp. as a part of a US court auction of the Venezuela-owned oil refiner to satisfy debts owed by the government.

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Vancouver-based Rusoro “breached its contractual obligations” to other members of a consortium vying to buy the shares of Citgo’s US parent company, PDV Holdings, according to a lawsuit filed under seal Friday in Delaware Chancery Court. Rusoro didn’t respond to a request for comment Monday.

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The rival gold producers are among the companies seeking compensation for assets seized by the Venezuela two decades ago, which sparked a legal fight over US refiner Citgo, the South American country’s biggest foreign asset. A federal judge in Delaware has been overseeing an auction of Citgo’s parent company, PDV Holdings.

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The main contenders for PDV Holdings are Amber Energy Inc., an affiliate of Elliott Investment Management, and a consortium that includes Gold Reserve. In August, a court-appointed special master recommended Amber’s $5.9 billion bid over Gold Reserve’s $7.9 billion offer. The judge hasn’t made a final decision. 

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In their lawsuit, Gold Reserve’s lawyers asked a Chancery judge to block Rusoro from “participating in the sale process” taking place before a federal judge in Delaware, Leonard Stark, while the state court case plays out, the Spokane, Washington-based mining company said in a statement.

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In a letter Monday to Stark, who will decide on the winning bid, a lawyer for Amber said Gold Reserve’s decision to sue in state court amounted to an “untimely and desperate effort” to interfere with the auction taking place in federal court.

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Separately, a Rusoro lawyer told Stark in a separate letter on Monday that Gold Reserve’s breach-of-contract claims doesn’t need to remain sealed.

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Auction

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The more than two-year auction process has been slowed by objections to the amounts bid for control of Citgo, the US’s seventh-largest refiner. Besides operating refineries in the US, Citgo also owns pipelines, terminals and fuel-distribution channels.

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Lawyers for Venezuela argue the bids for Citgo’s parent are far below the refiner’s value and have criticized the auction process. Meanwhile, creditors and bidders say the country has inflated its valuations of the company, which is being auctioned off to satisfy more than $20 billion in claims against Venezuela. 

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The South American country moved more than 20 years ago to nationalize foreign businesses. Crystallex International Corp., a defunct Canadian miner whose rights to the Las Cristinas gold field were seized by former President Hugo Chávez, is first in line for a slice of the auction’s proceeds. 

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Chávez, first elected in the late 1990s, nationalized major industries as part of a socialist agenda during his 14-year reign. Chávez died in 2013 and was succeeded by Nicolás Maduro. Affected companies secured international arbitration awards over the seizures and filed them in Delaware in hopes of winning restitution.

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Venezuela is represented in US courts by the country’s political opposition because Maduro isn’t recognized as its legitimate leader under US law. Both Maduro and his opponents have opposed auctioning control of Citgo and have considered filing for bankruptcy protection to halt the sale.

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Other companies seeking to collect from the sale include Siemens AG, ConocoPhillips and Exxon Mobil Corp. 

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The case is Crystallex International Corp. v. Bolivarian Republic of Venezuela, 17-mc-00151, US District Court, District of Delaware (Wilmington).

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